Michael Lasser

Michael Lasser from UBS Investment Bank questioned if the higher 2026 sales guidance compared to 2025 was solely due to better visibility into inflation and pricing. He also asked about the potential for broad-based deflation in the industry if tariffs were rolled back. His follow-up focused on the risk of O'Reilly Automotive's SG&A per store growth exceeding expectations again in 2026, and whether elevated industry costs are becoming a permanent fixture.

Answer

CFO Jeremy Fletcher confirmed that the 2026 guidance reflects a different pricing assumption due to calendaring 2025's tariff-induced inflation, but historically, the industry maintains price increases. President Brent G. Kirby noted the administration's continued focus on tariffs. CEO Brad W. Beckham distinguished recent self-insurance cost pressures from prior strategic investments in SG&A, suggesting the latter have moderated. He acknowledged ongoing self-insurance risks but expressed hope for stabilization, not viewing them as permanent industry 'table stakes.'

Michael Lasser asked why O'Reilly's initial 2026 guidance of 3%-5% was 100 basis points higher than the original 2025 guidance, specifically if it was due to better visibility into inflation and pricing. He also questioned the prospect of broad-based deflation in the industry if tariffs were rolled back. Additionally, he asked about the risk of undercalculating SG&A per store growth for 2026, given past trends and elevated growth from competitors, and if this represents a new 'table stakes' cost of doing business.

Answer

Jeremy Fletcher, CFO, confirmed that a different pricing assumption, leveraging the calendar benefit from 2025, is built into the 2026 guidance. He noted that the industry has historically been disciplined in retaining price increases, as cost relief is often temporary. Brent G. Kirby, President, added that the company assumes a stable tariff environment based on current knowledge. Brad W. Beckham, CEO, clarified that recent heightened inflation in self-insurance costs was discrete and harder to control, unlike elective investments. He believes strategic investments in hub stores and distribution have been productive and are not industry-wide 'new table stakes,' while remaining cognizant of potential cost pressures.

Michael Lasser inquired if the mid-single-digit inflation benefit in Q4 is the peak and if O'Reilly's current comp performance is 'as good as it gets,' also asking about conditions for restoring SG&A per store growth to 2% and technology investments.

Answer

Jeremy Fletcher (CFO, O'Reilly Automotive) indicated Q4 likely sees most inflation benefit, but O'Reilly's long-term share growth is driven by execution, not just inflation. Brad Beckham (CEO, O'Reilly Automotive) emphasized that they don't operate with an 'as good as it gets' mindset, focusing on continued industry consolidation and operational improvements. Brent Kirby (President, O'Reilly Automotive) discussed broader macro conditions (wage inflation, rising prices) impacting SG&A, emphasizing intense expense control balanced with high service levels. Brad Beckham (CEO, O'Reilly Automotive) reiterated pride in operating profit rates and disciplined investment in technology, teams, and supply chain for long-term growth.

Michael Lasser asked if the mid-single-digit inflation benefit in Q4 represents the peak contribution from inflation and if a mid-single-digit comparable store sales growth is the new normal for O'Reilly's model. He also inquired about the conditions necessary to restore SG&A per store growth to the 2% range and the management's focus on technology investments to ease cost pressures.

Answer

CFO Jeremy Fletcher indicated that most expected inflation benefit from current tariffs would be in Q4, but emphasized that share growth is driven by execution, not just inflation. CEO Brad Beckham reiterated confidence in O'Reilly's ability to consolidate the industry and improve operations. President Brent Kirby explained that restoring SG&A per store growth to 2% would require broader macro conditions like muted wage inflation and lower overall economic inflation, while emphasizing the company's commitment to high service levels and disciplined investments in technology and supply chain.

Michael Lasser from UBS Group AG inquired whether the cost of doing business in the auto aftermarket has structurally increased, leading to persistently higher SG&A. He also asked if the softer DIY business in June signals growing consumer price sensitivity that could impact the rest of the year.

Answer

CEO Brad Beckham acknowledged some increased cost pressures but emphasized that the long-term operating profit model remains intact due to significant market share opportunities from ongoing industry consolidation. Regarding the June DIY softness, he attributed it primarily to wet weather rather than a fundamental shift in consumer behavior, noting that July trends were solid, though the company remains cautious.

Michael Lasser from UBS asked if the cost of doing business has permanently increased due to a stronger competitive field and whether the softness in the DIY segment in June signals broader consumer weakness.

Answer

CEO Brad Beckham acknowledged cyclical cost pressures but affirmed the company's long-term operating profit goals remain intact, citing ongoing industry consolidation as a key opportunity. He attributed the softness in June's DIY business primarily to wet weather rather than a fundamental shift in consumer health, noting that business trends have been solid to start July.

Michael Lasser inquired about the potential impact of current tariffs on sales and earnings if they persist, and whether O'Reilly's premium service model could be a disadvantage in a hyper-inflationary environment.

Answer

Executive Brad Beckham described the tariff situation as highly "fluid," making it difficult to extrapolate future impacts. President Brent Kirby added that complexities like automotive parts exemptions and ongoing negotiations prevent a precise forecast. Both executives expressed confidence in the industry's resilience and O'Reilly's competitive pricing, refuting the idea that their service model is a disadvantage, stating it provides a better negotiating position and that their pricing is highly competitive.

Michael Lasser from UBS asked about the decision to guide comparable store sales to 2-4% instead of the typical 3-5% range, and how any potential outperformance might flow through to the P&L.

Answer

CEO Brad Beckham explained the more cautious 2-4% comp guidance reflects a still-choppy business environment and a pressured consumer, despite a strong Q4 that benefited from softer comparisons. For the long term, he noted significant market share opportunity remains. CFO Jeremy Fletcher and CEO Brad Beckham addressed the flow-through question, stating it would depend on the source of the upside; inflation-driven comps might offer easier leverage, while share-gain-driven comps might prompt reinvestment into customer service for long-term benefit.

Michael Lasser of UBS questioned O'Reilly's 2025 guidance philosophy after recent downward revisions and asked about preparations for potential significant tariffs on imported goods.

Answer

CFO Jeremy Fletcher stated it was too early to provide 2025 guidance but affirmed their business is structured to gain share and deliver strong returns. On tariffs, President Brent Kirby referenced the 2018 experience, noting they successfully passed on costs and have since increased supply chain diversification away from China. CEO Brad Beckham added that they have a playbook to manage tariffs, which would affect the entire industry.

Michael Lasser questioned the necessary economic or other conditions for Tractor Supply to return to its 3%-5% comparable store sales growth algorithm, the reasonable timeframe for this, and whether the company's significant productivity gains over the past decade make achieving such growth more challenging now.

Answer

CEO Hal Lawton affirmed Tractor Supply's commitment to its long-term comp sales algorithm, expressing confidence in the company's ability to return to it through investments in its core flywheel, store remodels, new stores, and strategic initiatives. He emphasized that the company's toolkit remains effective and is continuously enhanced.

Michael Lasser questioned the conditions, economic or otherwise, necessary for Tractor Supply to return to its 3%-5% comparable store sales growth algorithm, the reasonable timeframe for this, and whether increased productivity and market share make achieving past growth rates more challenging.

Answer

CEO Hal Lawton reaffirmed the company's commitment to its long-term comp sales algorithm, stating confidence in the existing toolkit and strategic initiatives to achieve this growth. He believes the company is on a path to return to those growth rates, leveraging investments in its core flywheel and strategic initiatives.

Michael Lasser inquired about changes in consumer behavior within the 'Life Out Here' environment, particularly regarding recent slowing trends and whether they are weather-related or indicative of broader shifts. He also asked for more detail on the expected contribution of initiatives like direct sales into next year.

Answer

Hal Lawton (President and CEO) affirmed that the consumer remains strong and resilient, citing exceptional Q3 customer metrics. He attributed recent Q4 softness to unfavorable weather, noting that the core 'queue' business remains stable. Lawton expressed optimism for the balance of Q4, emphasizing the importance of cold weather in December. Regarding initiatives, he reiterated that 2026 is when their impact will be more visible, with direct sales contributing to growth.

Michael Lasser inquired about any changes in consumer behavior within the 'Life Out Here' environment, particularly regarding perceived Q4 slowdowns and whether they are weather-related or indicative of broader trends. He also asked for more detail on the expected contribution of initiatives, like the $200,000 per week in direct sales, to next year's performance.

Answer

Hal Lawton, President and CEO, stated that the consumer remains strong and resilient, with exceptional Q3 customer engagement metrics. He acknowledged unfavorable weather in early October but expressed optimism for the balance of Q4, driven by anticipated cold weather in December, and reiterated confidence in the 1-5% comp guidance. Regarding initiatives, Hal noted that 20-25 of the 48 sales reps are driving the bulk of the $250,000 per week sales, which are ramping sequentially and expected to contribute to growth next year.

Michael Lasser from UBS Group posed two questions: one for Seth Estep on price elasticity for non-consumable items given upcoming inflation, and one for Colin Yankee on how new Final Mile capabilities position Tractor Supply against competitors like Amazon in rural markets.

Answer

EVP & Chief Merchandising Officer Seth Estep explained that when the entire market moves on price, as with tariffs, elasticities tend to decrease, and they use a portfolio approach to manage pricing. EVP & Chief Supply Chain Officer Colin Yankee stated the Final Mile initiative is a contemporary approach to rural delivery aimed at extending legendary service, competing with local and regional players by leveraging their store footprint, inventory, and customer trust.

Michael Lasser sought to reconcile the guidance, noting that embedding only 90 days of tariffs seems at odds with a full-year comp midpoint that implies price increases. He asked for the embedded inflation and expected elasticity.

Answer

CEO Hal Lawton and CFO Kurt Barton clarified the outlook. Lawton pointed to strong transaction growth, strength in C.U.E. categories, and an expected turn to positive AUR mid-year as natural tailwinds. Barton added that tariff costs incurred by vendors in Q2 would likely impact retail prices in the second half, explaining the potential for AUR upside later in the year.

Michael Lasser asked if the 1% to 3% comp outlook for 2025 should be considered conservative, given the solid start to the year and positive drivers. He also inquired how potential comp upside would flow to the bottom line versus being reinvested.

Answer

CEO Harry Lawton stated that while the year has started well, the 1% to 3% comp guidance is what the company feels is appropriate for the full year. Regarding potential upside, Lawton explained that the company would evaluate various scenarios. He noted that historically, when comps outperform, they assess reinvestment opportunities in current initiatives but also acknowledged that with comp growth in the long-term target range of 3-5%, they expect operating margin leverage, implying upside would flow to the higher end of guidance.

Michael Lasser questioned the path back to historical 1-2% traffic growth, asking if it is macro-dependent and whether Tractor Supply would be willing to sacrifice gross margin to stimulate that growth.

Answer

CEO Hal Lawton defended the company's transaction performance, noting its strength over a multi-year period and its current position in the top quartile of retail. He stated that a return to stronger traffic growth is largely dependent on the macro environment, specifically a normalization of the goods-to-services spending shift, which he believes will lift all retailers. He did not suggest a willingness to sacrifice margin for traffic.

Michael Lasser asked about the path to restoring historical 1-2% traffic growth, whether it is macro-dependent, and if Tractor Supply would consider sacrificing gross margin to stimulate that growth.

Answer

CEO Hal Lawton positioned the company's current transaction growth as strong relative to the broader retail market, which is flat to negative. He emphasized that Tractor Supply's multi-year transaction growth is a key strength and believes a return to higher traffic levels is tied to a normalization of the macro environment, particularly the consumer spending shift from services back toward goods.

Michael Lasser from UBS questioned whether RH should slow the pace of its initiatives to achieve greater predictability and higher profitability, and if the Q4 guidance signals limitations in managing tariffs with price, potentially impacting next year's top line and tariff absorption.

Answer

Gary Friedman, Chairman and CEO, asserted that RH chooses to maintain high ambitions and strategic investments, viewing quarterly reporting as a discipline rather than a constraint on long-term growth and market share gains. Jack Preston, CFO, clarified that Q4 tariff impact was largely timing-related, emphasizing ongoing mitigation efforts and a commitment to positive free cash flow despite market uncertainties.

Michael Lasser asked if RH would consider slowing the pace of its initiatives to achieve more predictability and higher profitability, and whether the Q4 guidance, showing a top-line slowdown and tariff absorption, indicates limitations in managing tariffs with price.

Answer

Chairman and CEO Gary Friedman asserted that the company's high ambitions and investment pace are strategic for long-term growth and market share gains, not for short-term predictability, likening RH to a 'Silicon Valley startup.' CFO Jack Preston and Friedman addressed tariffs, explaining that Q3's impact was partly due to timing and that mitigation efforts, including price increases, are ongoing, but the situation remains dynamic and subject to external factors.

Michael Lasser focused on RH's discounting and promotional messaging, asking if it drives incremental sales and if the company plans to reduce it as the housing market improves. He then questioned the skepticism around the H2 margin outlook, asking for more detail on the Q3 and Q4 margin expectations.

Answer

Chairman and CEO Gary Friedman explained that discounting is standard in the luxury furniture industry, where designers receive significant trade discounts, and RH's membership model aims to smooth this. He emphasized that RH operates in the worst housing market in 38 years and that not promoting would be detrimental, dismissing claims of competitors not promoting. CFO Jack Preston clarified that the margin guidance incorporates seasonality in advertising expenses and book mailings, but did not provide specific details on pricing actions or their timing, stating these are embedded in the overall outlook.

Michael Lasser questioned whether RH's current discounting and promotional messaging are driving incremental sales and if the company plans to reduce these activities as the housing market improves and demand naturally increases.

Answer

Chairman & CEO Gary Friedman clarified that promotions are standard in the luxury furniture industry, where designers often receive significant discounts, distinguishing it from the fashion sector. He asserted that in the current challenging housing market, not promoting would be detrimental. CFO Jack Preston added that margin expectations for the back half of the year are embedded in the guidance, with seasonality in advertising expenses being a factor.

Michael Lasser inquired about the impact of discounting and promotional messaging on RH's sales and whether the company plans to reduce these efforts as the housing market improves.

Answer

Chairman and CEO Gary Friedman explained that promotions are a competitive necessity in the luxury furniture industry, which differs significantly from fashion, especially during the current challenging housing market. CFO Jack Preston clarified that the margin outlook incorporates seasonality and embedded pricing actions.

Michael Lasser of UBS Group asked what factors offset the increased membership discount to allow RH to maintain its full-year profitability guidance. He also sought clarification on whether the six-point Q2 revenue deferral was due to demand that has already been realized.

Answer

Chairman & CEO Gary Friedman explained that the margin impact is offset by their strong underlying margin structure, annual price adjustments, and better pricing negotiated on new products. He confirmed the revenue deferral is not a demand issue but a shipment lag caused by supply chain disruptions following recent tariff announcements, which temporarily halted production and shipping.

Michael Lasser from UBS questioned if RH has started raising prices due to tariffs and when it might react to new ones. He also asked if guidance should be viewed at the low end and if there's a need to raise capital.

Answer

Gary Friedman, executive, stated RH will not panic or immediately raise prices, preferring to think and wait for clarity, leveraging their strong inventory position. He affirmed the current guidance, stating he wouldn't go below it, and confirmed there is no need to raise capital, citing strong future cash flow and monetizable real estate assets as financial backstops.

Michael Lasser asked about RH's strategy regarding accelerating investments in 2025, potentially at the expense of short-term margins, and inquired about the expected trajectory of margin recovery as the housing market improves.

Answer

Chairman and CEO Gary Friedman explained that the most significant investment cycle is largely complete, positioning RH for compounding cash flow. He noted that while a housing market recovery could add 30% or more to growth, the company's current outperformance is driven by its product transformation. Friedman confirmed that as sales accelerate, margins are expected to recover sharply, but the immediate focus is on gaining market share during the downturn.

Michael Lasser asked for the reasons behind the updated guidance, questioning the split between market weakness versus slower execution, and also asked when the growth rates for demand and revenue are expected to converge.

Answer

CEO Gary Friedman attributed the revised guidance to the time required for a massive product transformation to resonate with consumers, rather than market weakness or poor execution. He stressed that the positive demand vector is the key metric. Regarding convergence, he estimated it might occur by the end of the next year as newness cadences normalize and supply chain imbalances are resolved, but declined to give a precise timeline.

Michael Lasser asked about Costco's increased willingness under Ron Vachris's tenure to move with speed, embrace technology, and adapt retail modes, inquiring whether the financial benefits from these actions would flow to the bottom line or be reinvested in price to drive top-line growth.

Answer

Ron Vachris, President, CEO, and Director, confirmed that technology has been a multi-year focus, with benefits now emerging from foundational system investments. He emphasized technology's crucial role in Costco's future but reiterated the company's unwavering commitment to offering the best prices and driving them down for members, indicating a continued strategy of reinvestment in price.

Michael Lasser asked about Costco's increased willingness under Ron Vachris's tenure to embrace technology and change with speed, inquiring if the financial benefits from these actions would continue to fall to the bottom line or if there's a greater need to reinvest in areas like price to drive top-line growth.

Answer

Ron Vachris (President, CEO, and Director, Costco Wholesale Corporation) explained that technology has been a multi-year focus, with current benefits stemming from foundational system improvements. He emphasized that Costco will always prioritize being the best price and driving prices down for members.

Michael Lasser inquired about the expected trajectory of Costco's membership renewal rate, particularly given the impact of digital sign-ups, and the company's strategies to stabilize or improve it, along with the financial implications.

Answer

CFO Gary Millerchip explained that while the renewal rate is an important metric, overall membership growth, including younger members and executive upgrades, remains strong, with membership fee income ahead of budget. He attributed the renewal rate decline primarily to a higher proportion of online sign-ups since COVID, which renew at a slightly lower rate, expecting a similar impact for a few more quarters. Costco is investing in auto-renewal and targeted digital communications to improve this cohort's renewal rate.

Michael Lasser asked about the expected decline in Costco's membership renewal rate, particularly given the influx of digital sign-ups, and whether it could return to pre-COVID levels. He also questioned what actions Costco would take to stabilize or improve the rate and the potential financial impact.

Answer

EVP & CFO Gary Millerchip acknowledged the renewal rate's importance but emphasized overall strong membership metrics, including increased sign-ups, younger member growth, and accelerated executive upgrades. He attributed the decline primarily to a higher proportion of online sign-ups, which renew at a slightly lower rate, and expects a few more quarters of similar impact. Millerchip highlighted efforts to improve auto-renewal and digital communication for this cohort to enhance future renewal rates.

Michael Lasser inquired about the expected decline in Costco's membership renewal rate due to digital sign-ups, asking how far it might fall, if it could return to pre-COVID levels, and what actions Costco would take to stabilize or improve it, as well as the financial impact.

Answer

CFO Gary Millerchip explained that while the renewal rate is important, overall membership metrics are strong, with increased sign-ups and executive upgrades. He attributed the decline primarily to a higher proportion of online sign-ups, which renew at a slightly lower rate, and expects a few more quarters of similar impact. Costco plans to improve auto-renewal and digital communication for this cohort.

Michael Lasser of UBS Group AG questioned how investors should think about future growth as Costco laps strong sales from precious metals and gift cards, and at what point warehouse overcrowding could limit U.S. growth.

Answer

CFO Gary Millerchip acknowledged that lapping strong bullion and gift card sales contributed to a deceleration in non-food growth, but expressed confidence in the buying team's ability to find new, exciting items. CEO Ron Vachris addressed overcrowding by outlining a multi-pronged strategy: strategically opening new warehouses to cannibalize high-volume locations, expanding gas station hours, and piloting new checkout technologies to improve throughput and parking turnover.

Michael Lasser of UBS Group AG questioned the potential impact on growth expectations as Costco begins to lap strong sales from precious metals and gift cards. He also asked about the risk of reaching growth limitations in the U.S. due to warehouse congestion and what percentage of clubs are approaching that level.

Answer

Executive VP & CFO Gary Millerchip acknowledged that lapping strong bullion and gift card sales contributed to the deceleration in non-food growth to high-single-digits, but expressed confidence in the buying team's ability to find new, valuable items. President, CEO & Director Ron Vachris added that improving the member experience in high-volume warehouses is a strategic priority, addressed by strategically cannibalizing busy locations with new openings, expanding gas station hours, and piloting technology to speed up checkout and parking turnover.

Michael Lasser questioned if the modest decline in core-on-core margin for the quarter indicated an end to Costco's recent margin expansion, particularly given potential inflation and tariff pressures.

Answer

Executive Gary Millerchip advised against reading too much into the quarterly result, noting the overall gross margin rate still improved. He attributed the 8-basis-point core-on-core decline to deliberate investments in the supply chain to support higher inventory levels and some mix changes, expressing confidence in their ability to continue investing in member value.

Michael Lasser of UBS asked if the success of selling items like precious metals and gift cards has altered Costco's product assortment philosophy or its margin expectations for traditional product vendors.

Answer

Executive Ron Vachris explained that Costco is always looking for new categories, like caskets or gasoline in the past, where it can deliver great value and quality to members. Executive Gary Millerchip added that these items are not just about direct margin; they drive significant traffic to the website, create cross-selling opportunities, and generate valuable publicity. Ron Vachris explicitly stated they are not requiring higher margins on other items to offset these, as the traffic drives SG&A leverage.

Michael Lasser inquired if the momentum Ulta Beauty has experienced over the past six months was starting to fade, particularly if consumers were shopping more around events and if periods in between were quieter. He also asked if this trend gave management pause about the need for continued investments.

Answer

President and CEO Kecia Steelman confirmed that comp growth was consistent across all periods in Q3 and expressed satisfaction with Black Friday and Cyber Monday performance. She reiterated that beauty remains an important category for consumers and Ulta Beauty, expressing confidence in current plans and execution. She does not foresee the momentum changing soon.

Michael Lasser from UBS Group asked for more detail on sales momentum into the current quarter and the reasons for sustained caution in the back-half outlook, questioning what could drive negative comps beyond the macro environment.

Answer

President & CEO Kecia Steelman responded that while the company is encouraged by recent progress, the operating environment remains dynamic with limited visibility into the global trade landscape and consumer wallet pressures. She stated that the outlook is prudently risk-adjusted to reflect this uncertainty and that the company wants to see sustained improvement before changing its cautious stance. The potential for flow-through was not directly addressed.

Michael Lasser asked if increasing competitive intensity in the beauty category implies a higher cost of doing business that could diminish Ulta's ability to scale margins over the long term.

Answer

CEO Kecia Steelman responded that the 'Ulta Beauty Unleashed' plan is specifically designed to amplify the company's differentiation. CFO Paula Oyibo reiterated the long-term financial target of maintaining operating margins around 12% to support necessary reinvestments for growth in a competitive market.

Michael Lasser asked how long Ulta Beauty expects it will take to restore positive comparable sales given the persistent competitive landscape, and questioned the alternative plan if current actions fail, especially since incremental promotions proved ineffective.

Answer

CEO David Kimbell expressed confidence in a long-term recovery, emphasizing that key levers like assortment newness, digital engagement, and the loyalty program are gaining traction. He clarified that while some incremental promotions did not work as intended in stores, core tentpole events remain successful. Kimbell asserted that the company's differentiated model provides a strong foundation to regain market share over time without relying solely on promotions.

Michael Lasser of UBS Group AG questioned the risks associated with Kroger's increased reliance on third-party providers for e-commerce delivery, particularly regarding customer interaction. He also sought clarification on the drivers of e-commerce profitability for the next year beyond the $400 million in savings, and reiterated a question about potential sluggishness in the overall grocery industry growth for 2026.

Answer

Chairman and CEO Ron Sargent explained that third-party partners offer incremental sales opportunities and operational flexibility, catering to distinct customer needs (e.g., Instacart for large baskets, Uber Eats/DoorDash for speed/convenience, attracting younger customers). CFO David Kennerley clarified that e-commerce profitability in 2026 stems from existing business improvements (losses halved in Q3), the $400 million from fulfillment center closures, incremental sales from new third-party partners, and growth in the media business, including media sharing opportunities. Sargent reiterated optimism for 2026, citing new store growth, e-commerce acceleration, and strong performance in fresh and Our Brands.

Michael Lasser asked about Kroger's ability to drive further internal improvements and maintain its 3.1% margin rate amidst increasing competition in the core grocery sector. He also requested a more detailed breakdown of the back-half guidance, specifically regarding changes in margin or below-the-line factors like the tax rate, operating profit, and EPS outlook.

Answer

Ronald Sargent, Interim CEO & Chairman, affirmed significant room for further margin improvement through opportunities in pricing, brands, e-commerce, and sourcing, noting the competitive but rational food industry. David Kennerley, EVP & CFO, highlighted substantial cost opportunities in cost of goods sold, goods not for resale, and operating, general, and administrative expenses, along with modernizing the operating model. For the back-half guidance, Mr. Kennerley cited tougher ID sales comparisons, consumer uncertainty, pharmacy mix pressure, and fuel headwinds. He clarified that the tax rate adjustment was marginal due to state taxes, leading to raising the floor but not the top end of profit guidance despite improved ID sales.

Michael Lasser from UBS Group theorized that growth in e-commerce and pharmacy could be cannibalizing the center store and asked if this poses a future challenge. He also asked how Kroger funded increased price investments while maintaining a positive selling margin.

Answer

Interim CEO & Chairman Ronald Sargent countered the premise, stating that center store grocery trends actually improved in Q1 and are expected to continue improving. EVP & CFO David Kennerly explained that the positive gross margin, despite price investments, was supported by several levers, including a favorable sales mix from higher-margin 'Our Brands' products and sourcing savings.

Michael Lasser from UBS Group posed a question about whether growth in e-commerce and pharmacy could be cannibalizing the center store, creating a future challenge for identical sales. He also asked how Kroger funded increased price investments while maintaining a positive selling margin.

Answer

Interim CEO & Chairman Ronald Sargent responded that the company is actually seeing improved trends in the grocery center store and expects that to continue, dismissing the cannibalization concern. EVP & CFO David Kennerly explained that the positive gross margin was supported by several levers, including a favorable sales mix from higher-margin 'Our Brands' products and significant sourcing savings, which offset the price investments.

Michael Lasser questioned the 2025 identical sales guidance, suggesting it implies flat to negative volumes. He also asked Interim CEO Ron Sargent about potential actions to address business shortcomings and why Q1 EPS is guided to be flat year-over-year.

Answer

Interim CFO Todd Foley acknowledged the volume assessment, expecting a negative start to the year that turns positive. He attributed the flat Q1 EPS guidance to a difficult year-over-year comparison in OG&A, primarily due to a union pension contribution 'holiday' in the prior year. Interim CEO Ronald Sargent stated that 2025 plans are set and his focus is on execution, though he does not intend to be a 'status quo' CEO.

Michael Lasser of UBS asked if the removal of a presentation slide mentioning over 20% media growth signaled a slowdown in that business due to competition. He also questioned what would be needed to achieve the long-term sales algorithm in 2025, given that some of this year's drivers like GLP-1s and storms may not recur at the same level.

Answer

Interim CFO Todd Foley clarified that they still expect retail media growth to be in the 20% range for the year, citing strong ROI for CPG partners. Chairman and CEO Rodney McMullen added that CPGs spending more on the platform saw the highest tonnage growth. For 2025 sales, McMullen stated they are not dependent on inflation and will focus on customer experience, new stores, and digital growth. Foley added that they still expect growth from GLP-1s as supply and patient adoption increase.

Michael Lasser questioned if the current 2% comparable sales growth is the peak, whether it provides sufficient margin of safety for next year given potential SNAP headwinds, and if increased promotional activity might be necessary, potentially sacrificing margin.

Answer

Todd Vasos, CEO, expressed confidence in the 2.5% comparable sales growth, highlighting its sustainability due to strong traffic. He stated that Dollar General does not foresee a need for increased promotional activity in the near term, relying on its everyday low prices, balanced promotional cadence, and the crucial $1 price point. Donny Lau, CFO, reiterated confidence in achieving 2%-3% growth within the long-term framework, noting contributions from new stores and remodels, new customer growth, and a favorable margin outlook with more tailwinds than headwinds.

Michael Lasser of UBS Group AG asked if the optimistic outlook on shrink reduction, potentially exceeding 80 basis points, implies that Dollar General could reach its 6-7% operating margin target as soon as next year or if the long-term range should be revised upwards.

Answer

EVP & CFO Kelly Dilts confirmed the potential to outperform the 80 basis point shrink reduction goal over the long term. However, she reiterated that the company is still targeting the 6% to 7% operating margin range, emphasizing the importance of achieving and sustaining that level.

Michael Lasser of UBS Group AG questioned the potential need for further investments in price and wages to sustain momentum and how those returns compare to the returns on new stores.

Answer

CEO Todd Vasos stated that the company is comfortable with its current wage and store-hour investments, noting that the focus has pivoted from labor to investing in the mature store base via Project Elevate and Renovate remodels. He affirmed confidence in DG's price positioning, highlighting over 2,000 items at or below $1. CFO Kelly Dilts added that while new store IRRs are now around 17%, they remain a strong use of capital, and the remodel projects are expected to generate even higher returns and drive sales from the existing store footprint.

Michael Lasser of UBS Group AG asked about the potential need for further investments in price and wages to sustain momentum and how the returns on these compare to the returns on new stores.

Answer

CEO Todd Vasos stated that current wage and price investments are sufficient, with the focus now shifting from labor to investing in the mature store base through Project Elevate and Renovate. He affirmed their strong price position, highlighting over 2,000 SKUs at or below $1. CFO Kelly Dilts added that while new stores offer healthy returns, the returns on remodel projects are expected to be even higher, justifying the capital allocation strategy.

Michael Lasser inquired if the progress from improved execution and shrink mitigation provides a clear line of sight to restoring double-digit EPS growth in 2025, considering the headwind from recurring incentive compensation.

Answer

CEO Todd Vasos expressed confidence that progress on 'Back to Basics' and new initiatives like 'Project Elevate' and home delivery are laying a strong foundation to return to the company's traditional double-digit EPS growth model over the long term, while acknowledging that more work remains to be done.

Michael Lasser questioned the market's perception that the small-box value model is structurally challenged and asked how Dollar General plans to rebuild margins after increasing investments in markdowns and promotions.

Answer

CEO Todd Vasos asserted the model is not structurally challenged, citing strong new store productivity and market share gains. He attributed Q2 weakness to a financially strapped consumer, noting they failed to capture their 'fair share' of available traffic from competitors. CFO Kelly Dilts added that margin recovery will be driven by leveraging sales growth, with near-term markdown investments to drive traffic and long-term drivers like new stores and shrink mitigation remaining intact. She noted shrink is expected to become a tailwind in Q4.

Michael Lasser questioned the possibility of Five Below guiding to a negative comparable sales next year and sought a framework for the model's puts and takes for 2026, particularly regarding tariff costs.

Answer

CFO Dan Sullivan stated it's premature to discuss next year's guidance but emphasized the business's clear growth orientation. He noted that the price action's tailwind would continue into the first half of next year, acknowledging the need to navigate tariff headwinds in H1 2026 while remaining confident in the ability to grow on top of growth and deliver operating profit leverage.

Michael Lasser from UBS Group asked what is driving the current high comparable sales growth, unlike past single-trend crazes, and questioned why the company isn't passing along more tariff-related price increases given the positive customer response.

Answer

CEO Winnie Park responded that the current momentum is broad-based across six of the eight product 'worlds,' making it more sustainable than a single trend. She noted positive customer traffic and elasticity but stressed that Five Below remains committed to its 'extreme value' proposition, keeping the majority of its assortment at $5 and below.

Michael Lasser from UBS Group AG inquired about the drivers behind the significant turnaround in comparable sales and the rationale for the guided slowdown in the second half of the year.

Answer

CEO Winnie Park attributed the strong performance to deliberate internal actions, including improved product selection, enhanced end-to-end marketing storytelling, better inventory flow, and increased store labor. She explained the back-half guidance reflects a prudent approach due to macroeconomic uncertainty, even as the company applies its successful strategies.

Michael Lasser questioned how Five Below plans to recover margins lost to tariffs over time, especially while emphasizing value and simplifying prices, and asked if margins would fully recover if tariffs were rescinded.

Answer

CEO Winnie Park clarified that price adjustments are being made both up and down, with a focus on maintaining strong value. CFO Kristy Chipman explained that the company would lap the tariff impact after Q1 of the next fiscal year. She identified sustained improvements in shrink rates and future operational efficiencies as key drivers for margin recovery, noting that a 3% comparable sales growth remains the threshold for leverage.

Michael Lasser questioned how much of the Q3 sales improvement was due to internal actions versus a better external environment, and how the company reconciles adding value via price with the need to potentially raise prices to offset tariffs.

Answer

Interim CEO Ken Bull acknowledged an improved external traffic environment but credited the company's ability to capitalize on it through better product, newness, value, and strong operational execution, including labor investments. Regarding tariffs, he clarified that 'value' encompasses trend and quality, not just price. He stated that price increases are a last resort for tariff mitigation and that the company will first focus on leveraging its scale, positioning it well on a relative basis.

Michael Lasser from UBS asked for quantification of the financial impact from investments in labor and value for the current and next fiscal year, as well as the effect of non-recurring items like retention bonuses and lower incentive compensation.

Answer

Interim President and CEO Kenneth Bull described near-term labor investments as "modest" and stated that pricing investments would be funded by improved merchandise performance, keeping product margins stable. CFO Kristy Chipman added that on an adjusted basis, these actions are reflected in the current guide and are margin-neutral for the year. She noted that in a future 3% comp scenario, the business would begin to leverage again, and that about half of the current year's $25 million in adjustments would repeat in 2025.

Michael Lasser asked about the recent decline in traffic, specifically if it's due to legacy households reacting negatively to price increases, and whether this might impact the company's ability to achieve high-teens EPS growth next year, potentially requiring investments to regain these customers.

Answer

CEO Mike Creedon attributed the traffic decline to a mix of internal restickering activities and broader retail trends, not customer pushback. He noted strong growth across all income cohorts, particularly the core customer, and observed traffic strengthening towards the end of Q3 as restickering peaked.

Michael Lasser inquired about the recent decline in Dollar Tree's traffic, questioning if it resulted from legacy households' pushback on price increases and if this impacts the ability to achieve high-teens EPS growth next year due to potential recapture investments.

Answer

CEO Mike Creedon clarified that the traffic decline was primarily due to internal restickering activities and broader retail trends, not customer pushback. He highlighted strong growth across all income cohorts, with the core customer showing the highest comp, and noted traffic strengthening towards the end of Q3 after the peak of restickering.

Michael Lasser asked about the perception of consumer pushback due to Dollar Tree's tariff mitigation strategies, including price increases, and how this might impact long-term margins and current guidance volatility.

Answer

CEO Michael Creedon explained that Dollar Tree is pleased with the customer response, noting balanced traffic and ticket growth across all income levels, with two-thirds of new customers from higher-income households. He emphasized that 85% of stores remain at $2 or less, demonstrating continued value perception.

Michael Lasser of UBS Group AG questioned how Dollar Tree plans to offset approximately $110 million in unanticipated Q2 costs to maintain its full-year guidance, and asked if the business model is agile enough to handle ongoing market volatility without creating earnings fluctuations.

Answer

CEO Michael Creedon asserted that the company is more nimble than ever, utilizing five key levers (supplier negotiation, product re-speccing, changing country of origin, dropping items, and multi-price capabilities) to mitigate cost pressures over time. CFO Stewart Glendinning added that the stronger back-half of the year, a strong Q1 performance, and robust Q2 sales provide the capacity to absorb the near-term costs and meet full-year targets.

Michael Lasser questioned whether the market is correct to assume the second 10% tariff from China should be embedded in the current year's P&L. He also asked for details on the company's sourcing exposure and how it plans to use its balance sheet, particularly cash from the Family Dollar sale, to offset margin pressure and support EPS.

Answer

CEO Mike Creedon clarified that the first round of tariffs is included in the forecast, but the second is not, due to uncertainty. CFO Stewart Glendinning added that there is a benefit from existing untariffed inventory. Regarding the balance sheet, Glendinning stated that given the company's healthy cash position post-sale, investors should expect Dollar Tree to resume share repurchases.

Michael Lasser questioned why the second round of tariffs is not embedded in the P&L guidance, asked for details on sourcing exposure, and inquired about the company's willingness to use its balance sheet and cash from the Family Dollar sale to support EPS against tariff pressures.

Answer

CEO Michael Creedon clarified that the impact from the first tariff round is included in the forecast, but the second round was excluded due to significant uncertainty. Chief Transformation Officer Stewart Glendinning added that existing non-tariffed inventory provides a buffer and confirmed the company expects to resume share repurchases given its strong cash position and attractive stock price.

Michael Lasser asked about the forward earnings outlook, questioning if onetime items from this year could be added back and how the Family Dollar review and potential tariffs might impact future earnings.

Answer

CFO Jeff Davis confirmed that onetime items could be added back to establish a base for fiscal 2025 but declined to provide guidance on the Family Dollar review's impact. Interim CEO Mike Creedon stated the company has multiple levers to mitigate potential tariffs, including negotiating with suppliers, changing product specs, shifting sourcing to other countries, and utilizing the flexibility of its multi-price strategy.

Michael Lasser asked why a series of supposedly onetime issues, like the recent general liability charge, continue to drag down earnings at the core Dollar Tree banner despite tailwinds from multi-price and freight improvements. He questioned when the business can achieve a consistent growth path and what a realistic long-term operating margin would be for a low single-digit comp grower.

Answer

CFO Jeff Davis addressed the general liability charge, stating the company believes the Q2 adjustment reflects current liabilities and that they are not anticipating future improvements, implying the issue is now behind them. He affirmed that as multi-price drives gross profit and transformation costs subside, the company can achieve its previously stated long-term outlooks. COO Mike Creedon added that the multi-price product mix will shift to higher-margin discretionary items in the second half of the year, which should provide a tailwind.

Michael Lasser asked why seemingly 'onetime' issues, like the recent general liability charge, consistently impact Dollar Tree's earnings despite positive tailwinds from multi-price and freight, and questioned the realistic long-term operating margin for the core banner.

Answer

CFO Jeff Davis stated the company believes the recent general liability adjustment fully captures current and historical claim volatility and that they are not forecasting future improvements, suggesting the issue is now behind them. He affirmed that as transformation costs subside, the business can achieve its previously stated long-term margin outlook. COO Mike Creedon added that the product mix will improve in the second half of the year as more discretionary multi-price items arrive.

Michael Lasser asked about the potential magnitude and form of investments Petco might make (labor, marketing, promotions) and their necessity for 2026 top-line growth. He also questioned if Petco could achieve similar profitability improvements while reversing market share losses and sought clarification on quantifying potential Q4 investments.

Answer

Sabrina Simmons, Petco's Chief Financial Officer, explained that banked profit allows for selective investments in Q4 and beyond, with marketing, labor, and promotions being options. Joel Anderson, Petco's Chief Executive Officer, added that 2026 initiatives don't require substantial step-change investments. Simmons affirmed that investments are necessary for growth, aiming for expense leverage with sales improvement, and that the Q4 EBITDA margin moderation framework, considering tariff impact and investment options, is fair for quantifying potential investments.

Michael Lasser asked about the potential magnitude and form of Petco's investments (e.g., labor, marketing, promotions) and their necessity for driving top-line growth in 2026. He also sought clarification on whether Petco could improve profitability while reversing market share losses and how to quantify potential Q4 investments.

Answer

Sabrina Simmons, Petco's Chief Financial Officer, confirmed that banked profit allows for optional investments in Q4 and beyond, including marketing and labor, while maintaining margin expansion. Joel Anderson, Petco's Chief Executive Officer, added that 2026 initiatives do not require substantial new cash or OpEx investments. Simmons clarified that investments are necessary for the next phase, and the implied Q4 EBITDA margin moderation reflects both tariff impact and these strategic investments.

Michael Lasser from UBS Group inquired about the timeline for achieving positive comparable sales growth, asking if it is a reasonable expectation for late 2025 or more likely 2026. He also asked if gross margin gains were primarily driven by reducing online promotions and whether the physical stores would have posted a positive comp without the e-commerce business.

Answer

CEO Joel Anderson clarified that a return to positive comparable sales is anticipated in 2026, as the company is still in Phase 2 of its transformation and faces a tough comparison in Q3. He confirmed the strategic focus has been on improving store fundamentals. CFO Sabrina Simmons added that the e-commerce channel required more significant promotional cleanup compared to the stores, which contributed to its relative weakness.

Michael Lasser of UBS questioned whether Petco is intentionally sacrificing short-term sales and market share to improve profitability and how it plans to manage SG&A with potentially negative comps without impacting the customer experience.

Answer

CEO Joel Anderson confirmed this was a fair assessment, stating the company is being disciplined by no longer chasing sales with low lifetime value. He assured that Phase 3 will focus on testing growth levers to regain momentum. CFO Sabrina Simmons added that SG&A leverage will come from efficiencies that do not touch the customer. Joel Anderson also noted that recent and planned store closures of unprofitable locations account for a significant portion of the anticipated sales decline.

Michael Lasser from UBS asked for the potential size of the cost savings opportunity and what portion would need to be reinvested to drive sustainable growth in a competitive market.

Answer

Executive Joel Anderson clarified that the current phase of cost-cutting is focused on permanent, structural reductions that are not expected to require reinvestment. He suggested that a potential 'second wave' of savings could be considered for reinvestment in areas like marketing to drive top-line growth, but the immediate priority is permanent cost-out.

Michael Lasser asked new CEO Joel Anderson for his diagnosis of what caused Petco to 'lose its way' and how his plan addresses those shortcomings. He followed up by asking how the company's financial leverage influences its strategy and if a significant number of store closures are likely.

Answer

CEO Joel Anderson stated his focus is on fixing the business, not dwelling on the past, and affirmed his belief in the current strategy. He emphasized that the brand and partner passion are not broken. Regarding the store portfolio, Anderson clarified that while underperforming stores will be closed as leases expire, a mass closure event is not part of the strategic plan, as the company does not have a large group of EBITDA-negative stores.

Michael Lasser asked if the expectation for Foot Locker to be accretive next year is based on the $14.25-$14.55 EPS for DICK'S business this year, and how dependent this accretion is on inflecting sales by back-to-school next year. He also inquired about how the core DICK'S business will be ring-fenced to prevent distraction from Foot Locker integration, noting an anticipated Q4 slowdown for core DICK'S, and what fosters this expectation.

Answer

Navdeep Gupta, CFO, confirmed the 2025 EPS range as the basis for 2026 accretion. He stated that accretion depends on 'cleaning out the garage,' optimizing inventory, having an exciting assortment, and expanding merchandise margins, alongside evaluating the store portfolio. Lauren Hobart, President and CEO, emphasized that ring-fencing the DICK'S team was a prerequisite and is being executed, with Ed Stack focused on Foot Locker while the DICK'S team maintains its priorities. She clarified that the Q4 'deceleration' for DICK'S reflects raised guidance (high end of previous is now low end), balancing strong Q3 performance with appropriate caution, and expressed bullishness for the holiday season.

Michael Lasser questioned if the 2026 Foot Locker accretion expectation is based on the current 2025 DICK'S EPS guidance and its dependency on a back-to-school sales inflection. He also asked how DICK'S plans to ring-fence its core business to prevent distraction from the Foot Locker integration, especially given the anticipated Q4 comp slowdown for DICK'S.

Answer

Navdeep Gupta, CFO, confirmed the accretion basis and highlighted cleaning out inventory, optimizing the store portfolio, and driving sales/margin as key building blocks. Lauren Hobart, President and CEO, emphasized that ring-fencing the DICK'S team was a prerequisite for the acquisition, with separate teams and shared learnings, not distractions. She clarified that the Q4 DICK'S comp moderation is balanced with caution, as guidance was just raised, and the team is bullish for the holiday.

Michael Lasser from UBS Group questioned the change in the full-year gross margin guidance, which moved from a specific expectation of 'up 75 basis points' to a more general 'up,' and asked for the reasoning. He also inquired how the potential need to issue more shares for the Foot Locker acquisition could affect the deal's expected accretion.

Answer

CFO Navdeep Gupta explained that the gross margin outlook balances multiple factors like tariffs and dynamic pricing, but reiterated that the high end of the full-year guidance still implies a 10-basis-point expansion in operating margin. Regarding the Foot Locker deal, he stated that the final accretion level depends on several variables, including share count and synergy timing, with more details to be provided post-closing.

Michael Lasser probed whether the company's strong performance is sustainable and broad-based rather than driven by temporary factors, and asked how much better footwear allocation can get post-Foot Locker acquisition.

Answer

President and CEO Lauren Hobart asserted that growth is the result of long-term strategies, not temporary factors. She and CFO Navdeep Gupta explained that the Foot Locker acquisition enhances their global partnership with brands, enabling longer-term product innovation and strengthening relationships, which will benefit product allocation across the entire business.

Michael Lasser questioned the flexibility of SG&A spending if sales were to fall short of expectations and asked about the risk associated with the 18% year-over-year increase in inventory.

Answer

CEO Lauren Hobart affirmed the company has the flexibility to manage expenses but will prioritize long-term investments. CFO Navdeep Gupta added that the inventory increase was a deliberate, strategic decision to fuel sales momentum, noting that clearance levels are at historic lows and that the company expects gross margin to expand in 2025, reflecting confidence in its inventory position.

Michael Lasser questioned if merchandise margins would continue to expand in 2025 and asked if the current high inventory level poses a markdown risk for Q4, seeking clarity on the drivers for the expected Q4 margin expansion.

Answer

CFO Navdeep Gupta outlined that future merch margin opportunities lie in differentiated assortment, pricing optimization, and vertical brand penetration, but noted tariffs are a key unknown for 2025. President and CEO Lauren Hobart reiterated that the inventory investment is strategic and not expected to create heavy markdown risk. Navdeep Gupta explained the implied Q4 profitability is affected by the sales impact from the 53rd week shift last year and higher preopening expenses, not a lack of confidence in margin.

Michael Lasser questioned why the full-year EPS guidance was raised by only $0.15-$0.20 despite a $0.50 beat versus consensus in Q2. He also asked what economic insights from mature House of Sport stores are influencing future plans.

Answer

CFO Navdeep Gupta and CEO Lauren Hobart clarified that the perceived 'beat' was largely due to a $0.30 EPS benefit from a calendar shift that was previously guided but not fully modeled by the street; this benefit will reverse in Q3. They stressed that their internal expectations for the back half have actually increased. Navdeep added that mature House of Sport stores are meeting financial targets and comping positively, reinforcing confidence in the strategy.

Michael Lasser questioned whether the timing of the leadership succession signals a new phase of investment that could pressure profitability or delay operating income growth acceleration, particularly with the rise of attentive commerce.

Answer

John Furner (President and CEO, Walmart U.S.) affirmed continuity of the existing strategy, emphasizing his long-standing involvement in developing capital for automation and omnichannel transformation. He stressed a disciplined, measured approach to capital and operational investments, ensuring they provide appropriate shareholder returns. John David Rainey (EVP and CFO) reinforced the management team's strong alignment on financial metrics, focusing on profitable sales and increasing Return on Investment (ROI), assuring that investments are expected to pay off for investors.

Michael Lasser asked if the timing of the leadership succession signals a new phase of investment that could pressure profitability or delay operating income growth acceleration, especially with the rise of alternative revenues and attentive commerce.

Answer

President and CEO, Walmart U.S., John Furner, affirmed continuity in strategy, emphasizing his long-standing involvement in developing capital for automation and omnichannel transformation. He stated a disciplined, measured approach to capital and operational investments, ensuring appropriate shareholder returns. EVP and CFO John David Rainey reinforced the management team's strong alignment on financial metrics, focusing on profitable sales and increasing ROI, assuring no dramatic shift in their financial posture.

Michael Lasser of UBS Group AG asked how Walmart can reassure investors that the quarter's U.S. gross margin performance was a one-off event rather than the start of a negative trend, given the market's reliance on the company's consistency.

Answer

EVP & CFO John David Rainey explained that unexpected expenses are a reality for a business of Walmart's scale, noting the company has navigated past challenges successfully. He pointed to the strong multi-year growth trend and stated that the full-year operating income guidance is maintained despite new cost pressures, reflecting fundamental business strength.

Michael Lasser sought clarification on what constitutes 'elevated tariffs' that would pose a downside risk to guidance and whether the tariff situation could fundamentally impact Walmart's long-term margin structure.

Answer

CFO John David Rainey explained that his 'downside risk' comment referred to the significantly higher tariff levels proposed in early April, not the current rates. He affirmed the full-year guidance based on the current, albeit still high, tariff levels. Importantly, he stated that nothing about the current environment changes Walmart's long-term view of its business model or its ability to manage margins over time.

Michael Lasser asked about Walmart's sensitivity to the macroeconomic environment, whether its countercyclical benefit is diminishing, and how this is factored into the FY2026 guidance.

Answer

CEO Doug McMillon expressed high confidence, citing strong momentum and the company's value and convenience proposition. CFO John David Rainey added that Walmart is increasingly known for convenience, not just value, and noted January was the strongest month of the quarter. He explained that after normalizing for the VIZIO acquisition and the leap year, the underlying operating income guidance of 5% to 7% growth reflects strong confidence in the business model.

Michael Lasser inquired about Walmart's ability to balance core business growth with reinvestments in price and wages, and whether the growth of alternative revenues suggests accelerating those investments or if profit growth can accelerate.

Answer

CEO Doug McMillon stated the company is appropriately aggressive with investments in price, wages, and capital, which can be done while growing profit faster than sales. CFO John David Rainey added that they are striking the right balance for long-term health and reaffirmed the financial framework of operating income growing faster than sales, attributing recent outperformance to strong execution by the team.

Michael Lasser asked if the interpretation that Williams-Sonoma can no longer reduce promotional activity without impacting sales is correct. He also inquired about the magnitude of the Q3 margin benefit from selling older, lower-cost inventory at new higher prices compared to Q2, and whether this benefit is expected to repeat in 2026.

Answer

CEO Laura Alber clarified that the company's core strategies—innovative product design, high quality, excellent service, and a regular-priced business—continue to be effective, with a primary focus on returning to growth across all brands and categories. CFO Jeff Howie explained that Q2 saw greater margin expansion (200 basis points gross margin) compared to Q3 (70 basis points), with tariffs having a more significant impact in Q3. He reiterated that Q4 will experience a substantially larger tariff impact, which is factored into the guidance, and did not provide 2026 guidance.

Michael Lasser from UBS asked if the company has reached a point where further reductions in promotional activity might impact sales, given its success in reducing promotions and improving profitability. He also inquired about the magnitude of Q3's margin benefit from selling older, lower-cost inventory compared to Q2, and its implications for 2026.

Answer

Laura Alber, CEO, clarified that the company's core strategies of innovative product design, high quality, service, and a regular-priced business continue to drive growth. Jeff Howie, CFO, explained that Q2 had greater margin expansion, while Q3 experienced a larger tariff impact, reiterating that Q4 will see a substantially more significant tariff impact.

Michael Lasser questioned why the reported progress in operational metrics like in-stocks and speed to market has not yet translated into overall business performance improvement, and asked for a reasonable timeframe for accountability.

Answer

COO Michael Fiddelke acknowledged dissatisfaction with top-line performance but stated the team is working with urgency to return to growth, emphasizing that it won't happen overnight. He noted momentum where investments are being made and promised more details on 2026 expectations at the financial community meeting in March. Michael Lasser followed up on the commitment to the dividend given increased CapEx and potential operating investments. Michael Fiddelke reaffirmed strong support for the dividend as the second capital priority, after business investments, with share repurchases being adjusted as appropriate.

Michael Lasser observed Target's progress on operational metrics like in-stocks and speed to market but questioned why this hasn't translated into overall business improvement, asking for a reasonable timeframe for accountability. He also followed up on the $1 billion incremental CapEx, potential operating investments, and the company's commitment to the dividend.

Answer

Michael Fiddelke, Chief Operating Officer, acknowledged dissatisfaction with top-line performance and reiterated the team's urgent focus on returning to growth, with more details to be shared at the financial community meeting in March. Regarding capital allocation, Fiddelke affirmed strong, consistent support for the dividend, which remains the second priority after investments in the business. He expressed confidence that the $5 billion CapEx for next year would generate the necessary returns and growth.

Michael Lasser from UBS Group AG asked how the CEO succession plan would catalyze change to improve business trajectory, the expected timeline for progress, and if it necessitates a cultural shift. He also followed up by asking for a quantification of the investment required to close the performance gap with peers.

Answer

Incoming CEO Michael Fiddelke stated his 20 years at Target provide a clear focus on re-establishing 'style and design' leadership across all categories as the path to growth. He committed to candor and urgency in addressing underperforming areas. Regarding investment, he reiterated a consistent capital allocation strategy, funding high-return projects like new stores and remodels, and highlighted a significant opportunity to accelerate the business by investing more boldly in technology.

Michael Lasser asked for a diagnosis of Target's performance challenges, suggesting competitors have caught up on differentiation, and questioned if a focus on execution is sufficient. He also asked if the updated guidance was sufficiently de-risked.

Answer

CEO Brian Cornell acknowledged the need for strong fundamentals but stressed that Target's 'magic mix' of national, own, and emerging brands remains a key differentiator. COO Michael Fiddelke noted the new 'acceleration office' is designed to increase the pace of strategic execution. On guidance, CFO Jim Lee stated the cautious sales outlook is balanced by tailwinds from shrink and productivity initiatives, providing the 'oxygen' to continue investing in the business.

Michael Lasser asked for a diagnosis of Target's challenges, suggesting competitors have caught up on differentiation and Target's execution has faltered, and questioned if a focus on execution is sufficient. He followed up by asking if the updated guidance was sufficiently de-risked.

Answer

CEO Brian Cornell defended the strategy, emphasizing the 'magic mix' of brands and the need for reliable execution. CCO Rick Gomez noted share gains in 15 of 35 categories, while COO Michael Fiddelke introduced the new 'acceleration office' to increase pace. On guidance, CFO Jim Lee stated the cautious sales outlook is balanced by tailwinds from shrink and productivity initiatives, which provide the 'oxygen' to continue investing.

Michael Lasser of UBS inquired about Target's strategy to achieve growth while simultaneously reducing business volatility, and asked how potential tariffs were incorporated into the 2025 financial guidance.

Answer

CEO Brian Cornell framed the response, with COO Michael Fiddelke detailing initiatives like shortening lead times in apparel and improving inventory reliability to enhance consistency. CFO James Lee added that the focus is on controlling internal factors. On tariffs, EVP Richard Gomez and COO Michael Fiddelke explained that the company is leveraging its experienced sourcing team, diversifying countries of origin, and gaining speed benefits from near-shoring, while noting the guidance accounts for the uncertainty.

Michael Lasser asked if Target needs to invest differently to stay in the consumer's core consideration set and whether it would trade future upside in discretionary categories for more near-term consistency.

Answer

CEO Brian Cornell asserted that Target will 'continue to be Target,' focusing on its unique mix of brands, partnerships, and store and digital investments. COO Michael Fiddelke highlighted the 11% digital growth and 20% growth in same-day delivery as key long-term investments. Regarding the trade-off, Cornell stated that while they are not pleased with current performance, they see long-term opportunity and will focus on winning seasonal moments while preparing for the eventual rebound in discretionary spending.

Michael Lasser questioned whether home improvement demand can recover without assistance from increased housing activity or reduced interest rates, and sought insights into expectations for a recovery in 2026. He also asked if Home Depot's significant investments in the pro segment have increased its fixed cost structure, potentially leading to deleverage with sales pressure but acting as a tailwind when sales improve.

Answer

Ted Decker, Chair, President, and CEO, acknowledged pressure on home price appreciation, household formation, and housing turnover. He noted industry reports of cumulative underspend in repair and remodel activity, emphasizing the company's focus on value propositions and market share gains regardless of market conditions. He further explained that organic pro initiatives are reasonably asset-light, with capital deployed in DCs primarily for store replenishment, also benefiting customer delivery. He highlighted variable incentive pay for sales, leased trucks, and modest IT spend, indicating limited incremental fixed costs.

Michael Lasser questioned whether home improvement demand could recover without an increase in housing activity or a reduction in interest rates, and how this might shape market expectations for a recovery in 2026.

Answer

Ted Decker, Chair, President, and CEO, acknowledged that key demand drivers like home price appreciation, household formation, and housing turnover are currently pressured. He noted a cumulative underspend in normal repair and remodel activity but emphasized Home Depot's focus on delivering value and taking market share regardless of broader industry conditions. Regarding fixed costs, Ted Decker explained that organic pro initiatives are reasonably asset-light, with capital deployed in DCs primarily for store replenishment and variable costs for sales and logistics, minimizing incremental fixed cost additions.

Michael Lasser asked whether Home Depot's recent major strategic moves, like the Pro ecosystem and acquisitions of SRS and GMS, were driven by changes in the market or internal factors. He also questioned how the company weighs the trade-off between growth and returns on these large investments and followed up on the impact of reduced promotional activity.

Answer

Chair, CEO & President Ted Decker explained the strategy is 'customer back,' aimed at simplifying the supply chain for Pros and leveraging scale in a consolidating industry. EVP & CFO Richard Mcphail stated that the goal is to drive share and EPS growth while creating shareholder value. He noted that investments like SRS and distribution centers are surprisingly capital-light and have higher, faster return profiles than even traditional stores. EVP – Merchandising Billy Bastek added that the promotional pullback was targeted, not broad, and that the company remains an EDLP retailer with tariff impacts factored into guidance.

Michael Lasser asked about the company's pricing strategy in response to potential tariffs on goods sourced outside the U.S. and whether this would absorb productivity gains. He also followed up on the concept of $50 billion in deferred home improvement demand, questioning if this could lead to outsized sales growth for Home Depot in the coming years.

Answer

EVP of Merchandising William Bastek explained that Home Depot has been diversifying its supply chain for years and anticipates no single country outside the U.S. will represent more than 10% of purchases within 12 months. He stated the company does not foresee broad-based price increases, instead leveraging its scale, supplier partnerships, and productivity to maintain its value proposition. CEO Edward Decker confirmed that capturing a share of the deferred demand is exactly the opportunity they are targeting, particularly through the buildout of their Pro ecosystem.

Michael Lasser asked about Home Depot's pricing strategy in response to potential tariffs and whether the company would need to absorb cost increases. He also inquired if the $50 billion in deferred home improvement demand could lead to outsized sales growth beyond the company's long-term algorithm.

Answer

EVP of Merchandising William Bastek stated that due to a diversified supply chain and strong vendor partnerships, the company does not anticipate broad-based price increases and views the situation as a share-gain opportunity. CEO Edward Decker confirmed the expectation that capturing the deferred demand represents a significant share opportunity, especially as Pro ecosystem capabilities are enhanced.

Michael Lasser of UBS inquired about the market share assumptions in the 2025 outlook, asking why share gains wouldn't accelerate given the SRS acquisition and other investments. He also asked how potential changes in government efficiency measures or immigration policy were factored into the guidance.

Answer

CEO Ted Decker stated that the company expects to gain share in a flat market, driven by its interconnected retail and Pro ecosystem initiatives, and denied that DIY or Pro share has peaked. Executive Jordan Broggi highlighted strong online sales growth driven by site and fulfillment improvements. Regarding policy, Decker noted the company has not seen specific impacts but is prepared to manage potential changes in tax policy or tariffs.

Michael Lasser asked if the home improvement outlook involves pent-up demand building as rates stay high, potentially leading to a robust recovery later. He also inquired about the risks from potential tariffs, whether from direct cost increases or indirect impacts on consumer spending.

Answer

CEO Ted Decker suggested that interest rate stability is more critical than a dramatic rate drop for housing activity to normalize. Regarding tariffs, Decker stated it would be an industry-wide issue but expressed confidence in Home Depot's ability to manage it effectively. Executive John Deaton added that the company is also focused on near-term risks like East Coast port negotiations.

Michael Lasser questioned why GPC's expected inflation run rate (2-3%) is lower than other industry players (mid-to-high single-digit for Q1 next year), asking if this implies different pricing strategies or widening price gaps. He also sought clarity on how the Q4 outlook should inform expectations for 2026 regarding profitability, margin structure, and SG&A leverage, considering a one-time benefit in Q4.

Answer

Executive Vice President and CFO Bert Nappier explained that GPC focuses on minimizing customer disruption by balancing cost and price increases, with market acceptance of price increases. He noted that GPC's approach is similar to competitors, with differences in numbers due to exposure and scale. For Q4, he anticipates solid performance with moderated gross margin expansion, SG&A leverage from cost structure work, and overall earnings growth. For 2026, he expects continued SG&A and gross margin improvements, with market conditions like interest rates and tariff clarity potentially leading to a more robust trading environment.

Michael Lasser questioned why GPC's expected inflation run rate of 2-3% was lower than the mid-to-high single-digit impact suggested by others in the industry, asking if this implied different pricing strategies or widening price gaps. He then asked how the fourth-quarter outlook should inform expectations for 2026, specifically regarding profitability, margin structure, and SG&A leverage, considering any one-time benefits in Q4.

Answer

Bert Nappier, Executive Vice President and Chief Financial Officer, explained that GPC's approach to tariffs involves minimizing customer disruption by carefully balancing cost and price increases, which the market has accepted. He noted that GPC's specific exposure to China and its size and scale might lead to different reported numbers compared to smaller players, but the underlying philosophy is consistent with the industry. For the fourth quarter, Bert Nappier projected solid earnings growth driven by revenue momentum, moderated gross margin expansion due to lapping acquisitions and higher tariff-related COGS, and SG&A leverage from ongoing cost actions. Looking to 2026, he anticipated continued SG&A leverage and gross margin expansion, with market conditions (interest rates, tariffs, Europe) being key watch points, suggesting a potentially more robust trading environment if clarity emerges.

Michael Lasser of UBS Group AG asked if streamlining the portfolio, potentially by separating the automotive and industrial businesses, could accelerate strategy execution. He also questioned why the automotive segment's top-line outlook was lowered despite the pricing benefits expected from tariffs.

Answer

President & CEO William Stengel stated that the company's two businesses are complementary, and their shared initiatives currently accelerate execution, suggesting a separation would not provide a pace benefit. CFO Bert Nappier explained the auto outlook was lowered because moderated base revenue assumptions in non-tariff-impacted regions like Europe and APAC were not fully offset by the tariff-related pricing benefits, which are concentrated in the U.S.

Michael Lasser of UBS Group AG asked if Genuine Parts Company could accelerate its strategic execution by streamlining its portfolio, potentially separating its automotive and industrial businesses. He followed up by questioning why the automotive segment's top-line outlook was lowered despite the expectation of significant price increases from tariffs.

Answer

President and CEO William Stengel responded that the company benefits from having both businesses together, as strategic initiatives in areas like technology and supply chain are additive to both, and a separation would not necessarily increase the pace of execution. EVP and CFO Bert Napier explained the lowered auto outlook is a net result of various factors; for instance, European market conditions weakened without any offsetting tariff benefit, and while the U.S. has a tariff offset, the net impact of moderated base assumptions across all regions led to the revised guidance.

Michael Lasser asked if streamlining the portfolio could accelerate the execution of the company's strategies. He followed up by asking why the top-line outlook for the auto business was lowered, given that it performed as expected and tariffs are now factored into pricing.

Answer

President and CEO William Stengel responded that the company's two businesses are attractive and that current initiatives are additive to both, creating leverage that accelerates execution. EVP and CFO Bert Napier explained the auto outlook was lowered because negative market revisions in regions like Europe and APAC, which receive no tariff benefit, were not fully offset by the tariff-related pricing in the U.S. and Canada, resulting in a net takedown for the segment.

Michael Lasser asked if streamlining the company's portfolio, potentially by separating its businesses, could accelerate strategy execution. He also questioned why the automotive segment's top-line outlook was lowered, given its consistent performance and the expected pricing benefits from tariffs.

Answer

President and CEO William Stengel responded that the company loves both its businesses and that initiatives are additive across both, creating leverage that would not necessarily be improved by a separation. EVP and CFO Bert Napier explained the lowered auto outlook was due to moderated base revenue assumptions in non-tariff-impacted regions like Europe and APAC, which were not offset by tariff-related pricing benefits seen elsewhere.

Michael Lasser requested a quantification of the potential cost of goods sold impact from tariffs, independent of mitigation or pricing actions. He also asked about the behavior of independent owners in response to potential price hikes, such as pre-buying inventory.

Answer

CFO Herbert Nappier declined to provide a precise COGS impact, citing extreme complexity, but noted one SKU could have nine tariff permutations. CEO William Stengel added that about 70% of GPC's purchases are from the U.S. or Europe. Regarding independents, Stengel stated he has not seen a significant pull-forward of inventory purchases in aggregate and that the company is working closely with owners to navigate the environment.

Michael Lasser addressed the debate around GPC's market share in North America, asking what factors are driving underperformance and whether the 2025 outlook relies on market share gains or simply an industry acceleration. He also asked about the sensitivity of earnings to the top line if the market doesn't improve as expected.

Answer

President and CEO William Stengel disagreed with the premise for the Motion business but acknowledged the work being done in U.S. Auto, stating the outlook relies on both earning share and an improving market. EVP and CFO Herbert Nappier added that the company has levers to pull, such as expanded restructuring and cost actions of $100M-$125M, to protect profitability if sales fall short.

Michael Lasser requested a breakdown of the $166 million year-over-year increase in SG&A and asked if this pace of investment would continue. He also questioned the motivation for the investments and the expected timeline for returns.

Answer

EVP and CFO Herbert Nappier attributed the SG&A increase primarily to acquired businesses, ongoing wage and rent inflation, and planned IT investments, noting the acquisition impact will abate as synergies are realized. President and CEO William Stengel explained the investments were prompted by changing market realities and competitive dynamics, consistent with the strategy outlined at the 2023 Investor Day. Nappier added that the investment rate was increased from a historical ~1% of revenue to a necessary ~2% to modernize the business for long-term growth.

Michael Lasser asked for clarity on the trajectory of LIFO charges, specifically if the $120 million expected in Q1 is annualizable or if it's expected to peak and then fade, and how margins would recover as the cycle fades. He also questioned the elevated SG&A growth, asking if it reflects an 'arms race' within the industry or simply increased operational costs.

Answer

Jamere Jackson, CFO, projected LIFO charges of $120 million for Q1, followed by approximately $80-85 million per quarter for Q2, Q3, and Q4, noting that these charges are a bellwether for inflation and are expected to reverse into gains with future product cost deflation. He clarified that SG&A growth is not an 'arms race' but a purposeful investment in new stores (325-350 in FY26), which typically mature in four to five years, driving a faster-growing business.

Michael Lasser asked for clarity on the trajectory of LIFO charges, specifically if the $120 million expected in Q1 FY26 should be annualized or if it's expected to peak and then decline. He also questioned whether the current elevated SG&A growth signifies an 'arms race' within the industry or simply reflects increased operational costs.

Answer

CFO Jamere Jackson projected LIFO charges of $120 million for Q1 FY26, followed by approximately $80-85 million per quarter for Q2-Q4, noting that these charges are dynamic and linked to tariffs. He expects these to eventually reverse into gains with product cost deflation. Mr. Jackson clarified that SG&A growth is not an 'arms race' but a purposeful investment in new stores (325-350 in the Americas), which typically incur initial SG&A drag for 4-5 years before maturing.

Michael Lasser asked for clarity on the trajectory of LIFO charges, specifically if the $120 million expected in Q1 should be annualized or if the charges are expected to peak and then fade. He also inquired about the potential for margin recovery as the LIFO cycle subsides. Furthermore, Lasser questioned whether the elevated SG&A growth reflects an 'arms race' within the industry or simply increased operational costs for auto parts businesses.

Answer

Jamere Jackson, CFO, projected LIFO charges of $120 million for Q1 and $80-$85 million for subsequent quarters, noting the dynamic nature tied to tariffs. He anticipates eventual P&L gains from product cost deflation as LIFO charges anniversary, though timing is uncertain. Jackson clarified that elevated SG&A is not an 'arms race' but a purposeful investment in growth initiatives, primarily new store openings (325-350 in the Americas for FY2026), which typically cause initial SG&A drag but lead to a faster-growing business.

Michael Lasser of UBS Group AG questioned if the fundamental cost of doing business has risen, potentially altering the historical model of converting mid-single-digit sales into double-digit EPS growth, and asked about the timeline of the current investment cycle.

Answer

CEO Philip Daniele acknowledged some core inflation but stressed the company's history of managing expenses. He characterized the current environment as a key investment period in commercial initiatives and new distribution centers that will fuel faster long-term growth. CFO Jamere Jackson added that these investments are already showing positive results in top-line growth.

Michael Lasser from UBS Group AG questioned if the fundamental cost of doing business has increased, potentially altering the historical model of converting mid-single-digit sales growth into double-digit EPS growth, and asked about the timeline of the current investment cycle.

Answer

CEO Philip Daniele acknowledged some core inflation in payroll but emphasized the company's track record of managing expenses in line with sales. He described the current period as an investment phase with initiatives like new DCs and commercial strategies still in their early innings. CFO Jamere Jackson added that these investments are starting to show results, particularly in the commercial top line, which will ultimately drive earnings growth.

Michael Lasser of UBS asked about the quantitative impact of the prior year's 53rd week on Q1 same-store sales and the difference in commercial sales productivity between stores serviced by Hubs versus those that are not.

Answer

CFO Jamere Jackson quantified the calendar shift as a 1-point negative impact on Q1 comps, which is expected to reverse later in the year. Executive Philip Daniele explained that while specific numbers aren't shared, Hub and Mega-Hub stores significantly overperform and lift sales in surrounding stores for both DIY and commercial.

Michael Lasser from UBS asked when AutoZone could realistically return to its double-digit EPS growth algorithm given near-term headwinds, and whether the company could manage SG&A down if gross margin growth stalls.

Answer

CFO Jamere Jackson stated that the long-term growth algorithm is unchanged but acknowledged near-term quarterly pressure from factors like FX and LIFO. He affirmed that the company has the 'muscle' to manage SG&A to protect operating margins if necessary, but will continue its disciplined investments in growth initiatives like IT and payroll that position it for the future.

Michael Lasser of UBS Group questioned whether the combination of FBM, ADG, and Lowe's existing platform is sufficient to generate strong returns, or if a more differentiated strategy is needed. He also asked how Lowe's will ensure the integration process doesn't distract from executing in the core business during a market recovery.

Answer

President, CEO & Chairman Marvin Ellison asserted that the combination of FBM and ADG does create differentiation, enabling Lowe's to offer a comprehensive suite of interior products to large builders, a unique proposition in the market. He assured that Lowe's will not get distracted, explaining that separate integration teams are managing the acquisitions, allowing the core leadership team to remain focused on executing the Total Home strategy and productivity initiatives within the main business.

Michael Lasser asked how large-ticket remodeling categories like kitchens and baths currently compare to 2019 levels. He also questioned if the cost to drive the DIY business is increasing and if it's becoming more expensive to maintain market share.

Answer

CEO Marvin Ellison acknowledged that big-ticket DIY discretionary categories remain under pressure versus 2019, which disproportionately impacts Lowe's. However, CFO Brandon Sink noted the trend is 'getting less worse,' with comps for tickets over $500 improving to roughly flat in Q4. Ellison stated there are no plans to increase promotional intensity, instead focusing on leveraging the new DIY loyalty program for targeted marketing. Sink confirmed all promotional costs are factored into the flat gross margin guide.

Michael Lasser of UBS questioned the company's visibility into its outlook and asked for guidance on the expected linearity of margin improvement towards the 2027 target.

Answer

CEO Shane O'Kelly stated that while the company is comfortable with its 2027 target of approximately 7% operating income, 2025 and 2026 are heavy implementation years with a mix of linear and non-linear progress. CFO Ryan Grimsland added that while margin expansion is expected in 2026, it's too early to provide a specific magnitude, but they are tightly tracking KPIs for all initiatives.

Michael Lasser questioned if Advance Auto Parts can achieve its 2027 margin goals if DIY sales per store remain flat, suggesting deeper investments may be needed. He also asked if an acceleration in business is required to hit the flat Q2 comp guidance and what drivers support back-half growth.

Answer

CEO Shane O’Kelly asserted that the company is actively working to be relevant to DIY customers through vendor partnerships, marketing, and store proximity. EVP and CFO Ryan Grimsland clarified that the 2027 targets are based on low single-digit comp growth, led by DIFM, not major DIY growth, and are achievable through operational execution. Grimsland stated that the business is currently trending in line with the flattish Q2 guidance, and back-half growth will be driven by accelerating initiatives like DMA rollouts and easier prior-year comparisons.

Michael Lasser asked about potential market share losses in the DIFM business, whether the store closure plan was negatively affecting customer psychology, and if internal KPI improvements are sufficient given competitors are also advancing.

Answer

CEO Shane O'Kelly stated that he does not see a negative psychological impact from store closures, as they were either complete market exits or the pruning of underperforming locations. He expressed confidence that Advance can succeed alongside strong competitors in a large market and noted that DIFM headwinds were general across the landscape.

Michael Lasser of UBS inquired about the company's supply chain financing plans and whether cost savings would be reinvested or contribute to profit. He also asked about the long-term strategic vision, questioning if the store closures signal a shift to a leaner, more regional model.

Answer

An executive, likely CFO Ryan Grimsland, confirmed the ~$2.8 billion supply chain finance target and stated that reinvestment would occur through higher CapEx, while cost savings would largely flow to the bottom line. CEO Shane O'Kelly clarified the vision is not to become a regional player, but to focus on winning where the company has high store density, noting that post-closures, Advance will be #1 or #2 in 75% of its markets, creating a strong base for future growth.

Michael Lasser of UBS Group inquired about The ODP Corporation's exploration of strategic alternatives, the macroeconomic assumptions underpinning its free cash flow guidance, the impact of tariffs on its product assortment and pricing strategy, and the potential timeline for the enterprise to return to overall top-line growth.

Answer

CEO Gerry Smith stated that the board's primary focus is maximizing shareholder value through operational execution but declined to comment on specific activities or rumors. Smith, along with SVP & Co-CFO Adam Haggard, expressed confidence in the raised $115M+ free cash flow guidance, citing strong inventory management and business momentum. Haggard noted that about 57% of inventory is either MAP priced or exempt from tariffs, mitigating the impact. Both Smith and SVP & Co-CFO Max Hood pointed to the hospitality segment as a key growth driver, suggesting the company is currently undervalued given its potential and strong balance sheet.

Michael Lasser of UBS asked which retail categories were showing the most strength, whether there was evidence of demand being pulled forward ahead of tariffs, the overall expected impact from tariffs, and the conceptual outlook for the B2B segment's performance.

Answer

CEO Gerry Smith stated that success was primarily in non-tariff core supply categories, driven by a new value-oriented merchandising strategy, and he saw no sustained pull-forward demand. On tariffs, Smith expressed confidence in mitigation efforts, including prior sourcing shifts from China and market-wide price adjustments on certain products. For the B2B outlook, Smith and Co-CFO Max Hood reiterated confidence in second-half improvement and higher overall adjusted free cash flow for the year, driven by both the B2B ramp-up and strong consumer division performance.

Michael Lasser of UBS Group AG questioned ODP's market share trends, the rationale for not extrapolating recent weak performance into 2025, the quantifiable impact of new contracts, and the timeline for reinstating free cash flow guidance.

Answer

CEO Gerry Smith asserted that ODP is 'holding our own' on market share, citing a historic new B2B contract as a key future growth driver. He argued against extrapolating recent results due to these 'trajectory changing' wins and a forthcoming strategic review of the B2C business's fixed cost structure. SVP of FP&A and Co-Interim CFO Adam Haggard added that while near-term investments in new wins will impact working capital, leading to the suspension of free cash flow guidance, the company still expects to generate positive cash flow in Q4.

Inquired about the drivers of the Q2 comp for America's Best, specifically the split between price increases and assortment changes, and questioned the timeline for restoring operating margins to historical levels.

Answer

The company stated that Q2 comp growth was driven by both price actions and product mix, with pricing being the larger contributor. They noted that both cash and managed care customers are trading up to premium assortments. Regarding margins, management confirmed that expansion is a primary focus, driven by assortment changes, CRM enhancements, and cost controls, with more details to be shared at the upcoming Investor Day.

Michael Lasser from UBS questioned the operating income flow-through in the updated guidance and asked when further investments might be necessary to meet the higher expectations of their new customer base. He also probed for any evidence of consumers pulling forward purchases ahead of tariff-related inflation.

Answer

Executive L. Fahs explained that the raised guidance was primarily due to the faster-than-expected success of initiatives launched in Q4. He noted the company will balance making strategic investments, like the new CRM, with maintaining caution due to macroeconomic uncertainty. He also stated definitively that the company has seen no evidence of customers pulling forward purchases in anticipation of tariffs.

Michael Lasser from UBS Group AG questioned the expected flow-through from higher revenue to operating income in the updated guidance and asked when the company might need to increase investments to serve its new, higher-value customer base. He also probed for any evidence of consumers pulling forward purchases ahead of potential tariffs.

Answer

Executive L. Fahs explained that the improved guidance reflects the faster-than-anticipated success of their new initiatives. He noted the company will continue to balance making high-ROI investments with caution due to the uncertain economic environment. He also stated definitively that the company has seen no evidence of customers pulling forward purchases in anticipation of tariffs.

Michael Lasser asked about the risks and strategic balancing involved in pivoting towards a middle-income consumer, and for context on the soft traffic trends observed in late February 2025.

Answer

CEO L. Fahs clarified the strategy is not a pivot away from the core, but an enhanced focus on existing, high-value segments like managed care, which already comprise half of their customers. He confirmed a strong January was followed by a 'choppy' late February, a trend seen across retail, prompting a wider, more conservative guidance range for the year.

Michael Lasser inquired about the expected impact of recent strategic changes—including store portfolio optimization and pricing adjustments—on the company's 2025 margin profile. He also asked about the company's increased willingness to use pricing as a lever and its exposure to potential tariffs.

Answer

CFO Melissa Rasmussen stated that the 2025 margin profile was previously expected to be similar to 2024 but noted that this initial view did not account for the newly announced moderation in store growth or other initiatives, which could provide upside. President Alex Wilkes confirmed a commitment to value but sees opportunities to adjust pricing, especially given the growing managed care customer base, which has different price elasticities. Rasmussen added that less than 10% of COGS are subject to potential tariffs and the company has been actively moving its supply chain out of China.

Michael Lasser of UBS Group AG asked how Floor & Decor would approach its business strategy and shareholder value creation if the current environment of elevated interest rates and subdued existing home sales becomes the 'new norm.' He also requested context on current sales per store versus historical levels.

Answer

CEO Tom Taylor responded that even in a stabilized but challenging market, the company has numerous initiatives, including commercial opportunities and in-store experience enhancements, to drive growth. CFO Bryan Langley provided context, stating that stores five years and older currently average about $22 million in sales with 23% EBITDA margins, down from a peak of $28 million. He reiterated confidence in taking market share and achieving the long-term goal of mid-teens EBITDA.

Michael Lasser of UBS challenged the perception of weakening business fundamentals, questioning the updated guidance and asking if management has a minimum earnings scenario in mind should a recession occur. He also inquired about observed industry price increases due to tariffs.

Answer

CEO Tom Taylor acknowledged the unprecedented and uncertain environment, stating the company will control what it can and has plans for various scenarios, including further cost reductions if sales decline. CFO Bryan Langley clarified the guidance range already assumes a potential sales drop-off at the low end. Taylor confirmed they have seen competitors announce price increases but Floor & Decor has not yet implemented broad tariff-related price hikes.

Michael Lasser from UBS asked about the drivers for the weaker quarter-to-date sales performance and the potential impact of immigration policy changes. He also inquired about the strong Q4 earnings flow-through and how to model it if comps exceed the 0-3% guidance.

Answer

CEO Tom Taylor attributed the quarter-to-date softness to temporary weather disruptions and noted it was too early to factor in immigration policy changes. CFO Bryan Langley clarified that Q4's strong flow-through was aided by a one-time $6.8M legal settlement. He guided that if sales accelerate, the normalized flow-through should be in the high 30s range, higher than the historical model, due to cost efficiencies and many stores operating on minimum hours.

Michael Lasser of UBS asked how Floor & Decor's current per-store transaction and traffic levels compare to 2019, and what this implies for market share, especially considering the impact of cannibalization from new stores.

Answer

CFO Bryan Langley explained that on a 5-year basis, per-store transactions are currently almost flat compared to 2019 levels, while the average ticket is higher due to inflation. He noted that this is burdened by cannibalization from recent store openings and suggests there is significant pent-up demand, as transactions would typically have grown in a normal environment.

Michael Lasser asked why second-half margins are not expected to inflect higher relative to Q2, breaking a historical pattern, and about potential system investments to improve forecasting.

Answer

CFO Michael Maher explained the margin cadence is primarily impacted by the accelerated new store growth cycle. He also noted that while a stronger Canadian dollar helps sales, hedging mutes the short-term profit impact. CEO Mark Walsh affirmed the company is always exploring technology and process improvements to enhance nimbleness and profitability.

Michael Lasser from UBS questioned how Savers would adjust its pricing strategy if tariffs force other retailers to raise prices. He also asked about the potential impact of a weaker macro environment on donation supply and payments to charity partners.

Answer

Executive Mark Walsh emphasized that the company has no direct tariff exposure and sees a widening value gap as an opportunity to gain market share and loyalty, rather than a reason to raise prices. Executive Jubran Tanious noted that donation volumes remain robust, driven by a convenient experience, and that the company is proactively managing wage rates, with labor availability currently not an issue.

Michael Lasser asked if the Canadian business is expected to achieve positive comps in Q1 and about the timing of a sustained turnaround. He also questioned if the 2025 new store EBITDA drag would reverse into a similar-sized tailwind in 2026.

Answer

Executive Michael Maher indicated that Q1 results to date were consistent with the low single-digit total sales growth outlook and confirmed an expectation for positive overall comps in Q1. Regarding 2026, he explained that the large cohort of maturing stores from 2024 and 2025 will begin to provide a meaningful tailwind to both revenue and profit as they enter their second and third years of operation.

Michael Lasser of UBS Group noted that Mister Car Wash's 4% revenue growth trailed the reported 5% industry spend growth and asked for an explanation. He also questioned if slowing retail trends indicated consumer pushback on pricing, and whether the company might reconsider its pricing strategy.

Answer

CEO John Lai clarified that the 5% industry figure represents aggregate spend, including new stores, and is not a direct same-store sales comparison. CFO Jedidiah Gold added that the retail slowdown was more pronounced than expected after a strong Q1, but the UWC base price increase is performing as planned with no evidence of significant pushback. Lai reinforced the value proposition of the express wash, comparing it favorably to at-home washing.

Michael Lasser asked if the retail business is becoming more volatile due to industry overcapacity and questioned the strategy of raising prices in an inflationary environment, asking what levers would be used in a slowdown.

Answer

CEO John Lai disagreed with the premise of increased volatility, citing strong Q1 retail comps and slowing competitive growth as signs of health. He defended the price increase as modest and long-overdue, emphasizing the strong value proposition. In a potential slowdown, Lai said they would manage expenses but argued the business acts like a staple, as consumers continue to maintain their existing vehicles.

Michael Lasser questioned if consumer attitudes toward car wash subscriptions are changing, pointing to increased weather sensitivity and pressure on members per location. He also asked if the low end of the comp guidance implies a decline in same-store members.

Answer

CEO John Lai responded that the subscription market remains undersubscribed and customer capture rates have been consistent, indicating no negative shift in consumer attitude. CFO Jed Gold confirmed capture rates are stable at 9-10%. He clarified that 'slight membership growth' refers to a comp store basis, while total member growth is expected to be in the single digits. Gold also stated they expect positive comps each quarter, not negative, even at the low end of the guide.

Michael Lasser questioned the trend in retail-to-member conversions, noting the deceleration in members per store. He followed up by asking about the challenge of stabilizing same-site membership in 2025, considering price sensitivity and competition.

Answer

Executive John Lai acknowledged a slight contraction in net members, attributing it to retail softness and a strategic focus on upgrading existing members. He confirmed conversion rates remain consistent at nearly 10%. For 2025, Lai noted that competitive intrusion is lessening and the primary focus is on driving retail traffic. Executive Jedidiah Gold added that other levers like revenue per member and churn reduction will also be key drivers.

Michael Lasser of UBS Group asked if the negative quarter-to-date comp, despite Jordan's success, implies weakness in the core business. He also questioned if Academy should proactively lower margins to gain share in a more competitive landscape.

Answer

CEO Steven Lawrence stated the negative comp reflects continued choppy consumer behavior, not underlying weakness, and noted the company is up against a significant slowdown from the prior year. He rejected the idea of preemptively lowering margins, emphasizing that Academy's broad assortment, off-mall locations, and existing value proposition differentiate it from competitors. He added they would only consider lowering margins if it were proven to drive market share and hold margin dollars constant.

Michael Lasser of UBS asked what macro backdrop would be necessary for a positive full-year comp, given the guidance midpoint is negative despite numerous initiatives. He also questioned the gross margin outlook, considering mix, promotions, and tariffs.

Answer

CFO Carl Ford stated the guidance assumes persistent macro headwinds, with internal initiatives intended to counteract them. CEO Steven Lawrence added that the Jordan launch is margin-accretive, as apparel carries higher margins and new products have fewer initial markdowns. He reiterated that price optimization tools are used to manage tariff impacts.

Michael Lasser from UBS questioned how SG&A expenses would leverage if comparable sales turn positive. He also asked how the new store opening strategy would be impacted if comps remain negative in the medium term.

Answer

CFO Carl Ford explained that over 90% of the Q3 SG&A increase was driven by strategic initiatives, primarily new stores, and that base SG&A would leverage on positive comps. CEO Steve Lawrence reiterated that new store growth is their top priority. While acknowledging the tough environment by moderating the 2025 opening plan to 20-25 stores, he affirmed their long-term commitment to expansion, supported by strong cash flow.

On behalf of Michael Lasser, an analyst asked for confirmation that the $16 million storm headwind and $32 million DC out-of-stock headwind both occurred in Q2 and that the out-of-stock issue is not expected to persist. He also sought to clarify that the strong gross margin was achieved despite this inventory headwind.

Answer

CEO Steve Lawrence confirmed the headwinds were isolated to Q2 and that the company is now 'mostly caught up' on the DC issue, not anticipating a further impact. CFO Carl Ford affirmed that the strong gross margin performance was indeed achieved through disciplined inventory management across the enterprise, even with the temporary issues at the Georgia DC, and that overall units per store were down 5%.

Michael Lasser from UBS questioned whether the mid-to-high teens incremental/decremental margin framework still applies given tariff uncertainty and asked about potential permanent margin impacts if the tariff regime persists. He also inquired about the production capacity in markets outside of China to absorb supply shifts.

Answer

CEO Niraj Shah clarified that Wayfair's model is relatively advantaged in a tariff environment but not that it directly benefits. CFO Kate Gulliver stated the focus remains on growing adjusted EBITDA dollars, supported by structural cost efficiencies in SOTG&A. Niraj Shah added that there is significant manufacturing capacity outside of China, especially given the category's multi-year downturn, and Wayfair's integrated logistics platform is a key advantage in facilitating supply shifts.

Michael Lasser asked for an estimate of the magnitude of industry-wide price increases if tariffs persist and questioned Best Buy's strategy for implementing and potentially rolling back these prices. He also asked for the earnings outlook in a negative 2% comparable sales scenario.

Answer

CEO Corie Barry stated that while price increases are inevitable, it is difficult to quantify the exact amount due to variables like vendor cost absorption and the competitive landscape. She clarified that price changes would be gradual, not overnight, due to inventory turns, and the company's core strategy remains to be competitive across all price points. CFO Matthew Bilunas addressed the negative comp scenario, explaining that while the company would work to mitigate profit impact, he could not provide a specific earnings number, as they must balance short-term cost management with protecting long-term growth investments.

Michael Lasser from UBS questioned the rationale for lowering the full-year comparable sales guidance despite a strong Q2 and a flat start to August. He also asked for an assessment of market share stabilization and the key factors that would influence incremental margins when sales growth returns.

Answer

CEO Corie Barry attributed the cautious guidance to the unpredictable consumer environment, citing the historical impact of elections and potential holiday season volatility. She agreed that market share is showing 'rough stabilization,' with strength in computing but ongoing pressure in the highly promotional appliance category. CFO Matt Bilunas noted that as the industry returns to growth, Best Buy expects to expand its operating income rate, driven by cost efficiencies and strategic initiatives, but deferred providing specific future margin drivers.

Michael Lasser asked how WeightWatchers plans to avoid a downward cycle of declining subscribers leading to fewer resources for growth, given the competitive landscape. He also questioned whether the Q4 subscriber decline rates should be extrapolated for 2025 and what base level of subscribers is needed to service the company's interest obligations.

Answer

President and CEO Tara Comonte stated the company will focus on its core 'substance,' leveraging its 62-year trusted brand and unique, broad offerings from behavioral to clinical care. She emphasized plans for innovation, particularly with the company's vast data set, while acknowledging the financial constraints of their debt. CFO Felicia DellaFortuna added that while behavioral recruitment challenges will persist, a rising mix of higher-value Clinical subscribers is increasing ARPU. She highlighted that the business generated $113 million in operating cash flow in 2024, excluding one-time items and interest, and will see a full-year benefit from cost actions in 2025.

Michael Lasser asked how WeightWatchers plans to avoid a downward cycle of declining subscribers leading to fewer resources for growth, and whether the recent subscriber trends for behavioral and clinical segments should be extrapolated for the full year.

Answer

CEO Tara Comonte stated the company is focusing on its core strengths, brand trust, and the unique breadth of its offerings from behavioral to clinical care. She emphasized leveraging its vast data assets and product innovation to drive a turnaround, while acknowledging the challenge of its debt load. CFO Felicia DellaFortuna addressed the subscriber trend question, noting that while behavioral recruitment challenges will persist, the mix is shifting toward higher-ARPU clinical subscribers. She highlighted that the company generated positive operating cash flow of $113 million in 2024, excluding interest and restructuring costs, and will benefit from a full year of cost savings in 2025.