Kate McShane

Kate McShane inquired about Lowe's 2026 sales-driving initiatives for the cost-cautious customer, asking if they involve price investment or promotions, and how they compare to 2025 strategies. She also asked about the expected cadence of transaction versus ticket growth throughout 2026.

Answer

Marvin Ellison, Chairman, President, and CEO, clarified there's no major change to price or promotion strategy, focusing on Tier 1 promotional events and offering value. William Boltz, EVP of Merchandising, added that efforts mirror Q4, meeting customers with seasonally relevant, innovative, and exclusive values. Marvin Ellison also noted ongoing investments in Pro Extended Aisle and Home Services. Brandon Sink, EVP and CFO, projected growth weighted towards ticket in H1 2026 due to tariff price increases, with transaction trends expected to improve in H2 as these are cycled.

Kate McShane, a Managing Director at Goldman Sachs, asked about Lowe's sales-driving initiatives for cost-cautious customers in 2026, specifically inquiring about potential price investments, promotions, or a combination, and how this strategy compares to 2025. She also sought clarification on the expected cadence of transaction versus ticket growth throughout 2026.

Answer

Marvin Ellison, Chairman, President, and CEO, clarified there are no major changes to pricing or promotional strategy, with a focus on specific tier-one promotional events and offering value across a range of products. William Boltz, EVP of Merchandising, emphasized meeting customer needs with seasonally relevant, new, and exclusive values. Brandon Sink, EVP and CFO, explained that 2026 growth would be ticket-weighted in the first half due to tariff price increases, with transaction trends improving and normalizing in the second half.

Kate McShane asked for an update on the initial performance of Lowe's marketplace, specifically regarding seller onboarding, product expansion, customer adoption, and the expected timeline for the platform to contribute meaningfully to margin.

Answer

Marvin Ellison, Chairman and CEO, stated that the marketplace launch is early but exceeding expectations in financial performance, seller quantity, and seller quality, with strong adoption of Merkle's technology. He highlighted the unique convenience of in-store returns for marketplace items. Bill Boltz, EVP of Merchandising, added that the marketplace expands existing vendor programs and introduces new products, complementing in-store offerings.

Kate McShane asked about the initial performance of Lowe's marketplace, including seller onboarding, product expansion, customer adoption, and the expected timeline for it to contribute meaningfully to margin.

Answer

Marvin Ellison (Chairman and CEO) stated that while it's early, the marketplace is exceeding expectations in financial performance, seller numbers, and quality (focusing on 4-star+ rated sellers). He highlighted the rapid launch with Merkle's technology and the convenience of in-store returns for marketplace items. Bill Boltz (EVP of Merchandising) added that the marketplace expands existing vendor programs, introduces new products, and complements in-store offerings.

Kate McShane asked how the current user acquisition dislocation would impact the launch of Methodic, especially given planned increased spending for the brand in the first half of the year and its expected effect on EBITDA margins.

Answer

Oran Holtzman, Co-founder and CEO, explained that due to Methodic's relatively smaller scale compared to IL MAKIAGE and SpoiledChild, it can continue to grow and meet its targets for the year without experiencing the same severe negative effects from the user acquisition problem. While the issue does affect Methodic, its lower scale allows for continued progress.

Kate McShane focused on the expense side, asking about expectations for 2026 regarding labor inflation and healthcare costs, and how the company plans to continue managing these line items.

Answer

Bahram Akradi, Founder, Chairman, and CEO, stated that anticipated payroll and supply increases are fully accounted for in the 2026 guidance, emphasizing the commitment to maintaining member experience. Erik Weaver, EVP and CFO, added that labor increases (2.5-3%) are consistent with industry trends, procurement efforts mitigate supply cost increases, and healthcare costs are well-managed through their captive and a generally healthy employee base.

Kate McShane focused on expense management, asking about expectations for 2026 regarding labor inflation and healthcare costs, and how the company plans to continue managing these line items.

Answer

Bahram Akradi, Founder, Chairman, and CEO, confirmed that anticipated payroll and supply increases are fully accounted for in the 2026 guidance, emphasizing the commitment to member experience. Erik Weaver, Executive Vice President and CFO, detailed labor increases of 2.5%-3% and efforts to mitigate supply cost increases through procurement. He also noted effective management of healthcare costs through their captive and a generally healthy employee base.

Kate McShane asked for a breakdown of the 13 clubs currently under construction for 2026, specifically the split between new and existing markets, and what this might imply for marketing spend in 2026. She also inquired about general expense expectations, particularly on the labor side, for 2026 and in newer markets.

Answer

Bahram Akradi, Founder, Chairman, and CEO, explained that new ground-up clubs perform similarly well in both new and established markets due to Life Time's loyal customer base. Regarding expenses, Akradi acknowledged that wage growth is a given due to increasing cost of living and is factored into the company's financial models, with the team diligently working on mitigation strategies. Erik Weaver, Executive Vice President and CFO, added that labor expenses in centers have been trending around CPI (2.5%-3%) and are expected to continue similarly. He also noted that utilities are managed through hedging and rate locks, and other costs like R&M and COGS are subject to regular inflation, but risks are well-managed.

Kate McShane asked for a breakdown of the 2026 club openings between new and existing markets and the potential implications for marketing spend. She also inquired about expense expectations for 2026, specifically regarding labor costs.

Answer

CEO Bahram Akradi clarified that new market openings perform as robustly as established ones, with no significant difference in success, thus no specific marketing spend implications were detailed. Regarding expenses, Akradi acknowledged wage growth as a given due to increasing cost of living, with all such costs modeled into future plans. EVP and CFO Erik Weaver added that labor expenses have been trending around CPI (2.5%-3%) and are expected to continue similarly, with utilities managed through hedging and other costs subject to regular inflation.

Kate McShane questioned Walmart's gross margin outlook for 2026, specifically asking about the expected contribution from business mix and further details on inventory management enhancements, including the role of automation and regional differences.

Answer

CEO John Furner attributed improved inventory management to automation, handheld devices for associates, computer vision, and effective seasonal inventory buys. He noted that supply chain investments are peaking this year and next. CFO John David Rainey added that gross profit is expected to improve due to operational benefits from supply chain enhancements and favorable business mix, with advertising and membership income representing nearly one-third of operating profit in the recent quarter.

Kate McShane inquired about Walmart's gross margin outlook for fiscal year 2026 (FY27), the expected contribution from business mix, and details on inventory management enhancements, including the role of automation and regional differences.

Answer

CEO John Furner explained that inventory management, at half the rate of sales growth, is driven by automation in distribution centers and stores, and associates using handheld devices with computer vision. He also noted improved seasonal inventory buys. CFO John David Rainey added that operational benefits from supply chain improvements, such as fewer fresh throwaways and markdowns, contributed to Q4 gross profit and are expected to continue. He anticipates gross profit improvement and SG&A leverage, with advertising and membership income (representing one-third of Q4 profit) significantly contributing to favorable business mix.

Kate McShane asked about how Walmart has managed higher costs through price increases, the observed elasticity impacts, and the price outlook for Q4 and early 2026, given the 1.3% inflation rate.

Answer

John Furner (President and CEO, Walmart U.S.) explained that the team has effectively managed inventory, which closed up 2.6% (roughly half the sales growth rate), reducing markdown pressure. He noted disciplined end-of-season markdowns and thoughtful management of product mix, particularly prioritizing items for families and kids during cost pressures.

Kate McShane asked about Walmart U.S.'s inflation rate of 1.3%, how higher costs have been managed through pricing, observed elasticity impacts, and the outlook for prices in Q4 and early 2026.

Answer

President and CEO, Walmart U.S., John Furner, confirmed low 1% inflation, consistent across the business. He emphasized disciplined inventory management (up 2.6% vs. sales growth), which reduces markdown pressure, and effective mix management. He noted that categories like fashion saw strong growth, and the team ensures clean exits from seasons. He also mentioned commodity price impacts, specifically in beef and anticipated egg deflation.

Kate McShane of Goldman Sachs Group Inc. asked for commentary on global e-commerce profitability and a quantification of its contribution to operating income growth for the quarter and the year.

Answer

EVP & CFO John David Rainey detailed that Sam's Club e-commerce is profitable, the U.S. is improving, and International is contribution-margin positive. He noted that 50% of incremental profit (excluding claims) came from advertising, membership, and marketplace. Walmart US CEO & President John Furner added that faster delivery is driving U.S. growth. President, CEO & Director Doug Mcmillon reiterated that the digital P&L is expected to become more profitable than the store P&L over time.

Kate McShane asked about the performance of non-discretionary repair, maintenance, and discretionary categories in Q4 2025, and what the expectation is for any deferral make-up in 2026.

Answer

Bert Nappier, Executive Vice President and Chief Financial Officer, clarified that non-discretionary repair was mid-single digits in Q4, maintenance and service also mid-single digits, and discretionary was mid-single digits. Will Stengel, President and CEO, added that these trends should continue to improve into 2026, with customers still seeking value, aligning with a flattish volume market and some price benefit for 2026.

Kate McShane asked about the performance of non-discretionary repair, maintenance, and discretionary categories in Q4, and what the expectations are for 2026 regarding any potential make-up of deferred maintenance from the end of 2025.

Answer

Bert Nappier, EVP and CFO, stated that non-discretionary repair was in the mid-single digits for Q4, showing consistent improvement throughout the year. Maintenance and service categories also performed similarly. Discretionary categories were also in the mid-single digits for Q4. For the full year, non-discretionary repair was mid-single digits, maintenance and service were low to mid-single digits, and discretionary was flat to slightly up. Nappier expects these trends to continue into 2026, with customers still seeking value. He described the overall market for 2026 as a flattish volume market, slightly down, with some price benefit leading to a neutral overall market.

Kate McShane from Goldman Sachs requested more detail on the performance of the European automotive segment by country and asked to what extent initiatives like the NAPA brand expansion are helping to offset broader macroeconomic headwinds in the region.

Answer

President & CEO William Stengel described the performance in Europe as mixed but sequentially improving across most countries in Q2. He emphasized that the NAPA branded product is a "real differentiator" in the market, providing a strong value proposition that is "absolutely helping" to offset the sluggish macroeconomic environment.

Kate McShane of Goldman Sachs Group, Inc. requested more detail on the performance of the European automotive segment by country and asked to what extent the NAPA brand expansion is helping to mitigate broader macroeconomic headwinds in the region.

Answer

President and CEO William Stengel described the performance across Europe as mixed but sequentially improving in most countries through Q2. He confirmed that the NAPA branded product line is a 'real differentiator' and is 'absolutely helping' offset the sluggish market by providing a strong value proposition to customers.

Kate McShane requested more detail on the performance of the European automotive segment by country and asked to what extent initiatives, such as the NAPA brand expansion, are helping to offset broader macroeconomic headwinds in the region.

Answer

President and CEO William Stengel described the performance across Europe as mixed but noted that it had sequentially improved in most countries through the second quarter. He highlighted the NAPA branded product as a 'real differentiator' that provides a strong value proposition for customers, stating that its growing penetration is 'absolutely helping' to offset the sluggish market conditions.

Kate McShane requested more detail on the performance of the European segment by country and asked how much initiatives, such as the NAPA brand expansion, were helping to offset broader macroeconomic headwinds in the region.

Answer

President and CEO William Stengel described the performance in Europe as "mixed" but sequentially improving across most countries through the second quarter. He confirmed that the NAPA branded product is a "real differentiator" that offers a strong value proposition to customers in a sluggish market and is "absolutely helping us offset" the headwinds.

Kate McShane asked for a breakdown of how tariff costs are expected to roll into the first half of 2026 and how the company is managing pricing in response.

Answer

CFO Kurt Barton indicated that the impact of tariffs in H1 2026 is expected to be similar to H2 2025, representing 20-30 basis points of pressure. He noted that this pressure is being offset by cost management initiatives and selective price adjustments, contributing to the average ticket increase.

Kate McShane asked for details on the expected cadence of tariff costs in the first half of 2026 and how Tractor Supply plans to manage pricing in response.

Answer

CFO Kurt Barton stated that the impact of tariffs in H1 2026 is expected to be similar to H2 2025, contributing 20-30 basis points of pressure. He noted that these costs are largely offset by cost management and selective price adjustments, which are key drivers of the average ticket increase and AUR growth.

Kate McShane asked about the outlook for average ticket in Q4, specifically concerning like-for-like price increases, and how much of the narrowed top-line guidance is attributable to changes in expected price flow-through.

Answer

Seth Estep, EVP and Chief Merchandising Officer, explained that Tractor Supply Company is halfway through the initial incremental tariff impact and has managed product costs effectively. He noted that price increases have been surgical, with no significant elasticities observed, and the company's top priority remains advocating value for customers. The Q4 guidance reflects continued navigation of additional tariff costs, with the core Q business remaining stable.

Kate McShane asked about the outlook for average ticket growth in Q4, specifically concerning like-for-like price increases and the impact of tariffs. She also questioned how much of the narrowed top-line guidance was due to changes in expected pricing flow-through.

Answer

Seth Estep (EVP and Chief Merchandising Officer) stated that the team has effectively navigated tariff impacts, with about half of the initial incremental tariff impact already flowed through. He noted that price increases have been surgical and have not yet shown significant elasticities. The priority remains value advocacy, and the Q4 guidance reflects continued management of tariff costs, with a focus on maintaining market share.

Kate McShane asked about the better-than-expected renewal rate softness and what actions Costco took to mitigate the decline from digitally signed-up members.

Answer

Gary Millerchip (CFO, Costco Wholesale Corporation) explained that the slight decline in renewal rates was due to a higher percentage of new online members who historically renew at a slightly lower rate. He noted that targeted communications to expiring members showed early success in improving the renewal rate, offsetting a larger anticipated decline.

Kate McShane inquired about the better-than-expected renewal rate softness and the specific actions Costco took to mitigate the decline stemming from a higher proportion of digitally-signed-up members.

Answer

Gary Millerchip, Chief Financial Officer, confirmed that the slight decline in renewal rates was due to a growing base of younger, digitally-signed-up members who typically renew at a lower rate. He explained that the membership team's early efforts in delivering targeted, relevant communications to these members successfully improved the renewal rate, offsetting a larger anticipated decline.

Kate McShane of Goldman Sachs asked about any notable member response to the recent membership fee increase and whether being a prominent U.S. brand has had any discernible impact on its international business.

Answer

Executive VP & CFO Gary Millerchip stated that it's still early to see the full impact of the fee increase in renewal data, but there has been no material negative signal and very little direct member feedback. On the international front, he acknowledged hearing some member feedback on geopolitical tensions but emphasized that it has not impacted business performance, noting that all international countries posted positive comparable sales growth in the quarter.

Kate McShane of Goldman Sachs asked about the member response to the recent membership fee increase and whether Costco's identity as a U.S. brand has had any impact on its international business.

Answer

CFO Gary Millerchip reported that it is still early to see the full effect of the fee increase on renewals, but member feedback has been minimal, which he attributed to the long period since the last increase. Internationally, he acknowledged hearing some member feedback on geopolitical tensions but stated it has not negatively impacted business, with all international regions posting positive comparable sales growth in the quarter.

Kate McShane asked for quantification of licensing's integration into the assortment, its impact on attracting different customers, and the exclusivity of these products.

Answer

CEO Winnie Park explained that licensing plays a critical role, with a new collaborative approach to bring full assortments across multiple product types, citing 'Wicked' as an example. She highlighted the team's focus on monitoring new releases and trends, orchestrating energy into single statements, but did not quantify the integration or exclusivity.

Kate McShane from Goldman Sachs asked for more detail on the role of licensed products as a sales driver and requested an update on the progress of SKU rationalization, including whether benefits were realized in Q2.

Answer

CEO Winnie Park explained that while licensing is always important, the Q2 strategy involved creating prominent 'licensing statements' like the 'Stitch Surf Shop' that spanned multiple categories. She confirmed that the company is already seeing benefits from SKU rationalization through clearer product assortments and that there is more to come.

Kate McShane of Goldman Sachs Group Inc. questioned whether the business strength was more category-led versus trend-led and asked what sustained the comparable sales momentum into May after the Easter holiday shift.

Answer

CEO Winnie Park responded that the success was driven by both categories and trends. She cited the collectibles trend in toys and specific novelty candy items as trend-driven wins, while also highlighting strong performance in licensed products like Minecraft and Stitch. This combination of factors sustained momentum post-Easter.

Kate McShane posed a higher-level question regarding Petco's view on the pet industry's current digestion phase, potential growth in 2026, and observations on the competitive landscape, especially concerning tariff costs and pricing.

Answer

Joel Anderson, Petco's Chief Executive Officer, noted that the competitive set remained largely unchanged, but consumers have been more cautious due to macro factors. He described the pet industry as stable and flattish in terms of growth, highlighting Petco's promising digital progress and the existing growth in its services business as key differentiators.

Kate McShane asked for Petco's view on the current state of industry digestion, potential industry growth in 2026, and observations regarding the competitive landscape, especially concerning higher tariff costs and prices.

Answer

Joel Anderson, Petco's Chief Executive Officer, stated that the competitive set has not changed significantly, but consumers have been more cautious due to economic factors. He noted the pet industry has been stable and flattish in terms of growth, highlighting promising progress on Petco's digital side and the existing growth in its services business.

Kate McShane inquired about the strategy for managing Foot Locker's aggressive Q4 markdowns, specifically if the business can return to full-price selling for new product, and the potential impact of market-wide discounting on DICK'S own footwear sales.

Answer

Ed Stack, Executive Chairman, clarified that markdowns are on older, unsold product, and new, fresh product is expected to sell at full price. He does not anticipate Q4 discounting to be meaningfully different from last year or to significantly impact DICK'S business, which offers differentiated and premium products.

Kate McShane asked how the markdowns at Foot Locker would be managed, expressing concern that aggressive discounting in Q4 might hinder a return to full-price selling for new products. She also inquired about the expected market-wide discounting in Q4 and its potential impact on DICK'S own footwear sales.

Answer

Ed Stack, Executive Chairman, assured that marking down older, unsold product would not impede returning to full-price selling for new, fresh, and innovative products in 2026. He also stated that Q4 discounting is not expected to be meaningfully different from last year, and given DICK'S differentiated and premium product, promotional activity is not anticipated to significantly impact their business.

Kate McShane requested details on category performance during the quarter, specifically how footwear, apparel, and hardgoods performed, and if there was any notable sales cadence.

Answer

President and CEO Lauren Hobart confirmed that the 4.5% comparable sales growth was broad-based, with growth seen in footwear, apparel, and team sports. She noted that while February started slow due to weather, performance improved and remained strong across all three months of the quarter.

Kate McShane from Goldman Sachs asked about BJ's Wholesale Club's long-term sales growth target (3-4% range), the factors hindering its achievement in recent quarters, and the competitive response observed in new markets, particularly Dallas, given its strong existing offerings.

Answer

Chairman and CEO Bob Eddy expressed confidence in long-term top-line growth, driven by improvements in membership, merchandising, digital convenience, and footprint expansion, despite a choppy economic backdrop. Executive VP Bill Werner highlighted the success of new club openings, with the 2025 class outperforming expectations, and expressed strong confidence in competing effectively in the Dallas market.

Kate McShane from Goldman Sachs asked about BJ's Wholesale Club's long-term sales growth target of 3-4%, the factors hindering its achievement in recent quarters, and the competitive response observed in new markets, particularly Dallas, given its strong existing grocery and club offerings.

Answer

Chairman and CEO Bob Eddy stated that the company is confident in its long-term top-line growth, driven by improvements in membership stickiness, merchandising, digital convenience, and footprint expansion. Executive VP, Strategy and Development Bill Werner highlighted the success of new club openings, with the 2025 class outperforming expectations, and expressed confidence in competing and succeeding in the Dallas market due to strong pre-opening membership and community engagement.

Kate McShane of Goldman Sachs asked for additional insight into the changes in consumer behavior observed across all income cohorts during the quarter. She also requested a follow-up on whether the impact of weather on the general merchandise category could be quantified.

Answer

CEO Bob Eddy described the consumer as resilient but cautious and frustrated, leading to behaviors like increased coupon usage and a greater focus on private label brands, even as total spending per member increased. He noted discretionary categories were more impacted. Regarding weather, Mr. Eddy explained that while difficult to measure precisely, the negative impact was clear in the first half of the quarter, with southern clubs outperforming northern ones. He estimated weather accounted for about half the variance from their initial sales expectations.

Kate McShane of Goldman Sachs asked for more insight into the noted change in consumer behavior across all income cohorts and sought to quantify the impact of weather on the general merchandise category's performance in Q2.

Answer

CEO Bob Eddy described the consumer as resilient but frustrated and cautious, noting increased coupon usage and a focus on private label. He stated that while total spending per member increased, discretionary categories were more impacted. Regarding weather, Eddy explained it's difficult to quantify precisely but noted the quarter started very weak with continuous rain and improved significantly in the back half, impacting traffic and sales across the business, not just in GM.

Kate McShane asked for more details on Target's inventory position heading into the holiday season compared to last year, and the expected trajectory of in-stock improvements over time.

Answer

COO Michael Fiddelke reiterated the importance of in-stocks, acknowledging past shortcomings and emphasizing laser focus on improvement. He highlighted a 150-basis point improvement in Q3 for the top 5,000 most frequently purchased items (30% of unit sales), noting this was a better year-over-year improvement than Q2 and Q1, indicating a positive trajectory. He attributed this progress to technology-driven forecasting, improved performance metrics, and targeted team efforts, expressing confidence in continued improvement through 2026.

Kate McShane asked about Target's inventory position heading into the holiday season compared to last year, and the expected cadence of improvements in in-stock levels over time.

Answer

Michael Fiddelke, Chief Operating Officer, stressed the critical importance of in-stocks to guests and acknowledged past shortcomings, highlighting a laser focus on improvement. He detailed progress on the 5,000 most frequently purchased items (representing 30% of unit sales), noting a 150-basis point improvement in Q3. This improvement showed a better year-over-year trajectory than Q2 and Q1, driven by technology for better forecasting and improved measurement, indicating confidence in continued progress through 2026.

Kate McShane of Goldman Sachs inquired about the extent of price increases taken in the second quarter due to tariffs and the company's pricing outlook for the second half of the year.

Answer

EVP & CCO Rick Gomez explained that Target is mitigating most tariff impacts through diversified sourcing, assortment changes, and partner negotiations, viewing price increases as a last resort. He emphasized a focus on broad value, including quality and style via own brands. Incoming CEO Michael Fiddelke added that the team's agility in managing tariffs enabled the company to reiterate its full-year EPS guidance.

Kate McShane inquired about the specific strategies Target is using to offset tariff impacts, the outlook for pricing and demand elasticity in the second half, and whether the holiday assortment might look different as a result.

Answer

CCO Rick Gomez and CEO Brian Cornell responded. Gomez detailed a multi-pronged strategy including diversifying country of production for own brands (targeting less than 25% from China), evolving assortments in price-sensitive areas like Bullseye's Playground, and leveraging vendor partnerships to offset the 'vast majority' of tariff impacts. Cornell added that while the environment is uncertain, the focus remains on delivering value and remaining price competitive.

Kate McShane requested more detail on the performance of the Nike and Jordan brands and asked about the level of product exclusivity Academy Sports + Outdoors receives.

Answer

CEO Steve Lawrence stated that the combined Nike and Jordan business is driving meaningful double-digit growth. He clarified that the strategy is less about product exclusivity and more about gaining access to a broader distribution of more premium products, such as the Vomero 18 footwear and Phoenix Fleece apparel, which is performing very well.

Kate McShane requested more details on the double-digit performance of Nike and Jordan products, and inquired about the exclusivity of these brands' assortments given their expanding distribution points within Academy Sports + Outdoors.

Answer

CEO Steve Lawrence expressed excitement about Nike and Jordan, noting Jordan's strong build since its late Q1 launch, particularly during back-to-school, with expectations for continued tailwinds into basketball season and holiday. For Nike, he clarified it's less about exclusivity and more about gaining access to better, premium products (e.g., Vomero 18, P6000, 270s footwear, Phoenix Fleece apparel) and distributing them more broadly across the chain, which is proving successful.

Emily Ghosh, for Kate McShane at Goldman Sachs, asked if the company's outlook incorporates demand elasticity from potential price hikes and how it views consumer health in an inflationary environment.

Answer

CEO Steven Lawrence confirmed their pricing models account for elasticity and potential unit demand erosion if prices rise. He elaborated that in a higher-cost environment, consumers will have less discretionary income and will seek value. He believes Academy is well-positioned to benefit from this trade-down effect, attracting customers looking to maximize their spending power, a trend they are already observing.

Kate McShane asked how the announced conclusion of the Target partnership will affect Ulta's standalone real estate strategy moving forward.

Answer

President and CEO Kecia Steelman clarified that the real estate strategy is not directly tied to the Target decision. However, she did announce a revised new store opening target of 50-56 stores annually for the next few years, down from previous guidance. This change is due to higher real estate costs and lower vacancy rates, reflecting a prudent approach to capital investment.

Kate McShane from Goldman Sachs inquired about the ongoing impact from brands expanding their distribution to other retailers. She asked if Ulta's initiatives were successfully muting this headwind and about the potential for better industry segmentation.

Answer

President & CEO Kecia Steelman responded by emphasizing that beauty and wellness are Ulta's core expertise. She highlighted key differentiators like the loyalty program, omnichannel strength, and personalized digital experiences. While acknowledging improving trends in stores most affected by competitor expansion, she stated the strategy is to continue leaning into Ulta's unique strengths to drive success rather than focusing on industry segmentation.

Emily Ghosh, on behalf of Kate McShane, requested more detail on the drivers of Q2 SG&A deleverage and whether similar cost pressures are expected in the second half of the year.

Answer

CFO Eva Boratto explained that the SG&A deleverage was driven by investments in store growth and training, as well as higher-than-expected healthcare and technology costs. She confirmed these pressures, particularly from healthcare, are factored into the updated full-year guidance.

Kate McShane asked for clarification on the new store format, questioning if it was the same as the 'Gingham Plus' concept mentioned previously, and inquired about a target for the number of these stores by year-end.

Answer

CFO Eva Boratto confirmed the new format is the Gingham Plus concept, which is outperforming older stores with favorable returns due to comparable build costs. She stated this format is used for all new and remodeled stores, but CapEx has not been accelerated. CEO Daniel Heaf added that while he likes the new format, he sees opportunities for further iteration, including adding services and enhancing its role as a marketing vehicle.

Kate McShane asked about the customer acquisition demographics from the Ollie's Army Night, specifically if it attracted a younger cohort, and how CEO Eric van der Valk's supply chain background is influencing the business.

Answer

EVP and CFO Robert Helm clarified that new customers skewed toward mid-to-upper income levels, while the existing customer file is getting younger due to digital strategies. President and CEO Eric van der Valk explained that his supply chain work created a foundation for growth, with efficient distribution centers and transportation changes now paying dividends. He reiterated that a strong culture of service is the most important element.

Kate McShane of Goldman Sachs asked about Leslie's response to the heightened promotional environment during the third quarter and inquired about quarter-to-date business trends.

Answer

CEO Jason McDonell explained that Leslie's made mid-single-digit price investments but still faced aggressive competitor pricing. He stated the company is developing a more strategic, data-driven pricing approach. McDonell noted that while traffic has improved in Q4 compared to Q3, it has not yet reached the company's target levels.

Kate McShane of The Goldman Sachs Group, Inc. noted that 27% of the company's product is made in the U.S. and asked if they are seeing any cost inflation from U.S. manufacturers, who may be feeling effects from tariffs or a broader inflationary environment.

Answer

EVP of Merchandising Ersan Sayman responded that the company has not yet seen cost increases from its U.S. vendors. He added that if such increases were to occur, the company would leverage its global sourcing network to look at all options and diversify, consistent with its standard practice for managing costs.

Kate McShane of Goldman Sachs inquired about the composition of the 10% inventory increase, asking for a dollars versus units breakdown and how inventory will be managed in the second half amid tariff-related disruptions.

Answer

CFO Stewart Glendinning explained that the inventory increase includes tariff impacts and reflects a higher average cost per item due to multi-price, as well as inventory for 496 net new stores. CEO Michael Creedon added that the sourcing teams are navigating the environment effectively to ensure high in-stock levels and make a great impression on new customers.

On behalf of Kate McShane from Goldman Sachs, an analyst asked about the drivers behind the acceleration in supply chain efficiencies seen in Q1 and the outlook for these benefits for the rest of the year.

Answer

President and CEO Laura Alber explained that supply chain efficiency is synonymous with customer service. The improvements are driven by lower returns and replacements, better on-time delivery, and fewer out-of-market shipments, which all reduce costs. She emphasized that excellence in furniture delivery is a key competitive advantage and a sales driver, and she expects the supply chain team to continue making progress.

Speaking on behalf of Kate McShane, an analyst asked about the drivers behind the acceleration in supply chain efficiencies seen in the quarter and the outlook for this benefit for the rest of the year.

Answer

CEO Laura Alber positioned supply chain efficiency as a core component of customer service. She explained that the gains are a result of lower returns and replacements, improved on-time delivery, and fewer out-of-market shipments. She emphasized that excellence in furniture delivery is a key competitive advantage and a sales driver, with more progress still to come.

Speaking on behalf of Kate McShane, Emily Gosh asked about the drivers behind the acceleration in supply chain efficiencies this quarter compared to Q4 and the outlook for these benefits for the rest of the year.

Answer

President and CEO Laura Alber explained that supply chain efficiency is synonymous with improved customer service. The benefits are driven by tangible improvements like lower returns and replacements, better on-time delivery, and more efficient shipping. She noted that the supply chain team continues to outperform, and there is still more opportunity for improvement, which serves as both a cost saver and a sales driver.

Mark Jordan, on for Kate McShane, asked about the current penetration rate of non-oil change revenue (NOCR) and how it varies by store quartile, as well as the potential for service deferrals in a softer economy.

Answer

CEO Lori Flees and CFO Mary Meixelsperger did not provide specific penetration rates but confirmed NOCR is growing across all quartiles. Flees argued that customers are more likely to maintain vehicles to avoid high replacement costs in a soft macro environment, making the business resistant to service deferrals.

Mark Jordan, on for Kate McShane at Goldman Sachs, asked about regional performance in the Domestic DIFM business, potential market share gains from competitor store closures, and the timeline for opening new Mega-Hubs.

Answer

Executive Philip Daniele described the commercial growth as broad-based, driven by improved execution, assortment, and delivery rather than specific regional factors. CFO Jamere Jackson noted that opening Mega-Hubs is a multi-year process but the pipeline is strong, with 19 planned for the back half of the year and a long-term target of nearly 300.

Kate McShane of Goldman Sachs asked about the strategy to achieve 3x leverage by 2026, specifically the expected contribution from debt paydown versus EBITDA growth and the dependency on future asset dispositions.

Answer

COO Danny Rivera explained the deleveraging plan relies on both EBITDA growth, led by the Take 5 Oil Change business, and using strong free cash flow from the entire portfolio for debt paydown. He confirmed that strategic portfolio management, if opportunities arise, would also be used to reduce debt, but the company feels comfortable achieving its goal organically.

Inquired about the competitive landscape for general merchandise, the progress of initiatives to link general merchandise sales with Custom Spaces, and the potential for further cost reductions in fiscal 2024.

Answer

Management described the environment as competitive, noting their strategy involves creating urgency and telling an integrated story. They are stabilizing general merchandise through private labels and new categories, which benefit from a halo effect from investments in Custom Spaces. While cost discipline will continue, they are increasing marketing investment to build brand awareness, correcting for under-spending in the prior year.