Kate McShane

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 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.

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.

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 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 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 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 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 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 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 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.

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 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 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.

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.