Mark Eric Smith

Mark Eric Smith from Lake Street Capital Markets asked about the gross profit margin outlook for the second half of fiscal 2026, specifically the implied impact of tariffs and any timing shifts between Q3 and Q4. He also questioned the company's comfort level with current inventory levels, particularly concerning pre-stocking for tariffs, and whether there has been any change in buying behavior in Latin America.

Answer

Executive Chairman, President & CEO Jim Jenkins and CFO Roger Shannon explained that tariffs impacted margins by about 1.2 points in the past quarter due to timing gaps between tariff implementation and price increases, but this is starting to balance out. They anticipate gross margin improvement in coming quarters, closer to 40% by year-end. Regarding inventory, Jim Jenkins stated they consider levels high and aim to drive them down over the next six months, identifying specific areas like high performance, LHD Australia, and Jolly boots for optimization. Roger Shannon added that high-performance business was up significantly, and they are taking actions to balance production. Jim Jenkins noted that buying in Latin America is starting to see some movement, with delayed fire space shipments expected in the second half, indicating a substantial recovery but not enough to offset earlier losses.

Mark Eric Smith from Lake Street Capital Markets asked for clarification on the gross profit margin outlook for the second half of fiscal 2026, including the impact of tariffs and any timing shifts between Q3 and Q4. He also questioned the company's comfort level with current inventory levels, especially concerning pre-stocking for tariffs, and recent buying behavior trends in Latin America.

Answer

CEO Jim Jenkins explained that tariffs impacted Q2 gross margin by approximately 1.2 points due to a timing gap between tariff implementation and price increases, but expects this to balance out, leading to anticipated gross margin improvement closer to 40% by year-end. Both Mr. Jenkins and CFO Roger Shannon acknowledged current inventory levels are high, with plans to optimize and reduce them over the next six months, citing specific areas like high performance and Latin America. Mr. Jenkins noted some movement in Latin American buying, with delayed fire space shipments expected in the second half, leading to a substantial recovery but not a full make-up for earlier losses.

Mark Eric Smith from Lake Street Capital Markets asked for more details on gross profit margin expectations for the second half of the fiscal year, including the implied impact of tariffs and any timing shifts between Q3 and Q4. He also questioned the comfort level with current inventory levels, particularly regarding pre-stocking for tariffs, and inquired about any changes in buying behavior in Latin America.

Answer

CFO Roger Shannon explained that tariffs impacted gross margins by 1.2 points in the past quarter due to fluctuating numbers and a lag in price increase implementation, but noted that price increases are now catching up. He anticipates gross margin improvement in coming quarters, aiming closer to 40% by year-end. CEO Jim Jenkins stated that inventory levels are considered 'high' and will be driven down over the next six months, focusing on high-performance products, turnaround business, LHD Australia, and Jolly Boots. Mr. Shannon added that the high-performance business is accelerating, but Latin America's woven inventory needs to move, with a target to reduce overall inventory to around $80 million. Mr. Jenkins reported seeing 'some movement' in Latin America, with delayed fire space shipments expected in the second half, indicating a substantial recovery, though not enough to fully offset earlier anticipated losses.