Peter Benedict

Peter Benedict of Baird inquired about BJ's Wholesale Club's exposure to the SNAP program, renewal rates across various income demographics, and observed consumer behavior among lower-income members in Q3 and heading into the holiday season.

Answer

Chairman and CEO Bob Eddy noted that while the low-income consumer faces pressure from inflation, their purchasing habits in Q3 were resilient, adjusting for last year's port strike and hurricane noise. He mentioned a slight disruption from the SNAP program at the end of Q3 and early Q4, but recovery is underway. CFO Laura Felice added that membership acquisition and retention remain strong across all cohorts, with no significant differences observed in membership details across income groups.

Peter Benedict of Baird inquired about consumer behavior across income demographics, specifically focusing on the stability of lower-income members, exposure to the SNAP program, and membership renewal rates in Q3 fiscal 2025 and heading into the holiday season.

Answer

Chairman and CEO Bob Eddy noted resilient performance and stable purchasing habits from lower-income members in Q3, despite inflation. He acknowledged a slight disruption from the SNAP program at the end of Q3 and early Q4, now recovering. CFO Laura Felice added that membership acquisition and retention remain strong across all income cohorts, with no significant differences observed.

Peter Benedict from Baird inquired about the sales cadence during the second quarter, noting the impact of weather, and asked for an outlook on the back half's comps and earnings, considering factors like the Q3 port strike lap. He also followed up on membership trends, including new member sources and the outlook for membership fee income (MFI).

Answer

Chairman and CEO Bob Eddy confirmed that Q2 sales strengthened as the quarter progressed and weather improved, with May being weak but June and July showing improvement. He praised the team's inventory management, which ended the quarter in its best shape in years. CFO Laura Felice addressed the back half, acknowledging the Q3 port strike lap and strong prior-year Q4 GM results as factors, but expressed confidence. On membership, Mr. Eddy celebrated reaching the 8 million member milestone, driven by new clubs and comp club acquisition, and noted record-high tier penetration at 41%. Ms. Felice added that the MFI growth rate is expected to accelerate through the year.

Peter Benedict asked for clarification on the company's exposure to China and Mexico and requested more detail on new club performance metrics that support the decision to accelerate store growth.

Answer

CEO Robert Eddy stated that direct imports from China represent only a few percent of the business, which is less exposure than many peers. EVP, Strategy and Development, Bill Werner, addressed new club performance, stating that recent openings are exceeding top and bottom-line plans in both new and existing markets. He highlighted strong member demand, digital conveniences, and the strategic use of the balance sheet to own more real estate as key factors giving the company confidence to accelerate its expansion.

Peter Benedict of Robert W. Baird & Co. asked for clarification on the 39% higher-tier membership base facing the fee increase and the potential impact on attrition. He also inquired about the future pace of SG&A growth driven by new club investments.

Answer

CEO Robert Eddy explained the higher-tier is a mix of members and expressed confidence in the value proposition to mitigate attrition. CFO Laura Felice quantified the fee increase impact at about $20 million annually, which will be reinvested. On SG&A, Felice confirmed deleverage would continue in Q4 due to club opening investments, which EVP William Werner noted creates long-term shareholder value despite near-term pressure.

Peter Benedict of Robert W. Baird & Co. inquired about the composition of BJ's 7.5 million members, specifically the 39% in higher tiers, and the potential attrition from the upcoming membership fee increase. He also asked about the forward-looking pace of SG&A growth and the comp sales level required to achieve leverage.

Answer

Chairman and CEO Bob Eddy explained that higher-tier members are the most valuable and that the fee increase is supported by strong member engagement and high renewal rates. CFO Laura Felice quantified the fee increase's annual impact at approximately $20 million, which will be reinvested into the business. Regarding SG&A, Felice confirmed deleverage will continue in Q4 due to investments in new clubs, which Eddy and EVP, Strategy and Development Bill Werner noted is a strategic choice that pressures near-term earnings but builds significant long-term shareholder value, partly through owning the real estate.

Peter Benedict of Baird inquired about the change in the merchandise margin outlook, asking if investments in perishable pricing were a reaction to market competition. He also asked about the drivers of strong member growth in comparable clubs and how MFI strength impacts a potential membership fee increase.

Answer

Chairman and CEO Robert Eddy explained the margin pressure is a long-term investment strategy driven by price promotions for value-sensitive consumers, higher-than-expected growth in lower-margin perishables, and 'growing pains' from rapid assortment changes. On membership, he credited a new methodology for growing members in existing clubs. Regarding a fee increase, he acknowledged the strong value proposition but stated the current guidance does not include one.

Peter Benedict from Baird inquired about the sales cadence during Q2, particularly the impact of weather, and the outlook for comps and earnings in the second half, noting laps against a port strike and legal benefits. He also asked about the sources of new members and the outlook for membership fee income (MFI) growth.

Answer

CEO Bob Eddy confirmed that Q2 sales strengthened as the quarter progressed and weather improved, and noted the company ended with a very clean inventory position. EVP & CFO Laura Felice acknowledged the Q3 port strike lap and strong Q4 GM comps from last year as factors in the back-half outlook. Regarding membership, Eddy highlighted reaching 8 million members, strong renewal rates, and record penetration of higher-tier memberships at 41%. Felice added that the MFI growth rate is expected to accelerate through the year.

Peter Benedict asked for an update on BJ's real estate strategy, including how the company thinks about target markets, competitive factors, and member pools as it accelerates new club openings.

Answer

CEO Bob Eddy and EVP, Strategy and Development Bill Werner explained that recent success and market share gains have given them the confidence to accelerate new club openings. Werner noted the real estate pipeline is the largest in company history, with a strategy that includes both infill in core markets like Staten Island and expansion into new markets like the Carolinas. He emphasized that as BJ's gains share, the models open up more opportunities for new clubs.

Peter Benedict of Baird asked for an update on BJ's real estate strategy as the company accelerates club openings, inquiring about target markets, competitive factors, and the potential member pool.

Answer

CEO Robert Eddy stated that the success of recent new clubs has provided the confidence to accelerate openings in new and existing markets. EVP, Strategy and Development William Werner added that market share gains are opening up more opportunities, citing strong starts for new clubs in Staten Island and the Carolinas as proof points for their aggressive strategy.

Peter Benedict inquired about BJ's real estate strategy, asking for an update on how the company approaches target markets, competitive factors, and member pools as it accelerates new club openings.

Answer

CEO Bob Eddy stated that the success of recent club openings provides the confidence to accelerate expansion into new and existing markets. EVP, Strategy and Development, Bill Werner added that share gains are opening up more opportunities, citing strong starts for clubs in both infill locations like Staten Island and new markets like the Carolinas.

Peter Benedict inquired about BJ's real estate strategy, including how the company considers target markets, competition, and member pools as it accelerates new club openings.

Answer

Chairman and CEO Bob Eddy and EVP, Strategy and Development Bill Werner explained that recent market share gains have fueled the most aggressive real estate pipeline in the company's history. They highlighted broad-based success in both new markets, like the Carolinas, and infill locations, such as Staten Island. The company remains on track to open 25 to 30 clubs over the next two years, driven by strong new club performance.

Peter Benedict of Robert W. Baird & Co. followed up on the company's sourcing exposure to China and Mexico and then asked for more detail on new club performance metrics that provide confidence in accelerating the pace of new openings.

Answer

CEO Robert Eddy clarified that direct import exposure from China is only a few percent of the business, which is less than many general merchandise retailers. EVP, Strategy and Development, William Werner, addressed new club performance, stating that recent openings are exceeding top and bottom-line plans in both new and infill markets. He cited the company's value model, digital conveniences, and the strategic use of the balance sheet to own more real estate as key factors supporting accelerated growth.

Peter Benedict asked about market concerns regarding the digestion of tariffs and expectations for lower operating margins in the first half of next year, seeking insight into the business's ability to maintain operating margins. He also inquired about unit growth, specifically if the company is signaling a more offensive posture for West Elm and the magnitude of expected unit growth.

Answer

CFO Jeff Howie declined to provide 2026 guidance due to the volatile tariff landscape, citing uncertainties like the India tariff and the IEEPA Supreme Court decision, but reiterated confidence in their six-point mitigation plan. Regarding unit growth, he explained the retail repositioning strategy, including closing underperforming stores and moving to lifestyle centers, and highlighted new store growth opportunities for West Elm, Rejuvenation, and potentially Green Row. He projected mid-single-digit closures for the current year and no substantial change in overall store count for 2026.

Peter Benedict from Baird asked about market concerns regarding the digestion of tariffs and the ability to maintain operating margins in 2026. He also inquired about the company's unit growth strategy, particularly an offensive posture for West Elm, Rejuvenation, and Green Row, and the expected magnitude of overall store count changes.

Answer

Jeff Howie, CFO, deferred 2026 guidance due to tariff volatility but expressed confidence in the six-point mitigation plan. He elaborated on the retail repositioning strategy, including closing underperforming stores and opening new ones in white space opportunities, particularly for West Elm, Rejuvenation, and potentially Green Row, expecting mid-single-digit closures this year with no substantial change in overall store count for 2026.

Peter Benedict from Baird inquired about the company's philosophy on price increases, particularly whether the goal is to maintain gross profit dollars or a specific margin rate when offsetting tariff impacts.

Answer

President and CEO Laura Alber explained that pricing is a comprehensive strategy focused on reducing promotions and emphasizing value through design, quality, and service. She stated that pricing adjustments are made on an item-by-item basis based on the competitive environment, not simply on cost. Alber highlighted that the company's vertically integrated model allows for unique products and better vendor costs, and she sees further opportunity to improve margins through better markdown management and a higher mix of regular-priced sales.

Peter Benedict from Baird inquired about the company's philosophy on implementing price increases, particularly whether the strategy aims to preserve gross profit dollars or a specific margin rate amid tariff pressures.

Answer

President and CEO Laura Alber explained that pricing decisions are part of a broader strategy to reduce promotional activity and are based on the competitive environment, not just costs. She emphasized that value encompasses design, quality, and service, and the company makes pricing adjustments on an item-by-item basis. Alber also noted an opportunity to improve margins on markdown inventory.

Peter Benedict inquired about the company's philosophy on implementing price increases, specifically whether the goal is to maintain gross profit dollars or a specific margin rate when offsetting tariffs.

Answer

CEO Laura Alber stated that pricing decisions are made on an item-by-item basis and are driven by the competitive environment, not just cost inputs. She emphasized that value is defined by design, quality, and service, not solely price. Alber also noted that the company's vertically integrated model provides pricing advantages and that opportunities remain to improve markdown margins.

Peter Benedict inquired about the company's philosophy on taking price increases to offset tariffs, specifically whether the goal is to maintain gross profit dollars or the gross margin rate.

Answer

President and CEO Laura Alber stated that pricing decisions are based on the total value proposition—including design, quality, and brand—rather than being solely cost-driven. She explained that the company makes item-by-item adjustments based on the competitive environment and sees opportunities to improve markdown margins and increase the mix of regular-priced sales, rather than implementing broad price hikes.

Peter Benedict asked about Williams-Sonoma's holiday marketing and promotional strategy compared to competitors and inquired about the next sources of supply chain and operational efficiencies.

Answer

CEO Laura Alber highlighted the company's competitive advantage as a 'holiday headquarters' and its commitment to value through in-house design rather than deep promotions. She identified further opportunities for efficiency in customer service, occupancy cost reduction via retail fleet optimization, influencer-driven marketing, and payroll management.

Peter Benedict of Baird asked about the strategy behind increased advertising spend, the expected return on investment, and the outlook for ocean freight costs and China sourcing exposure amid potential tariff changes.

Answer

CEO Laura Alber explained that advertising is a long-term investment in customer growth, particularly for their multi-brand portfolio, and highlighted the success of creator-led content. CFO Jeff Howie noted the company is largely insulated from ocean freight spot market volatility due to its scale and contracted rates. He also stated that China-sourced imports have been reduced from 50% to 25% since 2018, with a plan to pivot further if necessary.

Peter Benedict inquired about the company's philosophy on implementing price increases to counter tariffs, specifically whether the focus is on maintaining gross profit dollars or a specific margin rate.

Answer

President and CEO Laura Alber stated that pricing decisions are based on the total value proposition, including design, quality, and service, rather than being solely a reaction to tariffs or costs. She emphasized that the company prices based on the competitive environment and makes adjustments on an item-by-item basis. Alber noted that new products are selling well, allowing for carefully selected price increases on high-demand items, and that she sees further opportunity to improve markdown margins.

Peter Benedict of Robert W. Baird & Co. inquired about the company's philosophy on price increases, particularly whether the aim is to preserve gross profit dollars or margin rates amidst tariff pressures.

Answer

President and CEO Laura Alber explained that pricing decisions are based on the total value proposition—design, quality, and service—not just cost or tariffs. She emphasized that adjustments are made item-by-item based on the competitive environment and that the company sees opportunities to improve margins through newness and better markdown management.

Peter Benedict asked for an update on Tractor Supply Company's AI initiatives and the outlook for how AI will be integrated into the company's operations.

Answer

Hal Lawton, President and CEO, outlined three areas of AI focus: adopting AI modules in enterprise software from vendors (ERP, replenishment, marketing); scaling and refining custom-built applications like HeyGura, Tractor Vision, and Corso for daily operations; and building agents and automation. He highlighted an enterprise integration with OpenAI, now used by over 1,200-1,500 users and integrated with their Snowflake data lake, enabling automation like AI-driven feedback for FAST team planogram resets, enhancing efficiency.

Peter Benedict requested an update on Tractor Supply Company's activities in Artificial Intelligence (AI) and the outlook for its integration into the company's operations.

Answer

Hal Lawton (President and CEO) outlined AI efforts in three buckets: enterprise-level software (adopting AI modules from vendors), custom-built enterprise software (scaling applications like HeyGura, Tractor Vision, and Corso), and automation/agent build-out. He mentioned an enterprise integration with OpenAI, with over 1,500 users and integration with Snowflake, enabling the creation of agents for automation, such as AI-driven feedback for planogram resets, enhancing efficiency.

Peter Benedict from Baird asked for an expansion on the comment that the pet food category has passed its 'trough,' seeking clarity on what trends they are observing and their outlook for the category.

Answer

EVP & Chief Merchandising Officer Seth Estep clarified that they believe the demand slowdown has bottomed out and they expect tailwinds ahead, though perhaps at a slower rate than historically. He highlighted investments in Pet Rx, in-store services, and significant product resets across dog and cat food. He also noted that a new, expanded pet format is in over 500 stores and is outperforming the rest of the chain.

Peter Benedict asked for clarification on the tariff assumptions embedded in the second quarter and full-year guidance, specifically regarding the rates and duration.

Answer

CEO Hal Lawton explained that the guidance assumes current tariff rates (e.g., 145% on China) will impact all receipts occurring within the second quarter. The outlook is prudently limited to this 90-day exposure, with the company hoping for moderation but planning for the known costs in the near term.

Peter Benedict asked about the recently acquired Allivet business, inquiring about its seasonality, P&L characteristics like gross margin, and the expected magnitude of its earnings accretion in the first year.

Answer

CFO Kurt Barton described Allivet as a relatively stable business with some minor seasonality in the spring/summer for flea and tick products. He confirmed it will be accretive to earnings in 2025, with a focus on top-line growth and onboarding Neighbor's Club members. Barton stated that while there will be initial integration investments, the long-term outlook is for Allivet's operating margins to potentially equal or surpass Tractor Supply's levels.

Peter Benedict asked for more detail on the continued strength in big-ticket sales, questioning the role of innovation, pricing, private label credit, and potential replacement cycles in driving this unique trend.

Answer

EVP & Chief Merchandising Officer Seth Estep attributed the third straight quarter of big-ticket growth to a combination of factors. He highlighted a superior product lineup with innovation and exclusive features, strategic inventory investments to meet demand, and strong momentum from the company's private label credit card program, which is supported by vendor partnerships.

Peter Benedict asked for more detail on the drivers behind the continued strength in big-ticket sales, questioning the role of product innovation, pricing, private label credit, and potential replacement cycles.

Answer

EVP and Chief Merchandising Officer Seth Estep attributed the sustained big-ticket growth to three key factors: a differentiated product lineup with strong innovation, strategic inventory investments to ensure availability, and significant momentum from the company's private label credit card offerings, which are supported by vendor partnerships.

Peter Benedict asked about the sustainability of Costco's unit growth pace (30 warehouses per year, 20 in the U.S.), the potential for international unit growth, and the capital expenditure plan for the upcoming fiscal year.

Answer

President and CEO Ron Vachris confirmed runway for continued growth, driven by investments in real estate and opportunities in existing and new markets, aiming for quality over a specific number. He noted international projects can take longer. EVP & CFO Gary Millerchip explained that CapEx grew faster than sales in fiscal year 2025 due to accelerated warehouse growth, remodels, depot expansions, and manufacturing investments. He expects CapEx to grow over fiscal year 2025 and likely exceed sales growth again in fiscal year 2026 for similar reasons, with specific numbers to be provided in the Q1 release.

Peter Benedict asked about the sustainability of Costco's unit growth pace (30 warehouses planned for next year, 20 in the U.S.), international growth potential, and the capital expenditure plan for the upcoming fiscal year.

Answer

President and CEO Ron Vachris confirmed a good runway for future growth, driven by investments in real estate and opportunities in existing and new international markets, noting that the 30-warehouse target can ebb and flow. CFO Gary Millerchip explained that CapEx grew faster than sales in 2025 due to accelerated warehouse growth, remodels, depot expansions, and manufacturing investments. He expects 2026 CapEx to grow over 2025, likely higher than sales, for similar reasons, with a specific number to be provided in the Q1 release.

Peter Benedict asked about the sustainability of Costco's unit growth pace (30 warehouses per year), the potential for international unit growth, and the capital expenditure plan for the upcoming fiscal year.

Answer

President and CEO Ron Vachris confirmed a good runway for opening around 30 warehouses annually, driven by opportunities in existing and new markets, acknowledging international projects can take longer. CFO Gary Millerchip explained that 2025 CapEx grew faster than sales due to accelerated warehouse growth, remodels, depot expansions, and manufacturing investments, expecting 2026 CapEx to grow further for similar reasons, with a specific number provided in the Q1 release.

Peter Benedict from Robert W. Baird & Co. asked about the recent dip in membership renewal rates, how long this pressure might persist, and what strategies are in place to improve retention among these newer member cohorts.

Answer

CFO Gary Millerchip explained that the volatility in renewal rates is expected to continue due to the lagging effect of digital promotions and large new warehouse openings in Asia entering the calculation. He noted these cohorts are typically younger and initially renew at lower rates. The strategy to improve this is to increase engagement through more personalized digital communication and drive them into the warehouse to move them "up the loyalty curve."

Peter Benedict from Robert W. Baird & Co. asked about the recent dip in membership renewal rates, questioning how long the pressure from digital and Groupon sign-ups might persist and what strategies are in place to improve retention for these digitally-acquired members.

Answer

Executive VP & CFO Gary Millerchip explained that the volatility in renewal rates is expected to continue for a while due to the lag in calculating renewals for members acquired through digital promotions, who are typically younger and renew at a slightly lower rate. He also noted that large new warehouse openings in Asia can temporarily impact the rate. The strategy to improve this involves deeper engagement with these members through personalized digital communication to bring them into the warehouse and move them up the loyalty curve.

Peter Benedict of Baird inquired about the growth runway for Costco in the U.S., given the existing number of clubs from all players, and what provides confidence in maintaining its pace of new openings.

Answer

Executive Ron Vachris expressed confidence in the U.S. growth runway, citing the success of new openings in dense, mature markets like Pleasanton, California. He explained that new warehouses create significant incremental business by relieving pressure on high-volume locations, which leads to increased shopping frequency from existing members and a quick sales build-back at the older stores. He also noted success in new, smaller markets like Scarborough, Maine, demonstrating a dual strategy of infill and new market entry.

Peter Benedict of Robert W. Baird & Co. asked for more details from Lowe's quarterly pro sentiment survey, particularly regarding backlogs and labor availability. He also inquired about the drivers behind the positive performance in the flooring category during the quarter.

Answer

President, CEO & Chairman Marvin Ellison confirmed that pros report stable backlogs and confidence, though they are focusing on smaller R&M projects and facing rising labor costs. Executive Vice President of Merchandising William Boltz attributed flooring strength to carpet, tile, and adhesives, noting the addition of the Dal-Tile brand will further boost the category. Executive Vice President of Stores Joseph McFarland added that the centralized selling model for flooring has improved associate focus and installation satisfaction.

Peter Benedict inquired about the outlook for the hurricane rebuild benefit in the first half of 2025. He also requested more detail on the Pro business, including how Lowe's defines its Pro segments and which product categories are driving its strong performance.

Answer

CFO Brandon Sink explained that a hurricane benefit is included in the H1 forecast, but the company has taken a conservative approach due to uncertain timing of insurance payouts. CEO Marvin Ellison defined the Pro customer by shopping patterns and spend, attributing growth to Total Home investments in product, service, and delivery. EVP, Merchandising, William Boltz, added that Pro growth was positive across all merchandising divisions, led by building materials, lumber, and millwork, with notable strength in appliances and paint.

Peter Benedict inquired about the performance of Lowe's new DIY loyalty program, seeking details on member engagement and the strategy for its second year, and also asked about the company's preparedness for potential future tariffs.

Answer

Chairman and CEO Marvin Ellison stated that the MyLowe's Rewards program is performing well, with a record enrollment week in October and positive trends in repeat purchases and average order value, but deferred future plans to the upcoming investor day. Regarding tariffs, Ellison, EVP of Merchandising William Boltz, and CFO Brandon Sink expressed confidence in their diversified sourcing strategies and data-driven processes, noting that while about 40% of COGS are sourced internationally, they are well-prepared to manage potential cost impacts.

Peter Benedict requested more detail on the extended aisle initiative for Pro customers and asked about the long-term potential for reducing the company's ~20% sourcing exposure to China.

Answer

CEO Marvin Ellison noted that vendors in the extended aisle soft launch saw dramatic performance acceleration. EVP, Stores, Joe McFarland added that while it's 'early innings,' the initiative provides immediate visibility to supplier inventory and pricing. On sourcing, Ellison reiterated the commitment to reduce the 20% China exposure, while EVP, Merchandising, Bill Boltz described the ongoing, disciplined SKU-by-SKU process of finding new sourcing locations with all supplier partners.

Peter Benedict requested more detail on the extended aisle initiative for Pro customers and asked about the long-term potential for reducing the company's sourcing exposure to China from its current 20% level.

Answer

Chairman and CEO Marvin Ellison and EVP, Stores Joe McFarland described the extended aisle for Pro as being in its early innings but already showing strong results. The initiative provides immediate visibility to supplier inventory, enables quotes within minutes, and offers direct-to-jobsite delivery, significantly accelerating the sales cycle. Regarding sourcing, Marvin Ellison and EVP, Merchandising Bill Boltz reiterated their commitment to reducing the 20% exposure to China through a disciplined, SKU-by-SKU review in partnership with both private and national brand suppliers to find alternative countries of origin.

Peter Benedict from Robert W. Baird & Co. asked about the potential to recover the 220 basis point EBIT margin impact from tariffs in future years and the rationale behind the $200 million share buyback target.

Answer

CFO Mike McMullen conveyed that while tariff impacts are uncertain, the company will pursue offsets through cost efficiencies and potential price adjustments. Regarding capital allocation, he explained that the $200 million buyback target balances strong free cash flow, maintaining a robust balance sheet, and preserving flexibility for strategic acquisitions, ensuring a disciplined approach to returning capital to shareholders.

Peter Benedict questioned the company's approach to pricing as a tariff mitigation strategy and asked about plans to accelerate international growth beyond the upcoming launch in Japan.

Answer

Executive Matthew Reintjes stated that the primary tariff mitigation is accelerating the supply chain shift out of China. He described YETI's pricing strategy as targeted and thoughtful, aimed at long-term stability rather than short-term reactions. Regarding international expansion, he highlighted strong momentum in Europe and positioned the Japan launch as a strategic bridge into the broader Asian market.

Peter Benedict asked about the financial impact of potential China tariffs on the 2025 outlook, YETI's import exposure to other regions like Mexico, and the strategy behind the recent M&A activity, including the powered cooler IP acquisition.

Answer

EVP & CFO Michael McMullen quantified the potential annual impact of a 10% China tariff at less than $10 million, which he described as manageable and not included in the current outlook. President & CEO Matthew Reintjes explained that the recent powered cooler IP acquisition is a developmental project not expected to contribute to 2025 sales. He emphasized that YETI's M&A strategy is disciplined and focused on acquiring technologies and capabilities to accelerate its existing product roadmap.

Peter Benedict asked about YETI's strategy for mitigating potential U.S. tariffs by shipping China-sourced products directly to international markets and inquired about the company's ability to manage SG&A growth if gross margin tailwinds diminish.

Answer

CFO Mike McMullen confirmed that products made in China can be shipped directly to other regions, which helps offset potential U.S. tariff risk. He also stated that SG&A investments in 2024 were intentional, funded by gross margin gains, and that the company's long-term goal is to manage gross and operating margins together to drive operating margin expansion over time.

Peter Benedict from Baird asked if the company is seeing evidence of a replacement cycle with its connected grills, inquired about CapEx and free cash flow expectations for the year, and sought clarity on the timing and potential size of Project Gravity's cost savings phases.

Answer

CEO Jeremy Andrus noted that while they have the data, early reads on the new Woodridge grill showed more new buyers than replacement buyers, though he expects it to be a strong upgrade product over time. CFO Joey Hord stated that the company will be cash flow positive for the year with no significant deviation in CapEx plans. He clarified that of the $30 million in Phase 1 run-rate savings, $13 million will be realized in fiscal 2025, with the full amount materializing through 2026. He added that it is too early to quantify the potential savings from Phase 2.

Peter Benedict of Robert W. Baird & Co. sought precise clarification on the tariff structure for grills from China versus Vietnam. He also asked for an update on the Walmart pellet rollout and whether recent strong demand could be a pull-forward from consumers buying before price hikes.

Answer

CEO Jeremy Andrus and CFO Dom Blosil clarified the complex tariff situation: grills from China face a 45% total tariff (25% Section 232 steel tariff + 20% IEEPA tariffs), while grills from Vietnam face a 25% tariff. Jeremy Andrus confirmed the Walmart pellet and rub rollout is meeting expectations and serves consumers who want to buy consumables during their grocery trips. Regarding demand, he acknowledged it's hard to parse, but it could be a mix of a normalizing replacement cycle and some consumer pull-forward.

Zach Baton, on behalf of Peter Benedict, asked for quantification of the Woodridge grill load-in benefit to Q4 revenue and any changes to the promotional strategy. He also inquired about long-term deleveraging goals, 2025 free cash flow expectations, and the status of manufacturing diversification in Vietnam.

Answer

CFO Dominic Blosil did not quantify the Woodridge load-in but noted its contribution was balanced by strong sell-through of core grills. He stated the long-term leverage target is at or below 3x turns and that 2025 free cash flow is expected to be similar to or slightly down from 2024 due to working capital investments. CEO Jeremy Andrus added that the company's manufacturing partner in Vietnam is scaling up, with mass production beginning in the current quarter, providing sourcing options outside of China.

Peter Benedict of Baird asked if the 210 basis points of gross margin headwind was due to promotions and inquired about the company's promotional stance for Q4 and 2025.

Answer

CFO Dom Blosil confirmed the headwind was tied to promotional activity, specifically a new Labor Day promotion in Q3. He stated that Q4 promotions are consistent with past years and that promotions have successfully unlocked pent-up demand, particularly for sub-$1,000 products. The company will continue to use promotions as a lever while staying within brand guardrails.

Peter Benedict asked about the specific drivers and path to achieving the 22% adjusted EBITDA margin target by 2027, questioning the role of SG&A leverage and the timing of benefits from new production technologies.

Answer

CFO Todd Cunfer explained that mid-teens sales growth would enable significant G&A leverage and logistics improvements, which are key to reaching the 22% margin target. He noted potential upside to the 48% gross margin goal, which would further support profitability. CEO Billy Cyr emphasized that strong current operating performance and future benefits from new technology, which are not yet factored into the targets, provide additional confidence.

Peter Benedict of Robert W. Baird & Co. inquired about the path to achieving the 22% adjusted EBITDA margin target by 2027, specifically asking about the underlying SG&A assumptions and the timing of benefits from new technologies given the revised sales outlook.

Answer

CFO Todd Comfort explained that mid-teens sales growth would provide significant G&A leverage, which is key to hitting the 22% target. He noted the 48% adjusted gross margin goal is within reach and could be exceeded if new production technologies are successful. CEO Billy Cyr reinforced this, stating that strong current operating performance drives their confidence and that the benefits from new technology are not yet factored into the long-term targets, representing potential upside.

Peter Benedict inquired about the most impactful strategic changes being implemented for 2025 and sought to understand the company's confidence in the future effectiveness of its media spend, including the current customer acquisition cost (CAC).

Answer

President & Co-Founder Scott Morris stated the company is accelerating existing plans around affordability and targeted marketing. He expressed confidence in media effectiveness, citing two key factors: modifying creative messaging to attract new consumer groups and focusing media execution more precisely on high-potential 'MVP' consumers, which is driving extraordinary growth and higher buy rates, particularly through e-commerce channels.

Peter Benedict inquired about the recent hiring of Nikki as Chief Operating Officer, her initial observations, and her expected impact on the company's growth trajectory.

Answer

CEO William Cyr expressed that the new COO brings a fresh perspective and adds significant bench strength to the management team. He noted that while her immediate impact is limited by non-compete restrictions until May of next year, she is already digging into the business and is seen as a key talent to help the company achieve its large, long-term ambitions.

Peter Benedict inquired about the recent hiring of Nikki as Chief Operating Officer, asking what capabilities she brings to the company and what her potential impact on the organization might be.

Answer

Executive William Cyr expressed excitement about Nikki joining, stating she brings a 'fresh set of eyes' and different capabilities that add to the management team's bench strength. While her activities are temporarily restricted until May of the next year, her hiring is seen as a key step in enabling the company to achieve its ambitions of becoming a much larger and more expansive business.

Peter Benedict asked about trends in dealer assistance for the Recreation segment, dealer inventory levels by category, order momentum for the S-180 fire apparatus and its margin profile, and the current state of the demand cycle for fire and ambulance vehicles.

Answer

CFO Amy Campbell attributed the softer second-half RV outlook to tariff impacts and potential consumer uncertainty, noting Class B inventory levels are higher while Class A and C are healthier. CEO Mark Skonieczny added that overall dealer inventory is well-positioned with newer models. Regarding the S-180, Campbell confirmed strong demand and expansion to other brands, with margins comparable to custom trucks. She also stated that overall Fire & Emergency demand is normalizing toward long-term trend levels after recent peaks.

Peter Benedict inquired about capital allocation, asking if CapEx spending is at a peak level and questioning the company's willingness to commit more capital to share buybacks.

Answer

CFO John David Rainey clarified that CapEx is not at a peak and should be viewed as trending within 3% to 3.5% of sales, growing with revenue over time. Regarding buybacks, he confirmed they were aggressive in Q1, repurchasing $4.6 billion in stock due to price dislocation, and will remain opportunistic, expecting to spend more on buybacks this year than last.

Peter Benedict inquired about the competitive landscape, asking what Walmart is seeing in terms of competitive responses to its ongoing market share gains, particularly in the U.S.

Answer

CEO Doug McMillon explained that the competitive set is changing more rapidly than in the past, with different key competitors in international markets and 'fierce' competition from many directions in the U.S. He stated their focus remains on the customer while learning from competitors, a strategy he believes is reflected in their current results.

Peter Benedict of Robert W. Baird & Co. inquired about the consumer response to the 'buy more, save more' promotional model, specifically how changes in discount tiers and spending thresholds have affected customer engagement and pricing architecture.

Answer

CEO John Reed described the model as 'incredibly flexible' and effective, noting that customers are responding well and trading up to meet higher discount thresholds. He explained that the company is actively testing different percentage levels to optimize the response and can adjust the model monthly, expressing pleasure with the results since its launch.

Peter Benedict of Baird inquired if the planned 20-30 net store closures for this year represent a new run rate and asked for more details on merchandise differentiation efforts in consumables and supplies.

Answer

CFO Sabrina Simmons advised against viewing the closures as a long-term run rate, explaining the focus is on optimizing the productivity of existing assets before resuming fleet growth. CEO Joel Anderson discussed merchandising, stating that while he is building stronger vendor relationships to foster innovation, the immediate focus is on optimizing the current assortment around top-selling items. He mentioned the cat business is strong but deferred more specific details to later in the year.

Peter Benedict questioned the Q3 adjusted EBITDA outlook, which is guided slightly below Q2's actual results, asking what had changed in the company's view. He also asked for observations on consumer behavior and pet food pricing trends from vendors.

Answer

CFO Brian LaRose explained that Q2 EBITDA came in slightly better than expected, driven by stronger gross margin from cost initiatives and services. He stated the Q3 guide reflects their current expectations in a dynamic retail environment. Regarding trends, LaRose noted consumer behavior and pricing have been relatively consistent, with customers remaining choiceful and seeking value, while the services business continues to show strength.

Peter Benedict from Robert W. Baird & Co. Incorporated asked about the outlook for inflation and pricing for the remainder of the year and requested more detail on the previously mentioned 'price gap' analysis.

Answer

CEO Joel Anderson noted that the inflation outlook has been relatively stable and that the company's forecast already incorporates the current impact of tariffs. CFO Sabrina Simmons reiterated that their pricing strategy is surgical and SKU-level, balancing customer value with business health. Mr. Anderson added that this analysis has led to both price increases and decreases as part of a holistic improvement of retail fundamentals.

Peter Benedict of Baird asked for the outlook on inflation and pricing for the remainder of the year, separate from tariffs, and requested more detail on the earlier 'price gap' analysis.

Answer

CEO Joel Anderson stated that the inflationary environment has been relatively stable and that the forecast already includes tariff impacts. He reiterated that the company has identified SKU-level opportunities to adjust prices both up and down as part of a holistic effort to improve retail fundamentals, not just as a reaction to tariffs. CFO Sabrina Simmons added that their pricing strategy is surgical and balances customer and business needs.

Peter Benedict of Baird asked about the outlook for inflation and pricing for the remainder of the year and requested more detail on the previously mentioned 'price gaps,' including where they were identified and how they were addressed.

Answer

CEO Joel Anderson stated that the pricing environment has been relatively stable, with the impact of known tariffs already embedded in the company's forecast. Both he and CFO Sabrina Simmons reiterated that pricing actions are part of a holistic and surgical review of retail fundamentals, not just a reaction to tariffs, and have involved taking prices both up and down at the SKU level to ensure value for customers.

Peter Benedict from Baird asked for Petco's view on inflation and pricing for the remainder of the year and followed up on an earlier comment about "price gaps," seeking more detail on what was identified and addressed.

Answer

CEO Joel Anderson noted that the inflation outlook has been relatively stable and that the company's forecast already incorporates the impact of current tariffs. CFO Sabrina Simmons reiterated that Petco's pricing strategy is surgical and balances customer and business needs. Anderson added that the company has identified and acted on opportunities at the SKU level to both raise and lower prices as part of its broader effort to improve retail fundamentals.

Peter Benedict from Baird asked for Petco's outlook on inflation and pricing for the remainder of the year. He also followed up on the 'price gaps' comment, asking if specific areas of mispricing had been identified and addressed.

Answer

CEO Joel Anderson noted the pricing environment has been relatively stable, with the impact of known tariffs already embedded in the forecast. CFO Sabrina Simmons reiterated that their pricing strategy is surgical and balances customer and business needs. Anderson confirmed they have analyzed pricing at the SKU level, making adjustments both up and down as part of a broader effort to improve retail fundamentals.

Peter Benedict of Robert W. Baird & Co. Incorporated asked for the company's view on inflation and pricing for the remainder of the year. He also sought more detail on the earlier 'price gaps' comment, asking if specific gaps had been identified and addressed.

Answer

CEO Joel Anderson and CFO Sabrina Simmons conveyed that the current outlook embeds the impact of known tariffs and that the broader inflationary environment has been relatively stable. They reiterated that pricing strategy is a surgical, data-driven process at the SKU level to balance customer value and business health, and is part of a broader effort to improve retail fundamentals, not just a reaction to tariffs.

Peter Benedict of Baird asked about post-hurricane retail trends in the U.S. Car Wash business and also inquired about the drivers of lower year-over-year margins in the Maintenance segment and the performance of mature Take 5 Oil Change stores.

Answer

COO Danny Rivera explained that the company remains focused on growing its car wash membership base to mitigate weather impacts. Regarding Maintenance margins, he attributed the slight degradation to labor inefficiencies caused by hurricanes, noting it was within historical ranges. He confirmed both mature and new Take 5 stores are performing well without providing specific comps.