Mark Carden

Mark Carden asked about the monthly performance of organic independent case growth in Q2 2026, the impact of the government shutdown, January's performance, recent weather headwinds on guidance, and the path to achieving 6% organic independent case growth for the full year. He also inquired about the impact of earlier US Foods discussions on sales force hiring and retention, and the pace of sales force growth compared to recent quarters.

Answer

Scott McPherson, EVP and Chief Field Operations Officer, Performance Food Group Company, explained that Q2 started strong in October, moderated during the government shutdown, with November and December being relatively equivalent. January saw a nice rebound, but February was materially impacted by weather, which was factored into guidance. He expressed optimism for the full year and the aspiration for 6% growth. Regarding the sales force, Mr. McPherson stated no significant impact on hiring or retention, noting consistent market share gains and headcount around the 6% range, with hiring decisions decentralized to operating companies.

Mark Carden asked about the monthly cadence of organic independent case growth in Q2, January's performance, the impact of recent weather on guidance, and the likelihood of achieving the 6% organic independent case growth target for the full year.

Answer

CEO Scott McPherson detailed Q2 trends, noting October's strength, November and December's equivalence, and January's rebound, followed by February's weather impact. He expressed optimism for reaching the 6% full-year target. Mark Carden also inquired about the impact of earlier US Foods discussions on sales force hiring and retention, and the pace of sales force growth. CEO Scott McPherson responded that market share gains remained consistent, with headcount growth around 6% in the first two quarters, and hiring decisions are decentralized.

Mark Carden of UBS Investment Bank inquired about Performance Food Group's recent performance trends in July and August, the industry traffic assumptions embedded in the fiscal 2026 guidance, and the current landscape for hiring sales talent.

Answer

CEO George Holm confirmed an uptick in the independent foodservice business in July and early August, supporting the company's confidence in achieving its 6% case growth target. COO Scott McPherson added that restaurant traffic trends are improving, though the convenience segment remains pressured. Regarding hiring, McPherson noted that Q4 was the strongest quarter for adding sales reps, with an 8.8% year-over-year increase, and that quality talent remains available. Holm emphasized this hiring is a strategic investment to accelerate growth.

Mark Carden asked for management's outlook on food cost inflation over the next few quarters and the potential impact on the business if new tariffs were implemented on goods from Mexico or Canada.

Answer

CFO Patrick Hatcher stated that PFG expects inflation to remain at levels similar to Q2, with low-to-mid single digits for Foodservice. Regarding potential tariffs, Hatcher explained that the company views them similarly to inflation, as a cost increase that would largely be passed through to customers, given their pass-through business model.

Mark Carden inquired about the current pace of sales force hiring, any shifts in compensation due to the macroeconomic environment, and the cadence of independent case growth throughout the quarter.

Answer

CEO George Holm responded that the sales force has been growing consistently in the 5-6% range, which aligns with recent growth trends. He noted no significant changes to the commission-based compensation structure. Holm added that independent case growth accelerated by 1-2 percentage points from Q1 into Q2, with each week showing improvement, but cautioned that the company faces a tough comparison against a very strong December in the prior year.

Mark Carden asked about the monthly variation in local case growth during Q2, whether January's growth accelerated further, and the expected impact of recent winter storms on performance.

Answer

Kevin Hourican, Chair of the Board and CEO, explained that Sysco's performance relative to the industry strengthened each month in Q2 and continued into January, driven by improved sales consultant retention and productivity, the AI 360 selling tool, and Perks 2.0 loyalty program. Kenny Cheung, CFO, added that industry foot traffic softened in Q2, but Sysco's inflection strengthened, with December being the strongest exit rate, and reiterated confidence in at least 2.5% growth for the back half of the year, noting Sysco's diversified portfolio.

Mark Carden asked about the monthly variation in Local case growth during Q2 FY26, whether January's growth accelerated further, and the expected impact of recent winter storms.

Answer

CEO Kevin Hourican stated that Sysco's performance relative to the industry strengthened each month of Q2 and continued into January, driven by improved sales consultant retention and productivity, the AI 360 selling tool, and Perks 2.0. CFO Kenny Cheung added that industry foot traffic softened from October to December, but Sysco's inflection strengthened, with December being the strongest exit rate. He confirmed confidence in delivering at least 2.5% Local case growth in the back half of the year, noting Sysco's ability to grow in any environment due to its diversified portfolio.

Mark Carden of UBS Investment Bank inquired about industry dynamics, asking if Sysco is seeing increased promotional activity and whether independent restaurants are showing signs of incremental stress or higher closure rates.

Answer

CEO Kevin Hourican noted that restaurants with strong value propositions are succeeding and that Sysco is not observing any disproportionate stress among local mom-and-pop restaurants compared to larger customers. CFO Kenny Cheung supported this by stating that bad debt as a percentage of sales remains very low at less than 0.1%, indicating no material risk from restaurant closures.

Mark Carden from UBS asked for an assessment of the local restaurant industry's performance compared to national restaurants, and whether there were any notable regional challenges or fluctuations.

Answer

CEO Kevin Hourican explained that national restaurants experienced a 'really tough quarter.' He noted that Sysco's overall national case volume remained stable due to offsetting strength in non-commercial sectors like food service management, travel, and education. He also mentioned that adverse weather headwinds in Q3 were geographically widespread across the U.S., while the International division continued to perform strongly, being less affected by these factors.

Mark Carden of UBS inquired about January sales trends, particularly considering headwinds from winter storms and wildfires, and whether these events would disproportionately affect the local or national business segments.

Answer

CEO Kevin Hourican acknowledged that January is a seasonally low-volume month and was affected by weather events, but stated the impact was equal across both national and local businesses. He reiterated confidence in second-half performance, citing strong momentum in the international, national, and SYGMA segments, along with clear internal progress in the local business.

Mark Carden from UBS questioned how the sales force is adapting to territory adjustments related to the new compensation model and whether the company is achieving the expected benefits from its team-based selling initiatives.

Answer

CEO Kevin Hourican clarified that new headcount is strategically placed in high-growth markets, minimizing disruption to existing sales staff. He confirmed that the total team selling initiative is on track, with sales teams successfully collaborating to introduce specialty offerings to Broadline customers. He reiterated that when a customer adds just one specialty business, their total purchases with Sysco typically increase threefold.

Mark Carden asked about Albertsons' surgical investments in value, the traction gained with grocery unit growth, the overall pricing environment relative to expectations, and the risk of needing incremental price investments. He also inquired about the progress of new pharmacy shoppers crossing over to purchase more grocery items and any changes in timing or lifts given macro pressures.

Answer

CEO Susan Morris explained that Albertsons employs a surgical, data-driven approach to price investments, seeing 'green shoots' in invested categories. She highlighted that price investment includes loyalty, promotions, base price adjustments, and managing inflation pass-through. President and CFO Sharon McCollam added that own brands are a key tool for providing value. Regarding pharmacy, Susan Morris noted that most pharmacy customers already shop grocery, and engagement deepens over a 1-2 year journey, leading to higher loyalty and digital platform adoption.

Mark Carden asked about the effectiveness of Albertsons' surgical price investments amidst a competitive pricing environment and the potential need for further investments. He also inquired about the progress of converting new pharmacy shoppers to grocery customers and any changes in engagement timing due to macro pressures.

Answer

CEO Susan Morris explained that Albertsons employs a surgical, data-driven approach to price investments, seeing positive 'green shoots' in invested categories. She highlighted that price investment includes loyalty, promotions, base price, and managing inflation pass-through, noting that personalized loyalty discounts materially impact effective prices. President and CFO Sharon McCollam added that Own Brands are a key tool for providing value. Regarding pharmacy, Susan Morris stated that most new pharmacy customers already shop grocery, and the focus is on deepening engagement, which typically takes 1-2 years to achieve a robust loyalty platform.

Mark Carden inquired about the contribution of GLP-1s to pharmacy growth and the potential impact of tariffs on future inflation.

Answer

President & CFO Sharon McCollam stated that GLP-1s accounted for about half of the pharmacy comp growth, but core script growth was also very strong. CEO Susan Morris added that while GLP-1 users' grocery baskets initially dip, they later shift to profitable categories like supplements and lean proteins. On tariffs, Morris noted that while over 90% of goods are sourced domestically, the company is pushing back on ingredient-driven cost increases from CPG partners and leveraging its Own Brands as an alternative.

Asked about the contribution of GLP-1s to pharmacy growth, the source of non-GLP-1 growth, and the expected impact of tariffs on future inflation.

Answer

GLP-1s account for about half of the pharmacy comp growth, but core script growth is also very strong. The company noted that while GLP-1 scripts have a different profitability, the customers are valuable and increase their grocery spend over time. Regarding tariffs, the company's first defense is to push back on CPG partners, then seek alternate sources, and finally pass on costs if necessary, while also looking to OwnBrands as a solution.

Mark Carden of UBS asked about Albertsons' exposure to potential tariffs, specifically the proportion of imported goods, and inquired about the demand outlook for the Albertsons Media Collective (AMC) amidst the current macroeconomic environment.

Answer

CEO-elect Susan Morris explained that over 90% of products are procured domestically, mitigating direct tariff impact, though a task force is monitoring indirect effects. Regarding AMC, she noted that despite being nascent, it is delivering outsized growth compared to the market, and the company remains optimistic about its 2025 goals.

Inquired about the drivers of pharmacy growth, specifically the split between competitor closures and internal initiatives, and how GLP-1s have trended. Also asked about performance shifts by income cohort.

Answer

Pharmacy growth is a combination of both internal initiatives (like the Sincerely Health app and better execution) and capturing sales from competitor closures. GLP-1s are growing but are margin-negative. The company is not seeing material shifts in performance by income cohort, but notes that cautious consumers are shopping more retailers in general.

Mark Carden asked about the drivers of pharmacy growth, specifically the balance between competitor closures and internal initiatives, and the contribution trend from GLP-1s. He also inquired about performance shifts among different income cohorts.

Answer

CEO Vivek Sankaran attributed strong pharmacy growth to both internal initiatives, like the Sincerely Health app and improved execution, and capturing sales from competitor closures. He noted that while GLP-1 drug sales are growing, they have a negative margin impact. He also stated that there have been no material shifts in performance by income cohort, though customers are generally shopping more retailers.

Mark Carden asked about the difference in same-SKU inflation between the retail and commercial businesses. He also inquired about stronger and weaker product categories during the quarter and whether improvement was still observed on the discretionary side, including if this was driven by inflation or unit growth.

Answer

President and CEO Philip Daniele III explained that the difference in same-SKU inflation is due to the mix of products, with commercial having a higher hard part mix and newer, more technologically advanced (and thus more expensive) SKUs. He noted that failure and maintenance categories were the best performers, while purely discretionary items, after years of decline, have flattened out and shown slight year-over-year growth, driven by a combination of same-SKU inflation and unit increases.

Mark Carden followed up on the marketing spend shift from print to digital, asking about the traditional print flyer's future role and expected incremental changes in advertising strategy.

Answer

Eric van der Valk (President and CEO) stated that the company still believes in flyer events but will continue to evolve how the message is delivered, shifting dollars from print (Shared Mail) to digital channels. He emphasized that the shift is accelerating due to data insights and the "inevitable decline of print media," aiming to reach more people long-term without necessarily viewing it as an SG&A opportunity.

Mark Carden asked about the future role of the traditional print flyer in Ollie's advertising strategy, following the shift of marketing spend from print to digital, and whether further changes are expected in the coming quarters.

Answer

President and CEO Eric van der Valk confirmed that Ollie's still believes in flyer events but is evolving how the message is delivered, shifting from print-delivered (primarily Shared Mail) to digital channels. He noted significant engagement from digital channels around flyer events and plans to continue accelerating the shift of dollars from print and linear media to digital. He views the decline of print media as inevitable and aims to stay ahead by making smart decisions to ensure flyer exposure through more effective long-term media.

Mark Carden asked about the difference in sales capture between 'warm box' locations (former Big Lots) and the existing store base, and also inquired about Ollie's Army sign-up trends among former Big Lots customers.

Answer

EVP and CFO Robert Helm noted no noticeable top-line sales difference between organic and Big Lots openings, but highlighted better operating margins in the converted locations due to lower rents. President and CEO Eric van der Valk confirmed that new stores, a majority of which are former Big Lots locations, are seeing outpaced growth in Ollie's Army acquisition, as these customers appreciate the familiar deep-discount value proposition.

Matt Rothway, on behalf of Mark Carden, asked when the acquired 99 Cents Only stores might reach full sales productivity and inquired about the lease term lengths for the newly acquired Big Lots stores.

Answer

Executive Eric van der Valk stated it was too early to predict the exact maturity curve for the 99 Cents Only stores but noted they are performing well. Executive Robert Helm highlighted that securing long lease terms was a key acquisition criterion, with many of the Big Lots leases extending 20 to 30 years, which provides confidence for future growth and profitability.

Mark Carden asked how Ollie's balances potential incremental costs from tariffs with the potential for increased demand from budget-conscious consumers. He also requested initial takeaways from the new credit card rollout.

Answer

CFO Robert Helm noted that market disruptions like tariffs often create more closeout opportunities, and being a price follower positions them well. CEO-elect Eric van der Valk reported the credit card test is going well, with higher-than-expected approval rates and spending. A full rollout is planned for 2025, though customer demographic data is not yet available.

Mark Carden questioned how UNFI's conventional business would have performed without the Allentown transition, given its accelerated completion, and asked about the health of the consumer in both the natural organic and conventional segments. He also followed up on any incremental customer attrition experienced after the cyber attack and how it compared to prior expectations.

Answer

CEO Sandy Douglas clarified that the majority of conventional weakness was due to network optimization, particularly the Allentown exit, and noted a bumpy quarter for the conventional consumer due to external factors. He highlighted strong growth in the natural environment and reiterated the long-term mid-single-digit growth expectation for the natural business. Regarding the cyber attack, Sandy Douglas stated that customer attrition was consistent with previous expectations, with one new customer gained and one lost, and emphasized UNFI's focus on serving customers to maintain retention.

Mark Carden asked about the performance of the conventional business excluding the Allentown transition, given its accelerated completion, and inquired about the health of the consumer in both natural organic and conventional segments. He also followed up on any incremental customer attrition observed after the cyber attack, comparing it to prior expectations.

Answer

Sandy Douglas (CEO, UNFI) attributed the majority of conventional weakness to network optimization, noting consumer pressure, SNAP delays, and a highly competitive environment. He highlighted strong growth in the natural segment, reiterating a long-term mid-single-digit growth expectation for the industry. Regarding the cyber attack, Sandy Douglas stated that customer attrition was no different than previously reported, with one southern customer gained and one upper Midwest customer lost, emphasizing UNFI's efforts to serve customers well.

Mark Carden inquired about UNFI's updated three-year guidance, specifically the boosted sales growth expectations, asking if there are shifts in planned customer attrition or new account growth assumptions. He also asked about the current industry promotional backdrop and how it aligns with UNFI's expectations given market unevenness.

Answer

CEO Sandy Douglas stated that the improved sales outlook reflects better organic growth from new and existing customers, higher customer retention, and enduring tailwinds in natural/organic, with no change in overall strategy. President and CFO Matteo Tarditi noted that promotional cadence is edging up but remains disciplined, with volume sold on deal still below 2019 levels, and UNFI's fiscal 2026 outlook assumes an immaterial step change in promotions.

Mark Carden asked for more color on UNFI's updated three-year guidance, specifically regarding the boost in sales growth expectations to low single digits. He questioned if there were shifts in planned customer attrition or new account growth assumptions. He also inquired about the current industry promotional backdrop and how it aligns with UNFI's expectations.

Answer

CEO Sandy Douglas attributed the improved sales outlook to better organic growth, driven by customer file growth, expanding categories with existing customers, and strong customer retention, particularly within the natural and organic segments. He noted that the strategy for various segments remains unchanged, but performance exceeded initial expectations. President and CFO Matteo Tarditi stated that the promotional cadence is edging up but remains disciplined, with volume sold on deal still below 2019 levels. He expects an immaterial step change in promotion levels for fiscal 2026.

Mark Carden of UBS Investment Bank asked about the annualized value of the Key Food contract and whether the situation was unique or might influence how UNFI approaches future large contracts. He also inquired about the customer response to the cyberattack.

Answer

CEO Sandy Douglas declined to comment on specific contract values but stressed that UNFI now employs a rigorous underwriting process to ensure all agreements are mutually beneficial. He noted that the customer response to the cyberattack has been "extremely constructive and collaborative," and the company's immediate priority is serving existing customers rather than new business acquisition.

Mark Carden from UBS asked if UNFI has observed any recent shifts in end-customer behavior early in the third quarter. He also inquired about the company's exposure to potential tariffs and the expected impact on pricing and consumer demand.

Answer

CEO James Alexander Douglas stated that no significant changes in consumer behavior have been observed and that UNFI's customer base continues to perform strongly. Regarding tariffs, he noted the situation is fluid and the company is leveraging lessons from past disruptions to ensure supply chain resiliency, but it is too early to predict the ultimate impact on food-at-home versus food-away-from-home spending.

Mark Carden of UBS Group AG asked about the expected growth balance between independent conventional grocers and chains, and the traction of professional services within the natural and organic customer base.

Answer

CEO Sandy Douglas responded that performance varies by individual retailer rather than by segment. He also stated that professional services, while historically conventional-focused, are being expanded across the entire customer base and are significantly outgrowing the general business.

Mark Carden inquired about the continued strength in Sprouts' differentiated products despite the overall slowdown. He asked if customers were spreading out their shopping more or becoming more price-sensitive on less differentiated items like produce, if there were shifts in overall wallet share, and about the broader promotional environment. He also asked about the pace of adding private label SKUs given the softening consumer.

Answer

Nick Konat, President and Chief Operating Officer, confirmed that differentiation levels remained strong, with the most differentiated and innovative products driving the strongest growth. He noted that Sprouts' share of wallet was holding or slightly up, indicating customers were not shifting spend elsewhere, but rather spending a little less on the tail end of their basket. Regarding private label, Nick stated they maintain an aggressive pace of adding unique SKUs, not competing on national brand comparisons, and will continue to fuel this pipeline. Jack Sinclair, Chief Executive Officer, reiterated aggressive investment in the Sprouts Brand.

Mark Carden inquired about the continued strength in Sprouts' differentiated products amidst a slowdown, asking if customers are becoming more price-sensitive on less differentiated items like produce, and how the company views its overall wallet share and future promotional environment. He also asked about the pace of adding private label SKUs.

Answer

President and COO Nick Konat stated that differentiation levels remain strong, with differentiated products driving the strongest growth. He noted that Sprouts' share of wallet is holding steady, indicating customers are not shifting spend elsewhere, but rather spending slightly less on the 'tail end of their basket.' CEO Jack Sinclair added that private label investment will continue aggressively.

Mark Carden from UBS Investment Bank asked if recent strikes at conventional competitors have created broader wage pressure for Sprouts. He also questioned if the company is seeing a sales lift from declining restaurant traffic, particularly in prepared foods.

Answer

CEO Jack Sinclair stated that Sprouts has not seen major wage pressure, emphasizing their proactive approach to compensation, including paying above average in their markets and offering bonuses to all store team members. He also noted that while the company is investing heavily in its prepared foods program, which may be helping, it's part of a broader strategy.

Mark Carden asked if Sprouts has seen a step-up in capturing sales from the food-away-from-home channel and how it approaches customer retention for this segment. He also inquired about the potential impact of tariffs on the pace of new store growth due to higher construction costs.

Answer

President and COO Nick Konat responded that Sprouts believes it is capturing some of that spend, particularly from its core customer seeking healthy, convenient meals. He emphasized that the loyalty program is the key opportunity for retention by personalizing offers. CEO Jack Sinclair addressed tariffs, stating that while the food business is well-protected, they are monitoring construction costs. However, he expressed confidence that the strong returns on new stores can absorb potential cost increases for now.

Mark Carden questioned which channels Sprouts is taking market share from, whether the demographic profile of new shoppers is changing, and the company's exposure to potential import tariffs.

Answer

President and COO Nick Konat described growth as balanced across all channels and regions, with new customer demographics remaining consistent with the existing base of higher-educated, higher-income shoppers. CEO Jack Sinclair stated that while some produce is imported, the company is prepared to manage sourcing and margins to mitigate any potential tariff impacts.

Mark Carden asked about the monthly cadence of comparable store sales in Q3, the impact of hurricanes, and the implied acceleration in Q4 guidance. He also questioned the comp contribution from newer store vintages.

Answer

CFO Curtis Valentine confirmed a slight acceleration late in Q3 with a minor benefit from hurricanes, leading to strong momentum. He stated that newer store vintages contribute over 100 basis points to comps, performing as expected. CEO Jack Sinclair added that stores opened during the COVID era are now showing a particularly strong consumer response.

Mark Carden from UBS asked about gasoline gallon market share, specifically whether lower gas prices have altered customer behavior or impacted club traffic. He also inquired if the company was buying more aggressively in any categories in response to changing customer demand.

Answer

EVP of Strategy & Development Bill Werner reported continued market share gains in gasoline, with comp gallons flat against a declining market and total gallons up 7%. He noted consistent performance and emphasized the value proposition of saving members an average of $0.20 per gallon. CEO Bob Eddy responded to the follow-up, stating that no specific categories came to mind where they were buying more aggressively, as the GM transformation is a dynamic, category-by-category rebuild.

Mark Carden of UBS inquired if the reduced merchandise margin outlook was driven by price investments or product mix, and if there was a need to increase discounts for new members. He also asked if BJ's sees a membership uptick when conventional grocery competitors close stores.

Answer

CEO Robert Eddy confirmed the margin pressure is mainly from proactive price investments but also includes a mix impact from the growth of perishables. He stated that the company's successful discounted first-year membership model will continue. Regarding competitor closures, he views it as a significant opportunity to play offense and gain market share by highlighting BJ's superior value proposition.

Mark Carden from UBS asked about gasoline gallon market share, specifically if lower gas prices in certain weeks impacted customer trip frequency. He also followed up by asking if BJ's was buying more aggressively in any categories to offset the caution in tariff-impacted ones.

Answer

EVP, Strategy & Development Bill Werner handled the gas question, stating that performance was consistent and that comp gallons were flat, outperforming the market by several hundred basis points. CEO Bob Eddy answered the follow-up, stating that while the buying approach is dynamic, no specific categories came to mind where they were buying significantly more aggressively to offset tariff-related caution.

Mark Carden from UBS questioned how potential higher material costs from tariffs might impact the timing and prioritization of new store and distribution center growth, and whether it creates an opportunity to play offense.

Answer

EVP, Strategy and Development William Werner acknowledged some construction cost impacts but stressed that these are long-term investments. He said the company is leveraging its scale to manage costs and that the overall investment returns for new clubs remain strong, so they intend to 'keep going' with their expansion plans.

Mark Carden asked how higher materials costs, potentially from tariffs, might impact the timing of new store and distribution center growth and whether it affects the prioritization of new versus existing markets.

Answer

EVP, Strategy and Development Bill Werner confirmed that while they have seen some cost impacts, they view new clubs as long-term, 20- to 40-year investments. He said the company is leveraging its scale to manage construction costs and that the overall investment case and returns for new clubs remain highly attractive. As a result, they plan to 'keep going' with their expansion plans, and he noted the new DC construction is progressing well.

Mark Carden asked how higher materials costs, potentially related to tariffs, could impact the timing and prioritization of new store and distribution center (DC) growth.

Answer

EVP, Strategy and Development Bill Werner acknowledged some construction cost impacts but stressed that these are long-term, 20-to-40-year investments. He stated that the company leverages its scale to manage costs and that the overall investment returns for new clubs remain highly attractive, so they plan to 'keep going.' He also confirmed that construction of the new DC is progressing well.

Mark Carden questioned how higher materials costs from tariffs might affect the real estate growth plan, including the timing of new clubs and distribution centers, and market prioritization.

Answer

EVP, Strategy and Development, Bill Werner acknowledged construction cost impacts but emphasized that new clubs are long-term investments. He stated that the company is leveraging its scale to manage costs and that the overall investment returns remain strong, so they plan to 'keep going.' He also confirmed the new DC construction is progressing well.

Mark Carden of UBS asked about the potential impact on demand if consumer pressures like tariffs cause CPI to outpace wage growth. He also inquired about any geographic pockets of strength or weakness in independent case growth and the impact of the Freshway divestiture.

Answer

CFO Dirk Locascio noted that consumer demand has been relatively stable, as historical data shows people consistently spend a similar portion of their income on dining out through various economic cycles. CEO Dave Flitman stated the Freshway divestiture had an immaterial impact on independent growth. He identified the Southeast and South as areas of strength, with some relative softness in the Pacific Northwest and Upper New England.

Mark Carden of UBS inquired about US Foods' exposure to potential food tariffs, the ability to pass on costs, and the balance between new account growth and penetration for independent restaurant case growth in the upcoming year.

Answer

CEO David Flitman explained that the company has low to mid-single-digit import exposure and that most customer agreements are pass-through in nature. He emphasized that the company's core strategy involves helping customers manage inflation through private label brands and operational consulting. Flitman also noted that while penetration has been challenging due to foot traffic, the majority of growth comes from new account generation, which saw its fastest rate of the year in December.

Mark Carden asked about the progress and key learnings from the Descartes routing technology rollout and questioned the overall demand trends and hurricane impacts on the hospitality sector.

Answer

CEO David Flitman stated the Descartes rollout is proceeding "extremely well," with learnings from early pilots improving customer dialogue and ensuring smooth implementation. CFO Dirk Locascio added that while the hospitality sector was affected by storms and soft traffic, it has shown recent improvement and maintains a strong new business pipeline.

Mark Carden of UBS Investment Bank inquired about the current health of the consumer, any changes in shopping habits, the potential impact of SNAP changes, and the overall health of the Independent Operator (IO) base.

Answer

President and CEO Jason Potter stated that the company is not yet seeing significant changes in consumer behavior but is focused on execution to be ready for any market eventuality. He noted that changes to SNAP benefits typically drive value-seeking behavior, which benefits Grocery Outlet. Regarding the IO base, Potter described it as healthy, citing voluntary attrition below 10% and emphasizing his commitment to improving communication and making the business easier to run for operators.

Mark Carden of UBS asked CEO Jason Potter if he sees any parallels between his experience leading a turnaround at Fresh Market and the current opportunities at Grocery Outlet, particularly regarding low-hanging fruit.

Answer

CEO Jason Potter acknowledged his experience at Fresh Market, where the team drove growth by focusing on execution, the guest experience, and a clear strategy. He noted that while there are takeaways, his current priority at Grocery Outlet is listening and learning to inform long-term thinking, while aligning with the clear near-term priorities set by the team.

Mark Carden asked for an update on the United Grocery Outlet (UGO) acquisition, including its performance relative to expectations, the impact of recent execution challenges, and any changes to the timeline for converting stores to the independent operator model.

Answer

Interim President and CEO Eric Lindberg reported that the UGO integration is proceeding as planned, with no aggressive transition schedule. He clarified that the conversion of UGO stores to the independent operator model is not planned until after 2025. Near-term priorities include infusing UGO stores with Grocery Outlet's product assortment and performing minor store refreshes.

Mark Carden of UBS Investment Bank inquired about the underlying health of the restaurant industry, asking if The Chef's Warehouse is seeing any pockets of weakness or elevated closures, and questioned the impact of return-to-office policies on business dining.

Answer

Christopher Pappas, Founder, Chairman, and CEO, described the current environment as a "Goldilocks" scenario, stating their customer base is resilient and the company is gaining market share from prior investments. He noted that while return-to-office policies are a net positive, the effect is balanced as it shifts dining from local suburban areas to major cities, particularly impacting lunch and Friday dinners.

Mark Carden from UBS asked if a reported decline in international travel to the U.S. could be a material headwind and whether potential tariffs might impact the company's facility growth plans and return on capital.

Answer

Christopher Pappas, Founder, Chairman and CEO, acknowledged tourism's importance but highlighted the company's resilience due to its diverse business in suburbs and with local restaurants, stating they haven't seen a major impact. James Leddy, CFO, added that current facility projects are not affected by tariff risks, and future plans will adapt. Mr. Pappas also noted a strategic shift towards using technology to build smaller, more efficient facilities to manage costs.

Mark Carden inquired about the impact of softer industry traffic in December and recent weather events on Q4 and Q1-to-date performance. He also asked about the company's potential exposure to tariffs from Mexico, Canada, and Europe and its ability to mitigate these through pricing or sourcing adjustments.

Answer

CEO Christopher Pappas stated that Q4 business was consistently strong without material impact from holiday timing. He noted that while January weather and California fires had some effect, it was not material to the overall business. Regarding tariffs, Pappas explained that with over 4,000 suppliers and a large domestic product base, the company has historically navigated tariffs by finding solutions and passing on costs, noting that such increases are a small part of their high-end customers' overall expenses.

Mark Carden inquired about business trends during the third quarter, asking if any new areas of softness emerged beyond the summer travel impact, and questioned the current hiring environment for salespeople.

Answer

CFO Jim Leddy confirmed a softer July and early August due to international travel, which he noted may be a 'new normal,' impacting top-line revenue by about 1%. However, he highlighted that trends improved into September and October. CEO Chris Pappas added that the company is continuously hiring to build its talent 'bench,' emphasizing the long training cycle for relationship managers and noting low turnover among experienced staff.

Mark Carden, on for Michael Lasser, asked about behavioral changes observed in middle and higher-income customer cohorts, particularly regarding trade-down activity.

Answer

CEO Rodney McMullen noted that behavior changes, like shifting from restaurants to home cooking or purchasing more Our Brands products, are more pronounced at the end of the month. He emphasized that many of these shifts are beneficial to Kroger and that the company proactively addresses these trends with offerings like its Smart Way brand.