Mark Altschwager

Mark Altschwager inquired about the drivers behind Tapestry's gross margin outperformance on the operational side and the opportunities for the back half of the year, considering potential conservatism in the current guidance.

Answer

CFO and COO Scott Roe explained that operational improvements, primarily Average Unit Retail (AUR), are driving the gross margin outperformance. Mitigating actions in the supply chain, particularly related to tariffs, are expected to accelerate next year, with some impact seen this year. He clarified that the full-year gross margin outlook was raised, fully offsetting tariff impacts. The majority of this year's tariff impact will be felt in Q3 and Q4 due to inventory sell-through timing. He expressed confidence in continued gross margin increases in fiscal 2027 and beyond, driven by compounding AUR gains and accelerating mitigating actions.

Mark Altschwager of Baird followed up on the 'one Coach' initiative, asking for more color on the performance and mix of collection product in outlet stores and the future potential. He also inquired about the real estate pipeline, focusing on regional opportunities and different store formats.

Answer

Coach CEO Todd Kahn expressed satisfaction with the 'one Coach' strategy, which started with Tabby and expanded to sneakers and other categories, expecting it to be a meaningful growth contributor. He outlined that 70% of future growth will come from international markets, particularly China, with plans for nearly 100 new, smaller-format stores in the next three years. He also mentioned experimenting with new store formats and experiential retail like Coach coffee shops, emphasizing that all new stores are expected to be profitable.

Mark Altschwager followed up on the 'one Coach' topic, seeking more color on the performance and mix of collection products in outlet stores and their potential. He also inquired about the real estate pipeline, including regional opportunities, different store formats, and how these align with the 'one Coach' initiatives.

Answer

Todd Kahn (CEO and Brand President of Coach) expressed satisfaction with the 'one Coach' strategy's expansion beyond Tabby to a full lifestyle offering, expecting it to be a significant growth contributor. He highlighted that 70% of future growth is anticipated from international markets, with plans for approximately 100 new stores in China over three years, including smaller formats and new locations. He also mentioned experiential retail, like Coach coffee shops, as incremental growth drivers, emphasizing that all new stores are designed to be profitable and engaging.

Mark Altschwager of Robert W. Baird & Co. asked for insights into Coach's regional growth drivers, specifically whether the same products are succeeding globally, and how the company is managing the risk of potential anti-U.S. brand sentiment among consumers in China.

Answer

CEO Joanne Crevoiserat stated that the business in Greater China accelerated to mid-single-digit growth, outperforming a pressured market, and that the company sees no signs of anti-American sentiment in its consumer data or business results. Coach CEO Todd Kahn explained that their global strategy is built on the idea that 'a great bag is a great bag everywhere,' with product families like Tabby resonating globally. This allows for concentrated marketing and a more efficient, less regionalized product assortment.

Mark Altschwager inquired about channel performance in North America, the strategy for the physical store footprint, and the company's China sourcing mix and tariff mitigation plans.

Answer

CEO Joanne Crevoiserat confirmed that digital growth outpaced a slight decline in stores, emphasizing the company's focus on its margin-accretive omnichannel capabilities. On sourcing, CFO & COO Scott Roe highlighted Tapestry's highly diversified and agile supply chain as a key competitive advantage, stating the company is well-versed in managing through changing tariff regimes and has robust mitigation strategies in place.

Mark Altschwager from Robert W. Baird & Co. Incorporated questioned Birkenstock's confidence in sustaining mid-teens growth over the next three to five years, specifically regarding the ability to expand capacity at a sufficient rate for labor and component suppliers. He also asked about the trend of EVA products and the role of Pasewalk capacity in the growth algorithm.

Answer

CEO Oliver Reichert outlined capacity expansion plans, including doubling/tripling pre-production in Portugal, the Wittichenau factory (near Dresden) for final assembly and cork-latex footbeds by 2027, and a new 80,000 sq m production space in Pasewalk for the midterm. He emphasized the challenge of ramping up a specialized workforce. He also noted strong performance in elevated EVA products, which are maintained at a maximum 20% global share, with significant growth in Asia for PU and direct-injected products from Pasewalk.

Mark Altschwager of Baird asked for insights from DTC customer data regarding new versus repeat customer behavior and whether closed-toe styles are attracting new customers. He also questioned the wide range implied for the Q4 EBITDA margin guidance.

Answer

Mehdi Bouyakhf, President of EMEA, noted that DTC channels see faster adoption of expansionary categories and that new stores deliver higher ASP and units per transaction. CFO Ivica Krolo addressed the guidance, stating the range reflects the significant and hard-to-predict volatility in currency exchange rates, which is the primary unknown factor.

Mark Altschwager asked for more details on the company's tariff mitigation plans and the expected timing for when the related costs and offsets would impact the P&L.

Answer

CFO Ivica Krolo affirmed that Birkenstock will fully offset the 2025 tariff impact. He outlined a multi-pronged strategy that includes leveraging pricing flexibility on a global scale, thanks to strong brand equity, and driving efficiencies across its vertically integrated value chain. He reiterated that the company views the situation as an opportunity to gain market share.

Mark Altschwager from Baird questioned the drivers of the strong Q1 EBITDA margin expansion and its implications for the full-year guidance. He also followed up on gross margin, noting the lack of pressure from facility expansion and asking if expansion could be expected from Q2 onwards.

Answer

VP, Global Finance Alexander Hoff attributed the Q1 EBITDA margin beat primarily to channel mix, as the higher-margin B2B channel grew faster. He cautioned against extrapolating this for the full year, reiterating the guidance of up to 50 bps expansion. Hoff confirmed the new facility's impact was not incremental in Q1 and expects a positive impact on gross margin from factory utilization in the second half of the year, leading to a modest full-year improvement.

Mark Altschwager asked for a breakdown of the 8% ASP increase in 2024 between like-for-like pricing and product mix, and whether this composition is a good model for 2025.

Answer

Alexander Hoff, VP of Global Finance, confirmed that for fiscal 2025, revenue growth is expected to be driven approximately two-thirds by unit growth and one-third by ASP growth. He elaborated that the ASP increase will continue to be driven by a combination of like-for-like pricing and favorable product mix, as consumers trade up to higher-priced items like closed-toe silhouettes and premium materials.

Mark Altschwager requested an update on the tariff de minimis impact, including progress made in mitigation efforts, and updated gross and net figures for both the current and next fiscal year.

Answer

CFO Meghan Frank reported an improved 2025 tariff outlook, with pressure reduced from 220 to 190 basis points, representing a net impact of approximately $210 million. While the prior guidance for 2026 was 320 basis points, she did not provide a specific updated figure but noted ongoing progress in areas such as vendor negotiations, optimizing the distribution center network, inventory placement, and overall enterprise efficiencies.

Asked for perspective on the growth slowdown in China, the potential for sustainable growth rates, whether they are seeing macro pressure, and how they are planning regional comp growth.

Answer

The variance in China's growth rate between Q1 and Q2 was primarily attributed to the timing of the Chinese New Year, with growth remaining very strong. The company has not seen a material impact from the macro environment in China and remains excited about its potential due to its small size and localized approach. They expect outsized growth from international, led by China.

Mark Altschwager sought more perspective on the China business, questioning the Q2 comp slowdown, sustainable growth rates, and whether the company is feeling any macro pressure there.

Answer

CFO Meghan Frank attributed the Q2 comp variance from Q1 primarily to the timing of the Chinese New Year, highlighting that growth remained very strong at 37% in constant currency. CEO Calvin McDonald added that while monitoring the macro environment, the business remains robust due to its relatively small market size, localized brand-building strategy, and strong performance across all city tiers.

Mark Altschwager sought more perspective on the performance in China, noting a comp slowdown, and asked about sustainable growth rates, potential macro pressures, and regional comp planning for the remainder of the year.

Answer

CFO Meghan Frank attributed the variance in growth rates between Q1 and Q2 primarily to the timing of the Chinese New Year. CEO Calvin McDonald added that while they monitor the macro environment, the business in China remains strong due to its relatively small scale, localized brand-building strategy, and unique wellness positioning. He confirmed they have not seen a material impact on their business.

Mark Altschwager asked about the specific drivers of upside in Q3 gross margins versus plan, including any surprises by brand or markdown performance. He also questioned what offsets are allowing the company to maintain its Q4 gross margin guidance despite anticipating higher holiday promotions.

Answer

Frank Conforti, Co-President and COO, stated that Q3's outperformance was largely due to healthy top-line sales and better store occupancy leverage across all brands. For Q4, he noted that while holiday is expected to be promotional, the company is maintaining its annual gross margin improvement target of 100 basis points, hoping to be conservative in its planning and not anticipating deeper promotions.

Mark Altschwager asked about the drivers of upside versus the Q3 gross margin plan, specifically by brand and markdown performance. He also questioned what offsets are allowing the company to maintain its full-year guidance despite expectations for higher holiday promotions in Q4.

Answer

Frank Conforti, Co-President and COO, explained that Q3 gross margin outperformance was largely due to healthy top-line sales and better store occupancy leverage across all brands. For Q4, the company is maintaining its annual plan for 100 basis points of gross profit margin improvement, hoping to be conservative despite expected promotional holiday events, clarifying this doesn't mean planning deeper promotions but acknowledging historical sales event patterns.

Mark Altschwager of Robert W. Baird & Co. asked for an update on the Urban Outfitters brand's progress toward profitability and questioned whether achieving breakeven was possible within the current fiscal year given its recent momentum.

Answer

Frank Conforti, Co-President & COO, confirmed the company is more bullish on the brand's turnaround but stated that a return to profitability is not expected this year. He emphasized that the focus remains on achieving consistent, steady progress by improving merchandise margins, growing comps, and leveraging fixed expenses over time.

Mark Altschwager asked for quantification of the markdown benefit to Q1 gross margin and inquired about the long-term operating margin potential beyond the 10% goal, given levers like the Urban Outfitters recovery and Nuuly's scaling.

Answer

Co-President and COO Francis Conforti quantified the markdown benefit as contributing 'about half' of the 204 basis point core gross margin improvement in Q1. Regarding long-term targets, he acknowledged the potential for upside beyond 10% but emphasized the immediate goal is to first achieve and sustain that target before setting a new one. He noted the current full-year plan puts them on a path to a 9.6% operating margin.

Mark Altschwager asked about the company's real estate strategy, questioning the timing of the accelerated store growth for Anthropologie and the rationale behind the continued footprint reduction for Urban Outfitters in North America.

Answer

Executive Tricia Smith explained that Anthropologie's store growth is accelerating now due to strong brand momentum and a proven, profitable store model, with a goal of reaching 270 stores globally. For Urban Outfitters, executive Kelly Crago stated the strategy involves closing underperforming or oversized locations to better align with customer population shifts and a target store size of 6,000-8,000 sq. ft. Executive Sheila Harrington added that FP Movement plans to open at least 20 new stores, seeing a long-term potential for over 300 stores in North America.

Mark Altschwager questioned whether FP Movement's 30% growth rate is sustainable in the medium term and asked if the brand is accretive to the overall Free People brand's margins.

Answer

Executive Sheila Harrington stated that FP Movement is expected to continue delivering double-digit growth, driven by store expansion and wholesale opportunities. She also noted that the brand is successfully attracting a new customer, distinct from the core Free People shopper, which supports its growth trajectory.

Mark Altschwager requested short- and medium-term sales and margin guideposts for the Urban Outfitters brand's repositioning and asked if management expects the brand to return to sales growth in fiscal 2026.

Answer

CEO Richard Hayne directly declined to set specific timelines or financial projections for the Urban Outfitters turnaround. He emphasized that the immediate focus is on executing the new strategy, with the belief that positive results will follow that execution.

Mark Altschwager asked Michael Bender to identify which strategic initiatives are showing the most promise and how the strategy is evolving to stabilize comparable sales based on year-to-date learnings. He also questioned the company's readiness for top-line growth in 2026 and asked Jill Timm about the future opportunities for SG&A cost savings and the ability to sustain year-over-year SG&A reductions.

Answer

CEO Michael Bender highlighted the 'more balanced assortment' initiative, focusing on proprietary brands, proper mix, and ensuring depth for 'trip assurance' in categories like women's dresses and intimates, as most promising. He indicated that October's positive comparable sales demonstrate the potential for growth, driven by a focus on product relevancy. CFO Jill Timm stated that SG&A declined 2% on a 1.7% comp, attributing it to organizational efficiency and technology. She expects to sustain cost discipline, noting that the company typically leverages SG&A around a 1% comp, but tightened spending this year to fund strategic initiatives.

Mark Altschwager asked Michael Bender to identify the most promising strategic initiatives outlined at the start of the year and how the strategy is evolving to stabilize comparable sales based on year-to-date learnings. He also asked about the potential for top-line growth in 2026 and the opportunity for sustained SG&A cost savings.

Answer

CEO Michael Bender highlighted the progress in building a more balanced assortment, focusing on value, depth, and proprietary brands, particularly in women's categories like dresses and intimates. He expressed confidence in the trajectory toward growth, citing October's positive comparable sales as an indicator. CFO Jill Timm noted the company's history of cost discipline, with SG&A down 2% in the quarter, and emphasized ongoing efforts to leverage technology for efficiencies, expecting to sustain cost discipline while supporting growth.

Mark Altschwager of Robert W. Baird & Co. asked which strategic initiatives are having the greatest top-line impact and where the company sees potential for further sequential improvement in the second half. He also inquired about the expected comp cadence for Q3 and Q4 and any flags for the gross margin forecast.

Answer

Interim CEO Michael Bender identified the renewed focus on proprietary brands as a primary driver, aligning with consumer demand for value. CFO Jill Timm elaborated, noting the positive impact on the women's category and the success of making more brands coupon-eligible. For the back half, Timm expects a comp cadence similar to the first half and stated the gross margin guidance was adjusted to the low end of the range (30 bps expansion) to provide flexibility for value-driving promotions and to manage the impact of a stronger digital business.

Mark Altschwager inquired about any near-term adjustments to Kohl's strategic priorities, the path back to comparable sales growth, and the rationale for maintaining full-year guidance despite a Q1 beat, particularly concerning tariff impacts.

Answer

Interim CEO Michael Bender stated that no major strategic shifts are planned, emphasizing that the turnaround will take time and requires focusing on value for a stressed consumer. CFO Jill Timm added that guidance was held due to macroeconomic uncertainty. She noted that tariff impacts are being mitigated through supply chain diversification and adjusted orders, with these factors already incorporated into the full-year outlook.

Mark Altschwager asked new CEO Ashley Buchanan for her assessment of Kohl's merchandising strategy, near-term opportunities for change, and the margin implications of elevating private brands while expanding promotional offers.

Answer

CEO Ashley Buchanan stated that Kohl's has a significant opportunity to improve by better serving its loyal customer base, which has been alienated by recent strategic shifts. She emphasized that the turnaround will take time and outlined three immediate priorities: curating a balanced assortment, re-establishing value leadership, and creating a frictionless omnichannel experience. Buchanan noted that while attracting new customers was important, it came at the cost of deemphasizing core categories and proprietary brands. Regarding margins, she explained that improving the proprietary brand mix provides fuel for price productivity and that there is an opportunity to optimize promotional spending by re-evaluating which brands are excluded from coupons, a list that has grown too large and created customer frustration.

Mark Altschwager from Baird questioned the timing of the CEO transition, the measures in place to ensure stability, and whether the incoming CEO is aligned with the current strategy. He also asked for clarification on the potential upside from the co-brand credit card.

Answer

CEO Tom Kingsbury and Independent Chair Michael Bender affirmed the transition timing was based on a robust succession plan and Tom's two-year commitment. They stated the new CEO, Ashley Buchanan, is aligned with the current strategy. CFO Jill Timm clarified that the co-brand card offers a significant revenue opportunity, particularly in 2025, by attracting younger customers and generating interest-based income, which would be an upside if proposed late-fee regulations do not take effect.

Mark Altschwager requested more detail on Burlington's Q3 regional and category trends, as well as detailed comp metrics, and then asked if the Q4 comp guidance is viewed as conservative given typically less weather sensitivity in the fourth quarter.

Answer

Kristin Wolfe (EVP and CFO) reported the Southeast as the strongest region, with beauty, accessories, and shoes as top-performing categories, while home was softer. She noted Q3 traffic was down due to warm weather, offset by higher conversion and average basket size. Michael O'Sullivan (CEO) stated he doesn't see significant upside to Q4 comp guidance (0-2%), citing strong prior-year comparisons (6% comp last year, leading to a 6-8% two-year stack) and noting off-price peers' guidance appeared slightly lower on a two-year stack basis.

Mark Altschwager asked Kristin Wolfe for more details on Q3 regional and category trends, as well as specific comparable store sales metrics. He then asked Michael O'Sullivan if the Q4 comparable store sales guidance is conservative, considering typically less weather sensitivity in the fourth quarter.

Answer

CFO Kristin Wolfe reported that the Southeast was the strongest region in Q3, with the Southwest trailing. Category performance was strongest in beauty, accessories, and shoes, while home was softer. She noted that Q3 traffic was down due to warm weather, but this was offset by a higher average basket size, with both conversion and basket size higher than last year. CEO Michael O'Sullivan stated he does not see significant upside to the Q4 comparable store sales guidance of 0-2%, citing strong comparisons from Q4 last year (6% comp growth) which results in a two-year stack of 6-8%, and noted that off-price peers' guidance appears slightly below Burlington on a two-year stack basis.

Mark Altschwager of Robert W. Baird & Co. requested an update on the company's 'Elevation' merchandising strategy and also asked about current trends and opportunities with younger consumers.

Answer

CEO Michael O'Sullivan stated that the strategy to elevate the assortment with better fashion, quality, and brands continues to be successful, benefiting both sales and margins. He noted that Burlington has always had a strong position with younger customers and families, which is supported by a significant penetration in juniors, young men's, and kids' categories. He credited the merchant teams for skillfully building assortments that deliver value through the right mix of fashion, quality, brand, and price.

Mark Altschwager asked for an update on tariff mitigation efforts, what's working to fully offset costs, and how to interpret the Q4 guide regarding early 2026 tariff wraparound effects. He also followed up on AUR trends and any call-outs by demographic or income cohort.

Answer

Michael Hartshorn (Group President and COO) explained that merchant teams balanced cost concessions with modest market-driven price increases and leveraged closeout availability, with tariff stability normalizing ticketing. Jim Conroy (CEO) noted that traffic, UPT, and AUR all increased, with transactions being the biggest driver. Michael Hartshorn added that strength was broad-based across trade area income levels, with Hispanic stores posting solid comps.

Mark Altschwager asked for an update on tariff mitigation efforts, what contributed to the negligible Q4 tariff costs, and how to interpret the Q4 guidance regarding tariff wraparound effects for early 2026, also asking about AUR trends and demographic/income cohort performance.

Answer

Group President and COO Michael Hartshorn explained that merchant teams balanced cost concessions with modest market-driven price increases and leveraged closeout availability. He noted that with tariff stability, ticketing activities normalized. For AUR, he stated that traffic, UPT, and AUR all increased, with transactions being the biggest driver. He added that Hispanic stores saw similar improvement to the chain, and performance was broad-based across trade area income levels.

Mark Altschwager of Robert W. Baird & Co. requested more detail on tariff mitigation strategies, asking what actions are proving most effective and what factors could lead to greater-than-expected mitigation in the second half of the year.

Answer

CEO James Conroy attributed the mitigation success to the merchandising team's efforts in shifting buys, negotiating with vendors, and increasing the mix of closeout merchandise, with minimal reliance on price increases. COO Michael Hartshorn added that a return to historical levels of vendor pre-ticketing in the back half will also provide a benefit by reducing internal distribution center processing costs that were elevated in Q2.

Mark Altschwager inquired about the uncertainty in back-half product flow and inventory availability. He also asked how the current macro disruption affects the company's longer-term initiatives in marketing and store enhancements.

Answer

Executive James Conroy acknowledged a potential short-term influx of closeouts followed by a production gap from China, but expressed confidence in managing inventory flow. He affirmed that longer-term strategic plans to enhance the brand and store experience will proceed in an evolutionary, expense-neutral manner and will not be put on pause despite the current environment.

Mark Altschwager of Robert W. Baird & Co. sought clarification on how uncertainty about product flows impacts back-half visibility and asked how the current macro disruption affects longer-term initiatives like marketing and store enhancements.

Answer

Executive James Conroy acknowledged a potential short-term production gap from China but expressed confidence in managing through it with available closeouts and receipt planning. He affirmed that the company will not pause its long-term, expense-neutral vision to contemporize the brand and improve the store experience, viewing it as an evolutionary change.

Mark Altschwager inquired about the 'relatively neutral' merchandise margin guidance for the year and whether recent consumer choppiness is creating better buying opportunities.

Answer

EVP and CFO Adam Orvos explained that 2024 was an 'investment year' for branded goods, and 2025 will be about learning, leading to the neutral margin guide. CEO James Conroy confirmed that softness in mainstream retail is creating more closeout opportunities, which should benefit the company's value proposition and margins going forward.

Mark Altschwager inquired about Barbara Rentler's specific areas of focus in her upcoming advisory role and whether the company's brand strategy might change under new leadership.

Answer

CEO Barbara Rentler stated her advisory role will be heavily focused on merchandising strategy and ensuring a smooth transition for the incoming CEO, Jim Conroy. She clarified that she does not foresee any changes to the core brand strategy, as it is fundamental to gaining market share, though she expects it will continue to be refined.

Mark Altschwager questioned the key changes in the operating outlook for the second half of the year that led to the raised full-year guidance, particularly the margin drivers and details on 'additional efficiencies'.

Answer

Group President and COO Michael Hartshorn explained that the Q2 earnings beat was flowed through to the full-year guidance. He highlighted that the company is ahead of its initial projections on various expense and cost-saving initiatives, and the expected benefit from these efficiencies in the back half was incorporated into the updated forecast, helping to offset planned merchandise margin pressure.

Mark Altschwager questioned the innovation pipeline for core categories over the next 12-18 months, balancing legacy franchises with ingredient-led products for younger consumers. He also asked about the company's comfort with the medium-term leverage ratio and any shift in balancing buybacks with debt reduction.

Answer

CEO Daniel Heaf emphasized refocusing investment on core categories to serve both existing and new, younger consumers (Zoe), who demand ingredient-led, cleaner products with sophisticated design. He noted underinvestment in core packaging and a strong pipeline for new concepts in the second half of 2026, alongside elevating iconic fragrances. CFO Eva Boratto added that consumer testing is being integrated earlier. Regarding leverage, Eva stated that while the current period puts pressure on the 2.5x target, the company plans to pay down debt due in January 2027 and maintain its capital allocation priorities.

Mark Altschwager inquired about the innovation pipeline for core categories over the next 12-18 months, focusing on balancing legacy franchises with ingredient-led and efficacy demands for younger consumers. He also asked about the company's comfort with its medium-term leverage ratio and the balance between buybacks and debt reduction.

Answer

CEO Daniel Heaf emphasized market leadership in core categories, serving both current and new consumers with ingredient-led, cleaner, and sophisticated designs. He noted underinvestment in core packaging and new products expected in H2 2026. CFO Eva Boratto added that consumer testing is now earlier in product development and they are exiting unsuccessful categories. She acknowledged pressure on the leverage ratio but stated they will pay down debt due in January 2027 and work vigilantly to bring the balance sheet to target. Daniel Heaf also highlighted elevating iconic fragrances.

Mark Altschwager asked about the financial contribution from the new campus store wholesale channel and future wholesale plans, and also sought to reconcile SG&A deleverage with margin expansion goals.

Answer

CEO Daniel Heaf explained that the campus store initiative's contribution is included in guidance and represents a strategic move to reach younger consumers. CFO Eva Boratto addressed SG&A, attributing pressure to healthcare, technology, and strategic investments, while noting B&O leverage from operational efficiencies. She confirmed the 'Fuel for Growth' program will continue to help offset these costs.

An associate for Mark Altschwager asked about the potential scale of upcoming collaborations compared to the highly successful Disney launch, as well as the expected timing and pace of these future partnerships.

Answer

CFO Eva Boratto stated that more collaborations are planned for the second half of the year. While the Disney Princess collaboration was the most expansive to date, she described the upcoming partnerships as 'meaningful enough' to be key contributors to achieving the full-year growth target of 1% to 3%. More specific details are expected to be shared in the future.

Mark Altschwager of Robert W. Baird & Co. asked for more detail on the expected return to growth for the international business, including the shape of the year and its gross margin impact.

Answer

CFO Eva Boratto explained that for the full year, international net sales are expected to grow in the mid-single-digit range with no significant margin impact. However, Q1 will see an outsized impact, with double-digit reported net sales growth due to shipment timing, which will act as a headwind to the Q1 gross margin rate.

Mark Altschwager questioned why gross margin guidance wasn't exceeded despite Fuel for Growth outperformance and asked if the current ~17% EBIT margin is the right long-term level for the business.

Answer

CFO Eva Boratto stated that gross margin was in line with expectations, as the company was lapping a significant 140 basis point expansion from the prior year and had strategically planned for incremental promotions. She reaffirmed that the company's long-term targets remain a 45% gross margin and a 20% operating income margin, indicating satisfaction with the progress toward these goals.

Mark Altschwager asked about the key drivers behind the narrowing segment margin gap between HomeGoods and Marmaxx and whether this convergence is expected to continue.

Answer

John Klinger, CFO, attributed the narrowing gap to strong performance in both divisions, with HomeGoods benefiting slightly more from freight improvements due to the nature and size of its products, and consistent top-line growth. Ernie Herrman, President and CEO, added that HomeGoods' flexibility in merchandise vendor content and fast-turning business has significantly contributed to its improved merchandise margins, bringing its operating income closer to Marmaxx.

Mark Altschwager from Baird noted the narrowing segment margin gap between HomeGoods and Marmaxx and asked about the key drivers behind this convergence and whether it is expected to continue.

Answer

CFO John Klinger highlighted that both divisions are performing outstandingly, driving top and bottom lines. He mentioned that HomeGoods has benefited slightly more from freight improvements due to its product size and nature. President and CEO Ernie Herrman added that HomeGoods' constant creation of new vendors and flexible merchandise content, combined with a fast-turning business, has helped improve its merchandise margins, contributing to its operating income getting closer to Marmaxx.

Mark Altschwager asked about the company's outlook for Average Unit Retail (AUR) in fiscal 2026 and inquired about the drivers of the strong mark-on performance and the potential for further gains.

Answer

CFO John Klinger noted that the company does not parse out the specific drivers of gross profit benefit, such as price versus a better buy. CEO Ernie Herrman added that the current retail environment is 'textbook' for TJX, with increased merchandise availability creating more opportunities for buyers to achieve strong mark-on.

Mark Altschwager followed up on the Target partnership, asking if there are sufficient margin tailwinds from core operations and new initiatives to offset the loss of high-flow-through royalty revenue in 2026.

Answer

President and CEO Kecia Steelman confirmed the royalty revenue has a 60-65% flow-through but expressed confidence that the 'Ulta Beauty Unleashed' strategy will generate enough growth to replace any lost royalties. She reiterated that the partnership's end does not alter their long-term financial targets and allows for greater focus on their core strategy.

Mark Altschwager of Robert W. Baird & Co. pointed to the strong 10% e-commerce growth and asked about the specific drivers of this acceleration and any potential margin implications from the mix shift.

Answer

President & CEO Kecia Steelman attributed the growth to digital enhancements like Splitcart, BOPIS, and ShopMyStore, as well as high engagement on the mobile app, which drives over 60% of e-commerce sales. CFO Paula Oyibo added that the company anticipated this growth and has been focused on improving channel profitability through various fulfillment options, so the channel mix shift is not the largest driver of gross margin pressure.

Mark Altschwager asked how Ulta's revenue guidance compares to its underlying assumptions for the beauty category and what level of promotional activity is factored into the margin guidance.

Answer

CEO Kecia Steelman stated that the beauty category is expected to grow in the low to mid-single-digit range. CFO Paula Oyibo added that the company's guidance assumes a rational promotional environment will continue, similar to what was observed in 2024.

Mark Altschwager of Robert W. Baird & Co. asked for an update on the company's medium-term top-line growth algorithm following the 'breakout' Q2 performance. He also inquired about the drivers of the strong Q2 margin leverage and why the back-half guidance implies less year-over-year expansion.

Answer

President and CEO Rati Sahi Levesque stated that a high-single to low-double-digit (8-12%) growth rate remains the 'optimal' target for planning purposes to ensure profitable growth. CFO Ajay Gopal noted that full-year adjusted EBITDA margin guidance implies 4-5%, a significant step-up, driven by healthy gross margins, AI-driven OpEx leverage, and fixed cost leverage. He sees a path to 15-20% EBITDA margins in the medium term.

Mark Altschwager of Baird asked about the Q1 revenue mix relative to expectations and whether full-year assumptions have changed. He also questioned if the company's optimism about benefiting from the macro environment is theoretical or based on observed behavior.

Answer

CFO Ajay Gopal confirmed the Q1 revenue mix was as expected and the full-year guidance for a 10-15% direct revenue contribution is unchanged. CEO Rati Levesque and CFO Ajay Gopal noted that while they believe they are positioned to benefit from tariffs and value-seeking consumers, their confidence is primarily based on their flexible, domestic-sourcing model rather than major observed shifts in behavior yet.

Mark Altschwager inquired about the drivers behind the confident Q4 GMV guidance, focusing on supply trends, and asked about new CEO Rati Levesque's strategic priorities. He also followed up on the potential for further gross margin expansion.

Answer

CEO Rati Levesque expressed high confidence in Q4, citing healthy supply driven by the company's 'growth playbook' (sales, marketing, retail). She affirmed the current strategy is working and will not change, focusing on the profitable consignment model. CFO Ajay Gopal addressed gross margins, stating that while Q3's 74.9% was a record high due to a favorable consignment mix, the company feels they are in the 'right place' and expects margins to remain in a similar range.

Mark Altschwager of Robert W. Baird & Co. questioned the drivers of the revenue growth acceleration into Q3 and asked for details on the new 'Warby Advisor' AI tool.

Answer

CFO Steven Miller confirmed that the growth acceleration seen from May through July was omnichannel, affecting both retail and e-commerce, and driven partly by recent pricing changes. Co-CEO Dave Gilboa explained that 'Warby Advisor' is an AI-powered feature that replicates the in-store personalized styling experience online. He noted its strong initial adoption is a key factor enabling the company to sunset its Home Try-On program and drive direct e-commerce purchases.

Mark Altschwager asked for details on the revised full-year revenue guidance, questioning the underlying changes in consumer behavior and the impact of price increases. He also inquired about the expected shape of gross and EBITDA margins for the year and the viability of the long-term margin expansion targets beyond 2025.

Answer

Co-CEO David Gilboa stated the guidance revision reflects a conservative approach due to macroeconomic uncertainty potentially elongating purchase cycles. CFO Steve Miller clarified the new 13-15% growth range's midpoint represents a continuation of recent trends. Miller also projected a similar EBITDA margin shape to the prior year, with Q1 being the highest, and reaffirmed the company's commitment to its long-term target of 100-200 basis points of annual margin improvement.

Mark Altschwager inquired about the expected balance between customer growth and average revenue per customer in the 2025 revenue algorithm, given the numerous customer acquisition initiatives. He also asked for an update on the Versant Health insurance integration, its impact on the 2025 outlook, and the typical maturity curve for such partnerships.

Answer

Co-CEO Neil Blumenthal explained that following a balanced 2024, the company expects a significant portion of 2025 growth to be driven by accelerating active customer growth. Regarding the Versant integration, he noted that revenue per member typically increases over a multi-year period and that early trends are tracking in line with or ahead of previous carrier rollouts, representing a long-term opportunity. Co-CEO David Gilboa added that insurance customers tend to be new to the brand and have higher initial basket values, making it an efficient acquisition channel.

Amy Teske, on behalf of Mark Altschwager from Baird, asked for a breakdown of the factors causing modest gross margin pressure in the quarter. She also requested commentary on the company's perception of the overall health of the optical industry and any early thoughts on 2025.

Answer

SVP and CFO Steve Miller detailed that the gross margin pressure was in line with expectations and driven by three main factors: higher occupancy costs from opening 13 new stores, deleverage from scaling the lower-margin contact lens and eye exam businesses, and a strong hiring quarter for optometrists. Co-Founder and Co-CEO Neil Blumenthal stated it's too early to assess a significant change in industry demand, but Warby Parker remains focused on outperforming the market through its value proposition and customer experience.

Mark Altschwager of Baird asked about the reaction from retail partners to the recent price increases and whether they were tempering unit orders. He also questioned if the price increase would be sufficient to neutralize the impact of a sustained 30% tariff.

Answer

CEO & Chairman Tarang Amin reported that retailer acceptance of the price increase has been good, partly because e.l.f. is selective with pricing and other brands are expected to follow suit. Senior VP & CFO Mandy Fields added that the company is waiting to observe the actual consumer elasticity before determining if the price increase fully offsets the tariff impact.

Mark Altschwager of Robert W. Baird & Co. asked for feedback from retail partners on the announced price increase and for clarification on why the cycling of strong international growth would persist beyond Q1.

Answer

Chairman and CEO Tarang Amin reported that retailers understand the modest $1 price increase and that consumer feedback has been positive. SVP & CFO Mandy Fields clarified that the company will be lapping outsized international growth from new market launches throughout the first half of the fiscal year, not just in Q1.

Mark Altschwager asked if the updated guidance incorporates expectations for retailer destocking and inquired about the level of flexibility in the cost structure if the softer demand backdrop persists.

Answer

CFO Mandy Fields confirmed that the company has not heard of any retailer destocking plans and does not expect any, as e.l.f. remains the most productive brand its retail partners carry. She explained that while the P&L has flexibility, particularly in marketing spend and supplier cost-saving programs, the primary focus remains on investing in people and infrastructure to capitalize on long-term white space opportunities.

Mark Altschwager inquired about the international business, asking if the channel fill from new distribution was materially different this quarter and about the expected revenue cadence between Q3 and Q4.

Answer

CEO Tarang Amin stated that international growth remains consistent and is driven by strong underlying consumption in new markets, not just initial pipeline fill. CFO Mandy Fields reiterated the full second-half revenue growth outlook of 16% to 20% but declined to provide specific quarterly guidance for Q3 versus Q4, pointing to the building blocks of share gains, pipeline, and international momentum.

Mark Altschwager questioned the refinement of the store opening target to 25, and asked about labor cost inflation and production efficiency opportunities.

Answer

COO Jubran Tanious clarified the store target refinement was not due to any systemic issue but a focus on high-quality deals. CFO Michael Maher described labor cost growth as typical and in line with long-term averages. CEO Mark Walsh added that while they are constantly testing production innovations, none are ready for a broad rollout yet.

Mark Altschwager from Baird noted that reaffirming guidance after a strong Q1 implies a more consistent, rather than accelerating, comp for the year and asked about the underlying assumptions. He also inquired about the drivers of on-site donation growth and the reason for a decline in used sales yield.

Answer

CFO Michael Maher stated that while pleased with the start to the year, macro pressures and policy uncertainty warrant a cautious approach, hence reaffirming guidance. Executive Jubran Tanious described on-site donation growth as stable and robust, not necessarily an acceleration. Michael Maher added that the lower sales yield is a result of processing more volume cost-effectively, which is still profitable at the margin.

Mark Altschwager requested a further breakdown of the 2025 EBITDA margin deleverage beyond the new store impact and asked about the company's medium-term comparable sales algorithm.

Answer

Executive Michael Maher provided a bridge for the 2025 EBITDA outlook, attributing the pressure to a $10 million headwind from new store investments and a $6.5 million headwind from a weaker Canadian dollar. He explained that at the guidance midpoint, core EBITDA is flat on a 1.5% comp. For the long-term, he reiterated a model of high single-digit revenue growth and low single-digit comps, with 2026 expected to be an earnings inflection point as new stores mature.

Mark Altschwager questioned the rationale for narrowing the full-year guidance and the underlying assumptions for Q4 comp trends. He also followed up on how production and inventory flow are managed in Canada and the baseline comp needed to maintain gross margins.

Answer

CFO Michael Maher stated the guidance was narrowed to reflect softer-than-expected Q3 results in Canada. The Q4 outlook assumes stable macro conditions and continued low-single-digit comps in the U.S., with the guidance range reflecting uncertainty in Canada's performance. Executive Jubran Tanious addressed the production question, explaining that they manage it based on transaction volumes and acknowledged they had pulled back too aggressively in Canada. He stressed that future adjustments will be more gradual to better balance profitability with the need for fresh inventory.

Mark Altschwager inquired about the financial modeling of new tariffs, asking for clarification on the assumptions embedded in the low end of the gross margin guidance and the company's flexibility to pivot inventory sourcing away from owned brands.

Answer

CFO Jesse Timmermans clarified that the guidance reflects their 'best estimate' of mitigation efforts, not minimal mitigation. He explained that while they can flex inventory sourcing quickly, they remain optimistic about owned brands, viewing sourcing diversification as more of a 2026 initiative. He also noted that the primary impact on demand is a consumer shift to more accessible price points, affecting Average Order Value (AOV).

Mark Altschwager asked about the drivers of reduced customer acquisition costs, questioning the split between internal initiatives and the external marketing environment. He also inquired about the rationale for the 10% growth guidance in G&A expenses for 2025.

Answer

Co-CEO Michael Karanikolas attributed the marketing efficiencies largely to internal initiatives, including AI-powered performance marketing and more efficient brand events. CFO Jesse Timmermans clarified that the 10% G&A growth is on a 'core' basis, excluding prior year non-routine costs, and reflects investments in physical retail, new owned brand launches, and a full year of costs for the Vauthier acquisition.

Mark Altschwager of Baird highlighted that Revolve's sales acceleration seemed counter to macro trends and asked for more context on the specific merchandising and e-mail channel drivers. He also sought clarity on the path to 20% growth versus current performance.

Answer

Co-CEO Michael Karanikolas attributed the strong performance to the company more fully capitalizing on its brand and market opportunity after several quarters of operational improvements came together. CFO Jesse Timmermans clarified that while optimistic about maintaining double-digit growth, the 20% growth target is a longer-term goal for beyond 2025, advising some caution.