Phillip Blee

Phillip Blee asked for more details on the third-quarter expectations for the contract business, specifically regarding price versus volume drivers and whether the prior quarter's pull-forward activity has fully cleared. He also inquired about the acceleration in retail growth, what drove the strong consumer response during the holiday week, and the durability of this growth given the promotional competitive environment.

Answer

Kevin Veltman, Chief Financial Officer, stated that North America contract orders were up about 5% organically and consistent, suggesting mid-single-digit growth. He confirmed that orders are clear of pull-ahead activity, with year-to-date normalized sales up about 4%. John Michael, President of North America Contract, noted bullish sentiment from commercial real estate brokers for 2026 and strong activity among premium A&D firms, particularly for Class A and A-plus spaces. He added that contract businesses typically pass along 2-3% inflation, with current growth being a fairly even mix of price and volume. Andi Owen, Chief Executive Officer, and Wendy Watson, VP of Investor Relations, attributed retail growth to increased brand awareness, new store openings, expanded product assortment (collection count up 22% year-on-year), and design services, all while holding promotions and marketing spend flat to last year.

Phillip Blee asked about the outlook for the contract business in Q3, including the balance between price and volume, the impact of prior pull-forward sales, and the sustainability of volume trends. He also inquired about the drivers of acceleration in the global retail segment, particularly during the holiday period, and the durability of this growth given the promotional competitive environment.

Answer

Kevin Veltman, Chief Financial Officer, stated that North America contract orders are consistently in the mid-single-digit organic growth range and are now clear of any pull-ahead activity, with year-to-date sales up about 4%. John Michael, President of North America Contract, noted bullish sentiment from commercial real estate brokers for 2026 and busy premium A&D firms, with Class A spaces driving demand. He added that contract businesses typically see an even mix of price and volume contributing to 2-3% growth. Andi Owen, Chief Executive Officer, and Debbie Propst, President of Global Retail, explained that retail growth was driven by increased brand awareness, new store openings, and a 22% year-over-year increase in product assortment, achieved without increasing promotional activity or marketing spend compared to the prior year.

Phillip Blee asked about the consumer response to SharkNinja's new hair and skin beauty products, their potential as giftable options for the holiday season, and the opportunity to expand skincare product availability beyond specialty beauty retailers. He also inquired about the potential to accelerate category availability in international markets, aligning it with U.S. offerings, now that supply chain diversification and inventory levels are stable, and the potential impact on the international segment.

Answer

CEO Mark Barrocas expressed excitement about the beauty segment, highlighting the strong momentum of Shark CryoGlow and the promising launch of Shark FacialPro Glow, indicating plans for broadened retail distribution beyond prestige channels for both hair and skincare products in 2026. He also explained that while inventory and global sourcing have impacted international rollout speed, marketing investment is an equally significant constraint, emphasizing the need for continued brand building and consumer education in newer markets.

Phillip Blee focused on the beauty space, asking about consumer response to recent hair and skin product launches, their potential as giftable options for the holiday season, and the opportunity to expand the retail availability of the skin assortment beyond specialty beauty. He also inquired about the potential to accelerate category availability in international markets, aligning it with the U.S. offering, given improved supply chain and inventory.

Answer

CEO Mark Barrocas expressed excitement for the beauty business, noting CryoGlow's success as the number one skincare device in the U.S. and the promising launch of Facial Pro Glow with its replenishment topical. He anticipates broader retail distribution for beauty products beyond prestige in 2026. Regarding international category expansion, Mark acknowledged supply chain improvements but emphasized marketing as an equally significant or larger constraint, stressing the need for brand building and education in new markets to avoid pushing too fast without proper support.

Phillip Blee of William Blair asked if there is further room for improvement from store labor optimization and what other in-store operational areas are being targeted to drive strong comps against more difficult comparisons next year.

Answer

CEO Winnie Park noted that conversion was a significant driver of the quarter's comp. Interim CFO & COO Kenneth Bull added that while they are now lapping the initial labor investments, efficiencies gained from price simplification will allow them to repurpose hours toward more customer-facing activities to drive future performance.

Phillip Blee of William Blair & Company inquired about the second-half outlook, specifically the mix between volume and price, and the company's ability to meet the viral demand for the Camino tote bag.

Answer

CFO Mike McMullen clarified that the outlook is primarily volume-driven, as recent price actions were minor. He cited confidence from international strength, momentum in the bags business, and an expected Q4 Drinkware recovery. CEO Matt Reintjes added that YETI is bullish on the long-term potential of its bags category, is investing in its expansion, and is working to optimize Camino supply while focusing on sustainable growth for the entire portfolio.

Phillip Blee inquired about YETI's expectations for the upcoming holiday season, including current trends and the promotional environment, and asked for a breakdown of the drivers behind gross margin improvements.

Answer

CEO Matt Reintjes stated YETI is well-positioned for the holidays, noting the promotional environment is not unusual and YETI's cadence is consistent. CFO Mike McMullen explained that while Q4 gross margin is expected to be flat due to transitory factors like lapping price decreases and freight surcharges, the company remains focused on driving long-term margin expansion.

Phillip Blee of William Blair asked for color on the consumer and wholesale channel reaction to recent price increases and inquired about the progress and timeline for reducing manufacturing exposure to China.

Answer

CEO Jeremy Andrus explained that while sell-in was affected by timing shifts, consumer sell-through was robust and modestly positive in units, beating expectations despite a shift to lower price points. He noted that by 2026, Traeger expects to be almost entirely diversified outside of China for manufacturing. CFO Joey Hord added that the cost savings from tariff mitigation efforts are structural and permanent in nature, designed to yield benefits for years to come.

Phillip Blee of William Blair asked why only half of the full-year gross margin guidance increase is flowing through to EBITDA and requested more color on the new product pipeline for next year.

Answer

CFO Dom Blosil explained the differential is due to Q4's heavy weighting toward the MEATER business, which requires higher variable marketing and demand creation spending. CEO Jeremy Andrus added that the product pipeline will deliver more consistent newness across all categories in 2025 and beyond, driven by multi-year investments in product development.

Phillip Blee inquired about the level of new product launches year-to-date and how this compares to future plans. He also asked about the company's priorities for free cash flow and capital allocation in the second half, and the expected timeline for reaching a target leverage of around three times.

Answer

President and CEO Matthew Stevenson emphasized a focus on 'quality versus quantity' for product innovation, using a robust phase-gate system to ensure new products drive meaningful growth. CFO Jesse Weaver stated that while there is no formal guidance, the current forecast implies a free cash flow profile of $40-50 million for the year. He noted capital allocation priorities include evaluating M&A while being mindful of leverage, with debt prepayment as an alternative. He did not provide a specific timeline for reaching the leverage target.

Phillip Blee of William Blair sought to clarify if the 2025 guidance excludes the positive impacts of planned pricing actions and cost savings, in addition to the negative tariff costs. He also asked about the volume and price elasticity assumptions embedded in the core business growth forecast.

Answer

CFO Jesse Weaver confirmed that the guidance excludes all potential impacts from tariffs, both the negative costs and the positive effects of mitigation efforts like pricing actions. He cited uncertainty around the final tariff policies and their broader economic impact as the reason. Weaver explained that maintaining the sales guidance while implementing a price increase implies an offsetting impact on volume.

Phillip Blee of William Blair requested more color on Holley's core customer demographics and recent trends. He also asked for a quantification of the top-line lift from new products in 2024 and the outlook for that impact in 2025.

Answer

Executive Jesse Weaver described the core customer as having a modestly higher income ($100k+) and noted that more detailed demographic data will become available as the company's CRM matures. Executive Matthew Stevenson explained that while new products are becoming more efficient, with several hitting a $1M run rate, the primary near-term growth driver is repairing B2B relationships. He expects continued modest improvement from new product innovation in 2025.

Phillip Blee sought to reconcile the Q4 sales guidance, which implies a decline, with positive commentary on destocking ending and strong DTC growth. He also asked if any business areas were underinvested in.

Answer

CEO Matt Stevenson explained that the Q4 guidance is consistent with current trends and feels solid because the major destocking 'cliff' from Q3 is now in the past. He asserted that the company has not underinvested in any specific areas, as the strategy is to drive parallel growth across all four consumer verticals and all omnichannel facets.

Phillip Blee from William Blair inquired about the percentage of stores negatively impacted by competitive openings and how comps perform based on the age of that competition. He also asked if the company has seen any business impact from increased immigration enforcement efforts.

Answer

CFO Jedidiah Gold stated that roughly one-third of stores have a competitor that opened within three miles, a lower rate than in prior years. He detailed that stores with newer competition see negative comps, while those without competition see mid-single-digit positive comps, with a consistent recovery curve over time. CEO John Lai firmly stated that immigration enforcement has no impact on their business, as they have used the E-Verify program for over 20 years.

Phillip Blee asked if a weaker retail revenue outlook implies flatter membership growth and questioned the potential for higher churn in a recession. He also inquired about the risk of material delays for greenfield expansion.

Answer

CFO Jedidiah Gold clarified that the company still expects positive low single-digit comp store member growth for the year. He noted that while a small, temporary churn increase from the price change is factored in, they do not anticipate elevated churn in a recession, citing the subscription's historical resilience. On development, Gold stated the pipeline is largely set and they do not expect material delays.

Phillip Blee noted the strong earnings outlook relative to the sales guidance and asked about confidence in expense control versus labor pressures, as well as the potential for margin upside. He also asked if share gains from industry rationalization are materializing.

Answer

CFO Jed Gold expressed confidence in the EBITDA outlook, noting they are anniversarying prior-year cost optimizations. He expects modest margin expansion driven by Titanium in H1 and base price increases in H2. CEO John Lai tempered this by stating margin expansion is not the top priority over investing in human capital. Regarding rationalization, Lai said no material share gains have been realized yet, but they are on the 'precipice' of seeing opportunities.

Phillip Blee asked if the Franchise Brands' EBITDA margin contraction was solely due to lower comps and what level of sales is needed for leverage. He also inquired about the outlook's assumptions for consumer health.

Answer

EVP and CFO Michael Diamond confirmed the margin pressure was driven by the sales decline, noting that the franchise model gains leverage quickly with sales growth. Regarding consumer health, he emphasized the portfolio's defensive nature, highlighting that oil changes are non-optional and that an aging car park in a downturn provides a natural hedge for the company's repair businesses.

Phillip Blee inquired about the operational separation of the U.S. Carwash business, including potential labor synergies, and asked about the long-term plan for the international car wash segment and any renewed appetite for M&A.

Answer

President & CEO Jonathan Fitzpatrick stated there would be no significant employee overlap from the car wash sale but that some SG&A synergies might be realized over time. He described the international car wash business as stable and well-performing, which they will continue to operate while remaining under the umbrella of 'active portfolio management.' He added that the company's current focus is on organic growth, with no significant M&A modeled for 2025.

Phillip Blee inquired about the low implied EBITDA flow-through in the 2025 guidance and asked about plans for store relocations and refreshes this year.

Answer

An executive attributed the EBITDA pressure to system investments, showroom expansion costs, and baked-in assumptions for tariffs and promotions. John Reed, CEO, confirmed that store refreshes and relocations are a key strategy, citing the 'phenomenal' sales growth at the recently remodeled Naples store. He expects a similar pace of remodels as last year, with capital budgeted accordingly.

Phillip Blee of William Blair & Company inquired about the potential impact of rising freight costs in 2025 and how well the company is insulated from spot market volatility due to its contracted capacity.

Answer

President Trevor Lang explained that the majority of freight rates are on long-term contracts, which will be renegotiated in late winter/early spring. He noted that the company is not paying spot market rates today. If contract rates rise, he expects the market to be rational, allowing for price pass-throughs. Due to inventory turns, any retail price impact from higher freight would likely not be seen until late Q3 or Q4 of 2025.

Inquiry about the performance of new products compared to the existing assortment, the key drivers of their success, and the sustainability of this trend.

Answer

New products, particularly the new Tempur-Adapt line, are performing very well and driving demand. The company anticipates continued success with the upcoming 2025 Sealy brand launch, which will be the largest in its history. Key drivers remain innovation, advertising, and consumer confidence.

Asked about the sales assumptions for brand mix for the rest of the year and the expected impact of that mix shift on gross margins.

Answer

In Q1, higher-priced Tempur products outperformed lower-priced Sealy products. For the rest of the year, new OEM distribution will begin in Q2, which will alter the mix. However, this is not expected to be a significant needle-mover for gross margin, as the increased volume through the plants improves overall manufacturing efficiency, offsetting the lower margin of the OEM products.