Robert Griffin

Robert Griffin asked for an update on the wings test and then inquired about the core prepared food business's momentum on the margin side, its sustainability, and potential pricing opportunities.

Answer

Darren Rebelez, President, CEO & Board Chair, indicated that the wings test is progressing, with the team identifying opportunities in flavor profiles, builds, and equipment, and will expand when it's 'completely dialed in.' For prepared food margins, Mr. Rebelez attributed momentum to procurement improvements (cost of goods, especially dispensed beverages) and the accelerated growth of the whole pie business, which is the highest-margin and largest subcategory.

Robert Griffin from Raymond James asked for an update on the wings test initiative, seeking any incremental learnings over the past couple of months. He also inquired about the core prepared food business's momentum on the margin side, specifically how it managed to offset Fikes' dilution, and whether this improvement creates better pricing opportunities or is sustainable.

Answer

CEO Darren Rebelez stated that the wings test is progressing, with identified opportunities in flavor profiles, builds, and equipment needs, and will expand when fully dialed in. He explained that the core prepared food margin improvement is driven by procurement progress (especially in dispensed beverages) and the acceleration of the high-margin whole pie business, which is the largest subcategory.

Robert Griffin sought confirmation that February's sales softness was primarily due to weather and asked for more details on the recent coffee promotion and the new chicken wing test.

Answer

CEO Darren Rebelez expressed confidence that February's results were weather-driven, noting that sales rebound as soon as conditions normalize. He described the coffee promotion as an aggressive but necessary long-term investment to drive trial for a new, higher-quality product. The wing test is showing promising early results with high guest satisfaction and appears to be incremental to pizza sales.

Robert Griffin asked about the drivers behind the strong Grocery and General Merchandise margin and whether this represents a structural improvement. He also inquired about the seasonality of the Fikes business and the validity of its previously announced EBITDA projection.

Answer

CEO Darren Rebelez attributed the margin strength primarily to a favorable product mix shift towards higher-margin items like liquor, wine, and nicotine alternatives, as well as improved shrink management, suggesting the change is largely structural. CFO Steve Bramlage confirmed the Fikes business has some seasonality, similar to but less pronounced than Casey's core business, and affirmed the previously stated EBITDA number is a good baseline, noting it includes contributions from ramping stores.

Robert Griffin inquired about recent examples of continuous improvement initiatives driving OpEx savings and asked if there were notable performance differences in prepared foods across various geographic markets, especially against QSR competition.

Answer

CEO Darren Rebelez highlighted new initiatives like a digital production planner and a '5s' inventory organization system that have reduced labor hours and waste. He also confirmed there are no significant geographic differences in prepared food performance, noting that Casey's lunch daypart was its strongest despite QSR value offerings, driven by product innovation and a strong value proposition.

Robert Griffin of Raymond James inquired about the drivers behind the core Progressive GMV's performance, noting an apparent acceleration on a comparable basis. He also asked why the full-year guidance was not raised by the full amount of the Q2 earnings beat.

Answer

CEO Steven Michaels attributed the relative strength to specific initiatives with existing retail partners, such as e-commerce enhancements, rather than a broad consumer trade-down effect. CFO Brian Garner explained the guidance reflects several back-half headwinds: the roll-off of profitable Big Lots leases, a smaller starting portfolio size, and the negative margin impact of CECL accounting on the fast-growing Four Technologies business in Q4.

Robert Griffin asked about the consumer trade-down environment, the progression of retail softness in recent months, and for a modeling clarification on the quarterly GMV headwind from the lost retail partner.

Answer

CEO Steven Michaels explained that while the trade-down trend still exists, it's more muted as they lap the period when it began, with general retail softness being the larger macro force. He noted that after an encouraging start to the quarter, consumer activity slowed and has not yet shown a rebound. CFO Brian Garner and CEO Steven Michaels confirmed that the approximate $30 million quarterly GMV headwind from the lost partner was a fair assumption, though it would step up slightly in Q2 as liquidation sales have ended.

Robert Griffin of Raymond James asked about the potential path to reaching the upper end of the long-term EBITDA margin target amid healthy GMV growth. He also questioned whether underlying product categories are stabilizing or if growth is purely a function of company initiatives and macro factors.

Answer

CFO Brian Garner stated that while revenue growth creates operating leverage, the company's priority is to reinvest in profitable GMV growth rather than actively manage for higher margins. CEO Steve Michaels confirmed that current GMV growth is primarily driven by company execution and the credit trade-down phenomenon, as core categories like furniture and mattresses remain 'pretty tough.' He noted that an orderly transition from the current tight-credit environment to one of stronger consumer demand would be a favorable long-term outcome.

Robert Griffin inquired about the drivers of the apparent acceleration in core Progressive GMV and asked why the full-year guidance was raised by less than the Q2 earnings beat.

Answer

CEO Steven Michaels attributed underlying strength to discrete wins with existing retail partners and e-commerce growth, rather than a consumer trade-down effect. CFO Brian Garner explained the conservative guidance reflects second-half headwinds, including the final roll-off of high-margin Big Lots leases, a smaller starting portfolio size, and significant CECL reserving for the fast-growing Four Technologies business in Q4.

Robert Griffin asked about recent business performance trends in April and May following the winter weather, the financial flow-through from the dealerization program, and the timeline and capital expenditure for the store remodel initiative.

Answer

Arie Kotler, Chairman, President and CEO, explained that after a weather-impacted February, inside sales saw a slight improvement in April, complemented by elevated fuel margins. Rob Giammatteo, EVP and CFO, clarified that the dealerization program's $20 million operating income benefit is the target at full scale, with $2.4 million contributed in Q1. Mr. Kotler added that the remodel pilot program is underway, with a broader rollout anticipated in 2026, costing between $700,000 and $1.1 million per store.

Robert Griffin asked for clarification on the 2025 guidance, questioning why it implies a slight decline despite fuel margin benefits and dealerization savings. He also inquired about the timing of these savings and the strategic initiatives planned for the remaining retail stores, including the economics of the new '$2 off' fuel promotion.

Answer

EVP and CFO Rob Giammatteo explained that negative same-store trends and weather impacts in early 2025 are pressuring the outlook, and dealerization savings will accrue throughout the year with a full run-rate benefit later. Chairman, President and CEO Arie Kotler detailed the 'Fueling America's Future' campaign, clarifying the significant fuel discount is funded via vendor partnerships to drive traffic and gallons without impacting company margins.

Robert Griffin inquired about the go-to-market strategy for ARKO's 7-store remodel pilot, the potential sales lift from installing new back bars for OTP products, and whether the recent merchandise sales weakness was broad-based or concentrated in specific regions.

Answer

CEO Arie Kotler detailed that the 7-store pilot involves a new system-wide foodservice brand, with permitting in Q4 2024 and construction starting in Q1 2025. He confirmed that successful tests of new OTP back bars prompted the 1,000-store rollout to capture the consumer shift from cigarettes, though it's too early for specific results. CFO Robert Giammatteo added that the merchandise weakness was broad-based across regions, indicating a macroeconomic issue rather than a brand-specific one.

Robert Griffin of Raymond James asked about the origins of the expanded Somnigroup partnership, its impact on Purple's long-term channel strategy (DTC vs. wholesale), and the timing of when tariff costs would affect the P&L.

Answer

CEO Rob DeMartini detailed that the partnership developed from Purple's ability to drive traffic, increase transaction value, and improve margin contribution for retailers. He stated the company is comfortable moving towards a 50/50 DTC/wholesale mix but remains bullish on its own showrooms. He also confirmed that tariff impacts will begin in Q2 and are factored into projections.

Robert Griffin inquired about the seasonality of the Brigit business, particularly its margin profile, and asked for more details on Acima's planned expansion into Mexico, including how the company is balancing the opportunity with potential risks.

Answer

CFO Fahmi Karam explained that Brigit's margin profile is highest in Q1 due to lower marketing spend and seasonally low losses during tax season, with margins expected to normalize to the mid-teens in Q2. CEO Mitchell E. Fadel addressed the Mexico expansion, stating that risk is significantly mitigated by leveraging Rent-A-Center's 14-year operational history, 130-store infrastructure, and local market expertise in the country, providing a low-capital path for growth.

Robert Griffin of Raymond James asked for a high-level view on the health of the core consumer, how Upbound is managing risk, and for details on the strategic priorities for improving margins within the Acima business segment.

Answer

CEO Mitchell E. Fadel explained that while the core consumer remains under pressure, Acima benefits significantly from 'trade-down' customers from higher credit tiers, which offsets the need for tightening and supports growth. Rent-A-Center has also tightened underwriting but does not see the same direct trade-down benefit. CFO Fahmi Karam added that their underwriting posture remains conservative and detailed the path to improved Acima margins in 2025, driven by lower loss rates and operating expense leverage, rather than gross profit expansion.

Robert Griffin asked about the timing of Acima's EBITDA flow-through from the trade-down dynamic and questioned the long-term strategic opportunity for the company's business in Mexico.

Answer

CFO Fahmi Karam stated that the impact on Acima's EBITDA is a timing issue, with gross margin pressure now but loss improvements expected in subsequent quarters, leading to normalized margins in 2025. CEO Mitchell E. Fadel added that the real opportunity in Mexico is expanding the Acima virtual platform, leveraging the new decisioning engine recently implemented for the Rent-A-Center operations there.

Robert Griffin asked about the competitive pricing response to Mister Car Wash's price increase and inquired what the guidance assumes for further labor and chemical cost savings.

Answer

CEO John Lai noted that their new $22.99 price point generally aligns them with competitors, many of whom were already there, so they were not leading the market on price. CFO Jedidiah Gold clarified that the significant year-over-year improvements from labor and chemical optimization were mostly realized in Q1 and are not expected to continue at the same rate for the rest of the year.

Robert Griffin of Raymond James asked about capital allocation priorities, specifically the timeline for paying down commercial paper and the leverage target for resuming share repurchases. He also inquired about the EPS impact of the aerospace divestiture and the drivers of Leggett's Q1 innerspring volume performance versus the market.

Answer

CFO Ben Burns confirmed that proceeds from divestitures and cash flow could eliminate the company's commercial paper balance this year. He stated that after meaningful deleveraging, particularly below a 2.5x leverage ratio, the company would re-evaluate capital allocation, including share repurchases. Burns also noted the interest savings from debt paydown would not fully offset the lost aerospace EBITDA. Tyson Hegel, President of Bedding Products, attributed bedding volume underperformance to restructuring-related attrition, import share gains, and customer volatility.

Robert Griffin of Raymond James asked about the integration of the restructured bedding footprint with the Sterling steel facility, the margin impact of trade sales, the delta between Leggett's bedding volumes and the market, and specialty foam performance.

Answer

Bedding Products executive Tyson Hagale detailed the new footprint of four larger innerspring plants and the need for trade rod sales to keep the Sterling mill at capacity, which would push contribution margins toward the lower end of the 25-35% range. CEO Karl Glassman and Hagale attributed the volume delta to a lost foam customer, mix shifts away from open coil due to imports, and restructuring attrition, while noting Comfort Core volumes have tracked the market. Hagale added that the specialty foam business is diversifying its customer base.

Robert Griffin asked for clarification on the flat Q3 Bedding consumption figures, any observed changes in customer behavior around the election, a profitability ranking of the businesses within Specialized Products, and the potential interest savings from debt reduction.

Answer

CEO Karl Glassman and President Tyson Hagale attributed the flat bedding consumption to an easy prior-year comparison and the unwinding of pre-duty imports, with e-commerce channels showing activity. Hagale noted October softness due to election-related consumer distraction. Glassman provided the profitability ranking for Specialized Products as Automotive, Aerospace, and then Hydraulics. CFO Ben Burns stated that reducing debt would primarily involve paying down commercial paper, saving approximately $5 million in interest for every $100 million of debt reduced.

Robert Griffin asked for details on margin and efficiency improvements in the core wholesale business, the expected timeline for the international business disruption to subside, clarification on Q4 guidance drivers, and the future growth strategy for the Joybird brand.

Answer

CFO Taylor Luebke stated that while the core North American wholesale business has shown margin growth for three consecutive quarters, a sustained increase in volume tied to a healthier housing market is needed to reach long-term goals. CEO Melinda Whittington added that the international transition with DFS will see slow and steady improvement and that the company is actively rightsizing capacity. Regarding Joybird, she explained that with fundamentals now stable, the company plans to cautiously resume store growth, targeting three to four new locations next year.

Robert Griffin asked about the drivers of the year-over-year decline in Wholesale segment EBIT margins, progress on manufacturing efficiencies, dealer sentiment from the High Point Furniture Market, post-election order trends, and the future strategy for the Joybird brand.

Answer

SVP and CFO Bob Lucian explained that the wholesale margin decline was roughly half due to casegoods challenges and half from the international transition to DFS. President and CEO Melinda Whittington added that the core North America La-Z-Boy branded business saw positive margin improvement. Whittington also noted that while the dealer mood is cautious, feedback from High Point was positive, and the company is now prudently pursuing store expansion for the Joybird brand, which has returned to breakeven.

Asked about the sustainability of the core Tempur Sealy gross margins from FY24 and for an explanation of the drivers behind the low end of the 2025 EPS guidance, particularly in relation to the Mattress Firm acquisition.

Answer

The FY24 gross margin is a fair starting base, with continued productivity and leverage expected. The business is considered to be underearning on assets due to recent reserves for a foreclosed business. The low end of the 2025 EPS guidance ($2.60) accounts for the possibility that the industry could be down for the year, as opposed to just flat.

First, he asked about the company's contribution margin outlook for North America and International, considering recent business changes. In a follow-up, he asked for more detail on the drivers behind the strong performance of the Stearns & Foster brand in the quarter.

Answer

The company's consolidated contribution margin is around 35%, with international being higher and North America around 30-35%. A mix shift to value products could affect the rate but would add incremental EBITDA. The strong Stearns & Foster performance was attributed to a sales team focus and tweaking underperforming SKUs, not increased advertising or promotions.

Question regarding the sustainability of the current high gross margin levels and whether they are over-earning, especially in the context of an eventual industry recovery.

Answer

The gross margin performance is considered durable and sustainable, driven by operational efficiencies that are still in their early stages. The company is confident these margins can be maintained and improved, even in a soft market, which bodes well for a future recovery.

Robert Griffin requested a high-level characterization of consumer behavior trends versus previous quarters and an update on the progress of the initiative to improve performance in the bottom quartile of stores.

Answer

CEO Andrew Clyde described consumer behavior as stabilizing but remaining highly value-focused, with continued strength at the Murphy banner offsetting competitive pressures at QuickChek. COO Mindy West detailed the store optimization initiative, stating they have identified key performance drivers and are launching a proof-of-concept test, with tangible benefits expected to inform 2025 plans. Andrew Clyde added that this is being paced with other major initiatives.

Robert Griffin asked about Murphy USA's strategic positioning in a sustained low gas price environment and why inside store sales did not rebound in April as strongly as fuel gallons.

Answer

CEO Andrew Clyde responded that while low prices can lead some consumers to trade for convenience, Murphy USA is better positioned than in the past due to its loyalty program and the growing pool of value-seeking customers. He attributed the lag in merchandise sales recovery to the promotional cycle, particularly in the traffic-driving nicotine category.