Peter Keith

Peter Keith inquired about the deceleration in Best Buy's Q4 comparable sales outlook despite strong momentum from Q3 and anticipated holiday product demand. He also asked for an update on the Best Buy Marketplace's performance since its rollout, including its expected positive impact on EBIT and any challenges encountered.

Answer

Matt Bilunas, Chief Financial and Strategy Officer, clarified that Q3 exceeded expectations due to strong Back-to-School and TechTober events, but Q4 faces tougher comparisons. He noted that categories like gaming and wearables might not sustain the same growth pace. Corie Barry, CEO, expressed pride in the marketplace launch, highlighting over 1,000 sellers, 11x more SKUs, high unit sales in accessories and small appliances, lower return rates, and 80% of returns occurring in stores. Matt Bilunas added that the marketplace's EBIT impact for the year is now expected to be neutral due to product mix and a slower ramp than initially modeled.

Peter Keith asked about the drivers behind the deceleration in Best Buy's Q4 comparable sales outlook, especially given the momentum from Q3. He also sought an update on the marketplace rollout, its expected positive impact on EBIT for the year, and any challenges encountered since its launch.

Answer

Matt Bilunas, Chief Financial and Strategy Officer, clarified that Q3 outperformed expectations due to strong back-to-school and TechTober events, but Q4 faces tougher comparisons. He noted that gaming and wearables growth momentum is expected to slow in Q4. Corie Barry, CEO, expressed satisfaction with the marketplace launch, highlighting over 1,000 sellers, 11 times more SKUs, high unit sales in accessories and small appliances, and lower return rates with 80% in-store returns. Matt Bilunas added that the marketplace's operating income rate impact for the year is now expected to be more neutral due to product mix and a slower ramp than initially modeled.

Peter Keith of Piper Sandler Companies asked about the marketplace launch timeline, potential sales cannibalization, and other key product innovations beyond the Nintendo Switch 2.

Answer

CEO Corie Barry confirmed a mid-year marketplace launch and stated it is expected to be accretive to profit even after accounting for cannibalization. SVP Jason Bonfig highlighted other innovations, including AI-powered computing, advanced TV technology, and growth in the mixed/AR reality space like Ray-Ban Meta glasses.

Peter Keith asked for details on the construction of the Q4 comparable sales outlook, given the strong +5% start to the quarter, and inquired about Best Buy's sourcing exposure to China and Mexico, potential tariff impacts, and mitigation strategies.

Answer

CFO Matt Bilunas explained the Q4 guidance range of flat to -3% accounts for potential sales lulls between holiday events and calendar shifts, noting the first three weeks represent only 20% of quarterly sales. CEO Corie Barry addressed tariffs, stating that while about 60% of COGS originates from China, Best Buy is the direct importer for only 2-3% of its products. She emphasized that tariffs typically result in shared costs across vendors, the company, and customers, and mitigation plans involve assortment adjustments, promotional strategies, and working closely with vendor partners.

Peter Keith inquired about the higher product cost impact, which was a 120 basis point drag for the quarter, asking for details on its components and whether this headwind is expected to continue into the new fiscal year. He also questioned the reasons for the lower-than-expected adjusted EPS, despite strong comps and EBITDA, specifically asking about the impact of higher interest expense.

Answer

CFO Kevin Willis explained that product costs are affected by lagging base oil price declines relative to crude, supply chain inflation, and significantly lower used oil pricing, which has become a drag and is expected to continue into FY2026. He attributed the lower EPS to higher depreciation from new store additions, a slightly higher effective tax rate, and slightly higher net interest expense (lower interest income).

Peter Keith inquired about the significant 120 basis point drag from higher product costs in the quarter, asking for details on its components and whether this headwind is expected to persist or if potential offsets exist. He also questioned the optics of strong comp and EBITDA performance contrasting with lower-end EPS, specifically asking about the reasons for a jump in interest expense and other factors impacting EPS.

Answer

CFO Kevin Willis attributed higher product costs to slow declines in base oil pricing despite lower crude oil, ongoing supply chain inflation, and a considerable decline in used oil pricing, which has become a drag and is expected to continue into fiscal year 2026. Regarding EPS, he cited higher depreciation due to the timing and mix of new store additions, a slightly higher effective tax rate, and marginally lower net interest income as contributing factors to landing at the low end of the range.

Peter Keith from Piper Sandler asked if the 100 basis points of labor leverage seen in the quarter is sustainable, given new demand planning tools. He also inquired if the company plans to introduce a new long-term comp growth framework.

Answer

CFO J. Kevin Willis attributed the labor leverage to the maturing impact of prior work and the implementation of Workday, suggesting ongoing opportunities. CEO Lori Flees added that more sophisticated demand planning is a key driver. Regarding a long-term framework, both executives confirmed they are actively working on it, leveraging the new CFO's fresh perspective, and plan to share it at an appropriate future time.

Peter Keith requested a quantification of the lost sales and EBITDA from refranchising in Q2 and the expected impact in Q3, and asked if Q2 marked the low point for the year-over-year EBITDA margin decline.

Answer

CFO Mary Meixelsperger directed the question to a recast financial chart in the earnings release that details the refranchising impact. She also stated that with SG&A deleverage expected to moderate, she anticipates some improvement in EBITDA margins in the second half of the year.

Peter Keith of Piper Sandler requested quantification of the margin pressure from FY25 investments and asked for details on Valvoline's exposure to potential import tariffs.

Answer

CFO Mary Meixelsperger indicated the investments in technology and talent would cause 'modest deleverage' in G&A but did not provide a specific number. CEO Lori Flees clarified the company's tariff exposure is primarily indirect, through suppliers of imported base oils and ancillary products like filters and wipers sourced from China. She noted that the company is actively exploring mitigation strategies, such as alternative sourcing.

Peter Keith addressed short-term investor anxiety regarding the fourth quarter's performance, specifically in light of potentially tougher year-over-year comparisons due to an industry improvement observed after last year's election.

Answer

Scott Thompson, Chairman, President, and CEO, Somnigroup International, stated that after reviewing detailed Mattress Firm and Tempur Sealy data from last year's fourth quarter, he does not believe there was a significant 'bump' in the bedding business attributable to the peaceful transition of government, contrary to his initial assumptions. Bhaskar Rao, Executive Vice President and Chief Financial Officer, Somnigroup International, confirmed this analysis, indicating that the perceived anxiety about tougher compares might be unfounded.

Peter Keith from Barclays addressed short-term investor concerns regarding the fourth quarter, specifically the tougher year-over-year comparisons following an industry improvement post-election last year, and how management views Q4's performance in this context.

Answer

Chairman, President, and CEO Scott Thompson and EVP and CFO Bhaskar Rao clarified that, contrary to previous assumptions, their detailed analysis of Mattress Firm and Tempur Sealy data from last year's Q4 showed no discernible "bump" in bedding business related to the peaceful transition of government. This suggests that the tougher comparisons might not be as impactful as initially perceived, alleviating some of the anxiety.

Peter Keith asked about potential gross margin pressure from a sales mix shift towards Sealy and whether the high-end Sealy line might be cannibalizing the low-end Tempur line.

Answer

CEO Scott Thompson acknowledged that Sealy might grow faster than Tempur for a couple of quarters, creating a slight headwind to gross margin percentage, but noted it would still be incremental to EBITDA dollars. He clarified that any cannibalization is by design and is occurring between the Sealy Posturepedic and Stearns & Foster brands, not impacting the uniquely positioned Tempur line.

Peter Keith asked about the drivers of Rollins' accelerating cash flow growth and the sustainability of these drivers. He also questioned the sustainability of incremental margins above 30% (31% adjusted for claims), given previous guidance of 25-30% and the recent step-up.

Answer

Ken Krause (EVP and CFO) attributed the year-to-date free cash flow growth (around 24%) to benefits like lower cash paid for taxes and improved focus on receivables, projecting mid-teens cash flow growth as sustainable. Regarding incremental margins, Ken stated that while 35% validates the business's capability, it's not expected every quarter due to growth investments, reiterating the focus on double-digit revenue/earnings growth and compounding cash flow, with year-to-date margins approaching the 25-30% target.

Peter Keith from Piper Sandler asked if the company was now lapping its growth investments and how management felt about the returns. He also inquired about the drivers of SG&A leverage and any evolving expense control initiatives.

Answer

EVP & CFO Kenneth Krause confirmed they are lapping the investments in Q3, which should support an improving margin profile, but stressed that the company will continue to invest where it sees opportunities. He noted that the executive team is highly aligned on a 'value creation program' to attack the entire cost structure, looking at everything from back-office processes to meeting expenses, which is expected to provide a tailwind.

Peter Keith asked for Wayfair's perspective on the improving industry backdrop, despite a sluggish housing market and tariffs, and whether a replacement cycle might be contributing to this trend.

Answer

Niraj Shah (Co-founder, CEO, and Co-Chairman) stated that the industry backdrop is improving, meaning it's no longer declining rapidly. He described the category as having "bottomed out" at a depressed low, with ongoing purchasing driven by replacement cycles, household formation, and some housing mobility despite high mortgage rates. He reiterated that Wayfair's growth strategy is primarily driven by controllable factors like improving the core recipe, launching new programs, and technology investments, which allow for significant share capture even in an anemic category. Keith also inquired if Amazon's decision to stop advertising through Google Shopping in early Q3 provided any benefit to Wayfair's sales or ad leverage. Shah stated that Amazon's advertising changes had a minimal impact on Wayfair. He explained that Wayfair, as a significant player in its specialized pockets, already optimizes its ad spend, and any reduction by Amazon would simply be filled by other advertisers in the auction, not necessarily leading Wayfair to increase its spend beyond optimal levels. Kate Gulliver (CFO and Chief Administrative Officer) clarified that Wayfair's ad spend leverage in Q3 was primarily due to gains in free traffic, increased app downloads/usage, and one-time benefits from Wayfair's own holdout tests, which are crucial for refining advertising models.

Peter Keith asked for Wayfair's perspective on the improving industry backdrop, despite a sluggish housing market and tariffs, and whether a replacement cycle might be contributing. He also inquired if Amazon's temporary halt in Google Shopping advertising in early Q3 provided any sales benefit or advertising leverage for Wayfair.

Answer

Niraj Shah, Co-founder, CEO, and Co-Chairman, confirmed the industry backdrop is improving, noting it's 'no longer getting worse at a fast rate' and has 'bottomed out' to a 'flattish' trend, driven by replacement cycles and Wayfair's controllable 'self-help' factors. He stated Amazon's actions had minimal impact due to Wayfair's high share in specialized pockets. Kate Gulliver, CFO and Chief Administrative Officer, attributed Wayfair's ad spend leverage to gains in free traffic, increased mobile app usage, and one-time holdout tests.

Peter Keith of Piper Sandler Companies questioned if the strong contribution margin and flow-through seen in Q2 represent a 'new normal' for the business. He also asked for more detail on the returns from the Q4 marketing investments in influencer and upper-funnel channels.

Answer

CFO Kate Gulliver and CEO Niraj Shah confirmed that the current profitability flow-through is what they have been building towards and is not abnormal. Shah explained that advertising leverage comes from both growth in emerging channels (like TikTok and influencers) and trimming inefficient spend identified through improved measurement, which creates a net benefit.

Peter Keith from Piper Sandler asked about Wayfair's pricing strategy when costs rise, specifically whether the company would aim to hold product margin or gross profit dollars. He also raised the concern of potential future inventory shortages, similar to the COVID era, and how that might impact CastleGate utilization.

Answer

CEO Niraj Shah explained that the company constantly runs pricing tests to optimize take rates and maximize profit dollars, which is the primary optimization function. He differentiated the current situation from 2021-2022, stating that there are no government-mandated supply restrictions and that suppliers are eager to take share in a soft market, making widespread shortages unlikely. He believes the supply/demand equilibrium will be maintained.

Peter Keith asked about Wayfair's advertising strategy given the high ad rates around the election season. He also inquired about the new 'Wayfair Rewards' loyalty program, asking for the key learnings from the previously disbanded 'MyWay' program and what makes the new offering different.

Answer

CEO Niraj Shah explained that Wayfair's quantitative ad-buying model avoids uneconomic channels like local TV that see election-related rate hikes, while other performance channels are unaffected. Regarding the loyalty program, he contrasted 'Wayfair Rewards' with the former 'MyWay' by highlighting its much stronger customer value proposition, particularly the 5% back in rewards, which makes it breakeven for the average customer and incentivizes incremental purchases. CFO Kate Gulliver added that the program is designed to increase customer lifetime value.

Peter Keith asked for clarification on market share trends, questioning if the rate of gain compressed in Q2 and what strategic changes were made. He also raised concerns about competition from factory-direct Chinese suppliers and its potential impact on U.S. supplier relationships and CastleGate revenue.

Answer

CEO Niraj Shah stated that market share has grown steadily for seven quarters and advised against focusing on short-term noise, noting July momentum picked up after a softer June. Regarding suppliers, he acknowledged competitive pressures but said high-quality, efficient U.S. importers are succeeding and that supplier interest in CastleGate is actually increasing.

Peter Keith inquired about the Uber Eats partnership, specifically if it's rolling out to all stores, any quantifiable lift from early tests, and if it's a standalone offering.

Answer

CEO Michael Creedon expressed excitement for the Uber Eats partnership, noting it targets a new, younger demographic of 25 million customers. He stated it's rolling out to approximately 8,500 stores and has shown strong early order numbers even without marketing, emphasizing convenience.

Peter Keith of Piper Sandler asked if the expansion of multi-price requires additional labor investment and whether the company sees an opportunity to increase advertising to build awareness of its new offerings.

Answer

CEO Michael Creedon explained that multi-price stores are 'earning their hours' through higher sales, so no ongoing incremental labor is needed beyond initial setup costs. On advertising, he highlighted the strength of organic social media and word-of-mouth, but acknowledged the company is exploring ways to enhance its messaging to ensure all consumers are aware of the exciting changes in-store.

Peter Keith of Piper Sandler Companies asked for an early view on the impact of recent tax legislation on Dollar General's core customer, particularly in light of potential cuts to SNAP benefits.

Answer

CEO Todd Vasos stated that all known factors are included in the outlook and that he believes the legislation will be a net tailwind for the core customer. He noted that while SNAP work requirements are not expected to be very impactful, tax benefits on tips, overtime, and Social Security, along with child tax credits, should be beneficial for their customers, and Dollar General expects to get its fair share of that spending.

Peter Keith asked why Dollar General isn't seeing the typical surge in share gains and spending from its customers during these tough economic times, a pattern observed in past downturns.

Answer

CEO Todd Vasos explained that the 'trade-in' from middle and upper-middle-income customers has been slower than historically seen. He attributed this to two factors: a relatively stable job market that hasn't provided the 'jolt' needed to change shopping habits, and that this cohort is increasingly relying on online channels for value. He noted the company is working on how to offset the online trend.

Peter Keith asked for a comparison between the new Q2 Ollie's Army Night and the traditional December event, focusing on differences in sales lift, new member acquisition, and key learnings.

Answer

President and CEO Eric van der Valk described the revamped event as a huge success that surpassed all expectations and provided key learnings for future events. EVP and CFO Robert Helm added that the event contributed 100 basis points to quarterly comps, was gross margin neutral, increased customer acquisition for the week by nearly 60%, and surprisingly generated higher sales than the December event.

Peter Keith inquired about the quantifiable impact of Big Lots' store liquidations on Q3 comps and the potential headwind for Q4. He also asked if the strong performance of acquired 99 Cents Only stores informs expectations for the new Big Lots locations.

Answer

CFO Robert Helm quantified the drag from Big Lots liquidations at approximately 50 basis points for Q3 and confirmed a similar impact was factored into the Q4 guidance. He also affirmed that the rapid ramp-up of the 99 Cents Only stores positively informs their expectation that the acquired Big Lots stores will also perform strongly out of the gate.

Peter Keith asked if the competitor closures, implied to be Big Lots, represent a larger headwind than past liquidations, prompting the specific call-out. He also requested the specific comparable sales lift from the air conditioner category in Q2.

Answer

CEO John Swygert confirmed that the current competitor store closures are a larger and more direct event than those in the past, which is why the company chose to call out the potential impact. He also specified that the room air category contributed 'about 2 full points of comp' to the quarter's 5.8% comparable sales growth.

Peter Keith from Piper Sandler Companies asked for quantification of the headwind from Big Lots' liquidations in Q1 and the potential comp lift for Ollie's stores near closed Big Lots locations.

Answer

CFO Robert Helm explained that the Big Lots liquidations created a headwind of just under 25 basis points on the total Q1 comp. Conversely, Ollie's stores near previously closed Big Lots locations are seeing a low to mid-single-digit sales lift, affecting approximately 400 stores in the chain.

Peter Keith of Piper Sandler Companies asked about the initial reaction to the new 'Who Knew' ad campaign and whether it could be linked to the recent acceleration in e-commerce growth.

Answer

Walmart US CEO & President John Furner explained the campaign aims to highlight Walmart's broad assortment and delivery speed. While direct impact is hard to measure, he acknowledged that since the campaign's launch, e-commerce growth has accelerated to 26%, which is above the recent trend. He confirmed there are more plans for the campaign in the second half of the year.

Peter Keith asked if the expected continued improvement in general merchandise sales could positively impact high-value revenue streams like Marketplace and supplier advertising.

Answer

CFO John David Rainey confirmed that, all else being equal, a recovery in general merchandise would benefit the P&L, as those items carry higher gross margins. He noted the outcome depends on both Walmart's execution in areas like marketplace assortment and the broader economic environment.

Peter Keith of Piper Sandler questioned the drivers behind the flat year-over-year company EBITDA and asked for details on the G&A investments that impacted the Franchise Brands segment's profitability.

Answer

EVP & CFO Mike Diamond identified the divestiture of PH VITRA as the primary headwind to year-over-year EBITDA. For the Franchise Brands segment, he explained the EBITDA decline was driven more by lapping a quarter with significant one-time fees than by G&A. He noted that secondary G&A investments in technology are expected to wane through the rest of the year.

Peter Keith questioned the reasoning for expecting Take 5's comp to slow in Q2 despite an easier comparison. He also sought clarification on the business models of Maaco versus CARSTAR and the trends in insurance-based collision repair.

Answer

EVP and CFO Michael Diamond attributed the Take 5 forecast to prudence, as maintaining an 8% comp becomes mathematically harder on a larger base. EVP and COO Danny Rivera confirmed Maaco is more discretionary and focused on light repairs, while CARSTAR is more insurance-based. He noted the franchise segment's softness was primarily from Maaco, and that while the broader collision space is soft, Driven believes it is gaining share.

Peter Keith of Piper Sandler asked for more details on the glass business's third-party administrator (TPA) win, questioning if it was a first and if it served as a proof point for future agreements. He also asked for a breakdown of the hurricane's financial impact by segment.

Answer

CEO Jonathan Fitzpatrick clarified that while it was not the company's first-ever TPA win, it was the first in 2024 and a significant proof point for its multi-faceted growth strategy. CFO Mike Diamond declined to break down the hurricane impact by segment but noted car wash is typically a 'lost occasion' while maintenance needs are more likely deferred.

Peter Keith of Piper Sandler Companies sought clarification on whether the bedding industry improved in Q2, questioned the reasons for the lower bedding volume guidance despite optimism, asked for details on how tariffs could impact mattress imports, and inquired about the drivers of SG&A leverage.

Answer

President, CEO & Chairman Karl Glassman, EVP & President - Bedding Products J. Tyson Hagale, and EVP & CFO Benjamin Burns responded. Hagale confirmed Q2 bedding demand was stronger than Q1, but noted the guidance reflects specific customer headwinds in the second half. Glassman expressed optimism that new tariffs and enforcement against transshipment could level the playing field for U.S. producers. Burns attributed the SG&A leverage to G&A reductions from the restructuring plan, which are expected to be sustainable.

Peter Keith of Piper Sandler questioned the recent demand trends in the bedding market, the reasons for lowering bedding volume guidance while other segments appeared steady, the impact of commodity price changes on spring and foam margins, and the status of the company's strategic review post-aerospace divestiture.

Answer

Tyson Hegel, President of Bedding Products, described recent bedding demand as soft but stable since February and noted that commodity cost assumptions for chemicals are relatively flat. CEO Karl Glassman clarified that the outlook for Home Furniture and Flooring has also weakened but was offset by strength in Work Furniture and Textiles. Glassman also confirmed that the company's strategic business review is ongoing and will continue across all business units.

Peter Keith of Piper Sandler asked about recent residential furniture trends, the net impact of tariffs on metal margins and volumes, and whether headwinds from imported innerspring mattresses represented a new dynamic.

Answer

CEO Karl Glassman acknowledged a strong end to 2024 but suspected a pull-forward ahead of potential tariffs, maintaining a cautious 2025 outlook due to weak consumer health. CFO Ben Burns explained that while tariffs benefit the Sterling steel mill's pricing, this is offset by volume headwinds from more competitive imported downstream products. Bedding Products executive Tyson Hagale clarified that the impact from imported finished mattresses, including innerspring models, is not new but is a significant factor pressuring the market's low end.

Peter Keith questioned the drivers behind the sequential weakness in Home Furniture, the strategy and pricing for the accelerating steel rod business, the outlook for metal margin normalization, and whether the Q3 drop in Automotive volume represents an air pocket or a continuing trend.

Answer

CEO Karl Glassman and President Sam Smith explained the Home Furniture weakness was due to a soft industry backdrop, retailer bankruptcies, a tough prior-year comparison, and a pull-forward of orders into Q2 by some customers. CEO Karl Glassman and President Tyson Hagale clarified the steel rod volume increase is not due to price cuts but is a strategic necessity to run the mill full, capitalizing on market opportunities. Hagale noted metal margins are normalizing but a precise timeline is difficult to predict. Smith indicated a seasonal Q4 pickup in Automotive is expected, but its magnitude is uncertain.

Peter Keith of Piper Sandler Companies asked about the long-term store opening rate, noting the company's plan for 20 stores next year and its capability to do more. He questioned if an annual pace of 20 to 30 stores is a reasonable expectation over the next three to five years.

Answer

CEO Tom Taylor clarified that the plan is for 20 new stores next year, with the flexibility to adjust that number up or down depending on market conditions. He emphasized a prudent approach to capital allocation. CFO Bryan Langley added that the company's infrastructure is built to support more than 20 openings annually, and they can accelerate the pace once the demand environment improves, though they are not committing to a specific number beyond 20 at this time.

Peter Keith inquired about the new marketing initiatives for exclusive brands like Hawx and Cody James, and whether this could signal future wholesale distribution. He also asked for an update on tariff-related price increases and any early indications of shifts in consumer demand.

Answer

CEO John Hazen detailed the successful early results from direct marketing campaigns for Hawx and Cody James but stated there are no current plans to sell the brands at wholesale. He confirmed that third-party price increases are in the mid-single-digit range and reticketing is underway, but it is too early to gauge any impact on consumer demand.

Peter Keith of Piper Sandler asked about the potential for product shortages from China, whether Boot Barn could capitalize on this, and sought clarification on the scope and demand impact of the anticipated mid-single-digit price increases.

Answer

CEO John Hazen explained that Boot Barn has significantly reduced its reliance on China for exclusive brands to just 5% for the second half of fiscal '26, mitigating shortage risks. He noted that mid-single-digit price increases from third-party vendors are expected to soften overall consumer demand in the second half. CFO Jim Watkins added that the team proactively purchased about $20 million in inventory to get ahead of tariffs, creating a potential first-mover advantage.

Peter Keith questioned if the Q3 sales strength, attributed to strong execution and inventory investment, is sustainable into Q4 and beyond. He also asked for more detail on supply chain efficiencies and whether those benefits will be lapped soon.

Answer

Interim CEO John Hazen expressed confidence that the momentum is sustainable, citing a strong inventory position with low markdown risk. CFO Jim Watkins clarified that while the company will continue to seek efficiencies, the significant supply chain benefits seen this year are not expected to repeat at the same level, though smaller gains are still possible.

Peter Keith inquired about the specific categories driving market share gains against the farm & ranch sector and asked for more details on the company's artist sponsorship strategy beyond Morgan Wallen.

Answer

Former CEO Jim Conroy confirmed that Boot Barn is taking market share, highlighting strong performance in the ladies' business and the brand's growing resonance. He explained the sponsorship strategy involves targeting specific demographics, citing partnerships with Carin León for Hispanic customers and Jelly Roll to attract new customer segments.

Peter Keith from Piper Sandler asked for a quantification of the weather impact during Q2. He also questioned if management could accelerate the rollout of its marketing initiatives given the encouraging results from the six test markets.

Answer

CFO Jedidiah Gold explained that Q2 experienced a lack of weather tailwinds rather than a significant headwind, and attributed softer retail more to a tepid consumer. CEO John Lai responded that while they are encouraged by marketing tests and plan to expand them, the rollout will remain intentional and measured to refine the strategy and ensure a high return on ad spend, rather than a 'spray and pray' approach.

Peter Keith asked about the potential for tariffs to increase new-build equipment costs and questioned the company's low marketing spend relative to peers, asking about plans to increase it.

Answer

CEO John Lai expressed confidence that multi-year supplier agreements and significant buying power would hedge against material cost increases for new-build equipment. Regarding marketing, Lai explained that the company is taking a measured, test-and-learn approach in six regions to ensure a positive and measurable return on investment before scaling spend, emphasizing the goal of driving incremental growth.

Peter Keith asked for an estimate of industry-wide new car wash openings in 2024 and 2025. He also questioned if a recent competitor bankruptcy has created volatility in the sale-leaseback market.

Answer

CEO John Lai gave a rough estimate of 550 industry-wide new unit openings in 2024. Regarding financing, CFO Jed Gold stated they feel good about the sale-leaseback market, noting an influx of buyer demand for their high-quality assets and a focus on lowering cap rates in 2025. Lai added that he believes REITs are placing more weight on tenant quality, which benefits Mister Car Wash.

Asked for the drivers of the guided gross margin expansion in the second half, the expected impact from tariffs, and for guidance on same-store sales and the contribution from the 53rd week.

Answer

Gross margin expansion is driven by marketing efficiencies, higher ARU, and cost reductions. The company stated that tariff impacts have been fully mitigated through pricing actions and supplier negotiations. Management declined to provide specific guidance on same-store sales or the impact of the 53rd week, pointing back to their full-year sales forecast.

Peter Keith asked about the drivers behind the guided gross margin expansion for the second half of the year, particularly in light of tariff pressures. He also requested a ballpark estimate for same-store sales and the contribution from the 53rd week.

Answer

Linda Findley, President & CEO, explained that the company has fully mitigated tariff impacts through previous pricing actions and supplier negotiations. Robert Ryder, Interim CFO, added that the company's cost control has been excellent, allowing for margin expansion even with lower sales. Regarding same-store sales and the 53rd week, Ryder declined to provide a specific breakdown, directing focus to the full-year sales forecast, while Findley noted they assume a roughly stable store footprint.

Asked for clarification on the company's past strategic missteps, the potential for near-term changes by Labor Day, and specifics on the timing and assumptions behind the quantified tariff impact.

Answer

The CEO explained the company had over-focused on future innovations rather than the core value proposition of a better night's sleep. While rapid changes are planned, no specifics for Labor Day were given. The CFO confirmed the tariff impact is a second-half event and the calculation assumes the high 145% rate for China, with plans to mitigate the remaining impact.

Peter Keith of Piper Sandler & Co. asked for the Q4 demand comp, the rationale for reducing media spend, the metrics needed to pivot back to higher spending, and whether demand trends worsened in late February.

Answer

CEO Shelly Ibach confirmed Q4 demand was down double-digits, in line with net sales, due to a strategic 18% YoY reduction in media spend to prioritize profit in an inefficient market. She said the company is waiting for higher organic category traffic to reinvest. She also noted a sharp downturn in late January and early February impacted the President's Day event, but it was too soon to comment on March trends.

Speaking for Peter Keith, Alexia Morgan asked if YETI was observing any demand impact internationally, particularly in Canada, due to geopolitical factors, and requested color on quarter-to-date sales trends.

Answer

Executive Matthew Reintjes reported no notable demand impact to date, attributing this to the brand's strategy of building local relevance in its international markets. CFO Michael McMullen declined to provide intra-quarter specifics but characterized the current consumer environment as 'choppy' and 'inconsistent,' which is factored into the full-year outlook.

Peter Keith asked about the company's strategy for raising customer awareness around its frequent product launches and whether this necessitates higher advertising spending. He also inquired if category expansions into areas like Bags and Cookware would require new, niche wholesale partners.

Answer

President & CEO Matthew Reintjes explained that YETI leverages its diverse channels for efficient marketing and is shifting some budget to mid-funnel awareness rather than significantly increasing overall spend. Regarding wholesale, he stated that while they work with existing partners on assortment, they are continuously evaluating new, complementary retail partners as the product portfolio expands into new areas like homewares.

An analyst on behalf of Peter Keith questioned the potential gross margin impact from moving Drinkware production out of China and requested more detail on wholesale sell-through dynamics during the third quarter.

Answer

CEO Matt Reintjes explained that while it's too early to quantify tariff impacts, YETI is focused on its diversification plan, supplier partnerships, and potential pricing actions, referencing its successful navigation of a similar situation in 2018-2019. He also noted that U.S. wholesale sell-in and sell-through were 'reasonably aligned' and that channel inventory is in a strong position for the holidays.

Peter Keith from Piper Sandler inquired about the real estate environment for 2026 and beyond, given recent retail bankruptcies, and asked for an update on the 2 Peaches acquisition integration. He also questioned the company's advertising strategy to capitalize on a potential widening value gap.

Answer

Executive Jubran Tanious confirmed they are actively prospecting and securing locations from retail bankruptcies, noting the 2026 pipeline is in a better position than last year. He stated the 2 Peaches integration is on track and serves as a launchpad for Southeast expansion. Executive Mark Walsh added that they would leverage their strong influencer network to drive trial and market share gains if the value gap widens.

Peter Keith sought to quantify the gross margin pressure from new stores and asked for evidence supporting the view that the weakness in Canada is macro-driven rather than company-specific.

Answer

CFO Michael Maher stated that the gross margin pressure was split roughly equally between new stores and deleverage from lower comps. Executive Mark Walsh defended the macro view by citing Statistics Canada data showing that apparel sales have declined every month of the year. He noted that while Savers' customer base is stable, purchase frequency has fallen, especially among lower-income consumers, which reinforces the company's strategic pivot to focus new store growth more heavily in the U.S.

Peter Keith inquired about the company's rate of market share capture year-to-date and which competitive advantages it plans to leverage in a potential tariff-driven price hike environment.

Answer

CEO Hal Lawton affirmed that the company is gaining substantial market share, evidenced by high single-digit unit growth in feed categories and a strengthening position in pet. He identified scale, market leadership, and a strong brand driving consistent transaction growth as key advantages to be leveraged in any economic environment.

Peter Keith asked about the backyard poultry category, wondering if rising egg prices are accelerating demand and how this compares to the customer acquisition and traffic trends seen during a similar period in 2023.

Answer

Chief Merchandising Officer Seth Estep confirmed that backyard poultry is a core category, with 1 in 5 Tractor Supply shoppers participating. He noted that elevated egg prices, similar to 2023, present a significant opportunity to attract new customers to the hobby. The company is excited about the potential to both deepen engagement with existing flock owners and bring new shoppers into the category during its annual Chick Days event.

Peter Keith inquired about Tractor Supply's use of technology, asking how the company is leveraging AI and data for personalization through its Neighbor's Club and what sales benefits might be realized from these initiatives next year.

Answer

CEO Hal Lawton explained that the company is infusing machine learning and AI across the business. Key initiatives include using its new Customer Data Platform (CDP) for personalization, deploying 'Tractor Vision' camera technology to improve in-store service, and providing AI-powered tools to enhance team member knowledge and DC operational efficiency.

Peter Keith inquired about Tractor Supply's use of technology, specifically how AI and enhanced data integrity are being leveraged for personalization within the Neighbor's Club and if this could drive sales.

Answer

CEO Hal Lawton explained that the company is infusing AI and machine learning across the business, from back-end analytics and its new Customer Data Platform (CDP) to operational tools. He cited 'tractor vision' in stores and yard management in DCs as examples, stating the primary goals are to improve customer service and drive team productivity.

Peter Keith requested context on the negative revenue guidance for Q1, asking if it reflects recent weakness or is category-specific. He also asked for an update on the performance of the Rest of World segment, which was down significantly.

Answer

CFO Dominic Blosil explained that the Q1 outlook is driven by uncertainty in the timing of revenue recognition due to potential tariffs, which affects order pacing, rather than a change in underlying sell-through trends. He clarified that the significant decline in the Rest of World segment is primarily a function of the softness in the MEATER business, which has a large international footprint and is over-indexing on the segment's results.

Peter Keith asked for quantification of the 'solid' demand in early 2025 and questioned the disconnect with the flat-to-negative Q1 comp guidance. He also asked for an update on the company's promotional strategy.

Answer

Jennifer Porter, Chief Marketing and e-commerce Officer, confirmed a solid start to the spring but noted one month doesn't make a trend. John Reed, CEO, added that beginning in 2025, net revenue comps and demand comps should align more closely as the abnormal backlog has cleared. Porter reiterated that while they tested messaging in 2024, the core promotional approach focused on value hasn't changed and they were pleased with Q4 results.

Peter Keith asked for a retrospective analysis of the sharp demand declines in July and August, questioning if an internal issue was identified and fixed. He also questioned the conservative Q4 demand outlook, given easier comparisons and the conclusion of the election.

Answer

CEO John Reed attributed the summer slowdown to lapping tough prior-year comps that were inflated by large clearance markdowns, which were not repeated this year, and a less promotional stance. CFO Dawn Phillipson stated the Q4 guidance reflects prudence amid a choppy environment, allowing for the possibility that consumers may prioritize other holiday spending before returning to furniture.

Asked about the advertising strategy for Q4 after an apparent pullback in Q3, and for the implied sales dynamics between domestic and international segments for Q4.

Answer

Ad spend was described as consistent as a percentage of sales, though conservative in Q4 due to election noise, with plans to be more aggressive next year. For Q4, they expect international momentum to continue with high-single or double-digit growth, while the U.S. market is expected to remain down mid-single digits, leading to a consistent or slightly down profile for North American sales.

Inquiry about the North American business performance in Q2, specifically why sales worsened despite industry trends improving, and the role of lapping floor models and competitive dynamics.

Answer

The company's Q2 performance was impacted by a difficult year-over-year comparison due to large floor model sales in the prior year. After adjusting for this, the company still gained market share.

Peter Keith inquired about the strategic opportunity for tZERO, the long-term vision for the Kirkland's store-in-store partnership, the consumer spending environment in Q3, the company's operational priorities amid market uncertainty, and the future of its remote work policy.

Answer

tZERO's David Goone clarified their focus is on the emerging real-world asset digitization market, not disrupting the existing public securities settlement system. Executive Chairman Marcus Lemonis and Kirkland's CEO Amy A. Sullivan explained the partnership aims to drive overall revenue growth for both companies through a prudent, multi-format store rollout and online expansion, with a target of early 2025 for the first pilot stores. Lemonis, along with President Dave Nielsen and CFO Adrianne Lee, described the Q3 consumer environment as one of the toughest in recent memory, marked by heavy promotions and consumer friction. Lemonis affirmed that the company's priority is fixing its core business by improving conversion and margins, and that a return to the Salt Lake City office is planned for December 2024.