Seth Sigman

Seth Sigman questioned Best Buy's SG&A management, noting its reduction this quarter despite the strongest sales growth in over four years. He asked if there were unique factors, if SG&A needs to increase, and what normal operating leverage looks like with positive comparable sales. He also asked what is needed for the CE and appliance categories to return to growth.

Answer

Matt Bilunas, Chief Financial and Strategy Officer, attributed Q3 SG&A favorability to higher-than-expected sales, lower technology and labor spend, and minor settlements. He expects ongoing wage inflation and continued investment in marketplace and ads next year, aiming for sales growth and rate leverage. He highlighted ongoing operational efficiencies through data-driven sourcing, FedEx partnership, automated guided vehicles, and AI. Jason Bonfig, Chief Customer Product and Fulfillment Officer, explained that the appliance market is primarily driven by 'duress' customers replacing broken products, with high single-unit purchases, making promotions less effective. He suggested adjusting the model by increasing labor coverage, focusing on delivery speed, and offering same-day in-store pickup. Corie Barry, CEO, noted that TV revenue improved sequentially, with unit performance moving to slight growth despite ASP compression, attributing share improvements to sharp pricing, increased marketing, expanded specialty labor, merchandising experiences, and enhanced service offerings.

Seth Sigman asked about Best Buy's SG&A management, specifically why it decreased this quarter despite the best sales growth in over four years, and what the normal operating leverage looks like if comparable sales remain positive. He also inquired about the categories not performing well, such as consumer electronics (CE) and appliances, and what strategies are in place to return them to growth.

Answer

Matt Bilunas, Chief Financial and Strategy Officer, attributed Q3 SG&A favorability to leverage from higher sales, lower technology and labor spend, and small settlements. He noted that while annual inflation exists, the company aims to drive sales and achieve rate leverage through continued investment in growth initiatives like marketplace and ads, offset by ongoing operational efficiencies from data-driven sourcing, supply chain improvements, and AI. Jason Bonfig, Chief Customer Product and Fulfillment Officer, explained that the appliance market is primarily driven by 'duress' customers replacing broken products, leading to a focus on increased labor coverage, delivery speed, and in-store pickup options. Corie Barry, CEO, added that TV revenue improved sequentially, with unit performance accelerating to slight growth and share trends improving due to investments in pricing, marketing, specialty labor, and expanded services.

Seth Sigman asked for more context on the strong 5% quarter-to-date sales trend, questioning if it reflected pent-up demand, and inquired how Best Buy's promotional strategy compares to the industry.

Answer

CFO Matt Bilunas acknowledged that the strong start likely includes some pent-up demand from customers who waited for holiday deals, but urged caution for the full quarter due to potential lulls. CEO Corie Barry clarified that Best Buy's promotional strategy is not 'less aggressive' but rather more targeted and data-driven, focusing investments where consumer response is strongest and optimizing for key drive times rather than promoting heavily during slower periods.

Seth Sigman inquired about the drivers behind the implied improvement in operating leverage for Q4, specifically distinguishing the impact of the Big Billion Days shift from other factors, and how Walmart is managing and offsetting the increasing impact of tariffs.

Answer

EVP and CFO John David Rainey highlighted efficiency gains from AI and technology, particularly in the supply chain, where over 50% of fulfillment center volume is automated, leading to lower shipping costs. President and CEO, Walmart U.S., John Furner, noted less tariff impact than expected, with relief in some food categories and 7,400 rollbacks. CEO Doug McMillon praised the team's holistic management of inventory, price gaps, and mix. SVP of Investor Relations Steph Wissink clarified that Big Billion Days (BBD) in Q3 contributed to strong international operating income growth despite being a large sales event. CEO, Sam's Club US, Chris Nicholas, added that Sam's Club leverages Walmart's enterprise capabilities and is focused on taking out costs through AI and improving member experience.

Seth Sigman inquired about the drivers of operating leverage improvement in Q4, specifically the impact of the Big Billion Days shift, and how Walmart is managing tariffs.

Answer

John David Rainey (EVP and CFO) highlighted the business leverage, attributing it to AI and technology use, particularly in the supply chain where over 50% of fulfillment center volume is automated, leading to lower shipping costs. John Furner (President and CEO, Walmart U.S.) noted less tariff impact than expected, some relief in food categories, and the effectiveness of 7,400 rollbacks. Doug McMillon (CEO) praised the team's holistic management of inventory, price gaps, and mix. Steph Wissink (SVP of Investor Relations) clarified that Big Billion Days' strong performance, including lower e-commerce losses, contributed to International's 16.9% operating income growth in Q3. Chris Nicholas (CEO, Sam's Club U.S.) added that Sam's Club is reducing costs through AI and leveraging the Walmart app for e-commerce growth.

Seth Sigman of Barclays PLC requested elaboration on recent price changes, the resulting consumer elasticity, and the strategy of using rollbacks in grocery to offset inflation in other areas.

Answer

President, CEO & Director Doug Mcmillon explained that growing businesses like advertising and membership provide flexibility to absorb some cost increases. He confirmed that as costs rise, they observe rational trade-offs by customers. He emphasized that the ability to manage the merchandise mix across the business is a key strength that provides significant flexibility.

Seth Sigman asked for details on the financial dilution from the VIZIO acquisition, plans for its integration, and the growth outlook for Walmart Connect.

Answer

CFO John David Rainey stated the VIZIO deal would be dilutive by about 70 basis points in Q1 but is expected to be accretive next year. Walmart U.S. CEO John Furner expressed excitement about leveraging VIZIO's operating system to expand advertising distribution for Walmart Connect sellers and suppliers, noting the integration process is just beginning.

Seth Sigman asked about the acceleration in average ticket in the U.S., questioning if it was driven by temporary events like the hurricane or an underlying inflection in basket size from general merchandise or higher-income shoppers.

Answer

Walmart U.S. CEO John Furner attributed the strength to a combination of factors. He highlighted strong underlying performance, including the highest food unit growth in years and positive GM comps despite deflation. He credited the results to strong seasonal execution and the additive effect of the digital business attracting new customers with convenient delivery options.

Seth Sigman inquired about the sustainability of Lowe's operating leverage, particularly whether gross margin will remain the primary driver of improvement or if the composition of margin expansion will change over time. He also asked about the company's general leverage point and sought more details on the drivers of the stepped-up gross margin gains in Q3, including any timing considerations, pricing impacts, tariffs, or mixed dynamics.

Answer

Brandon Sink, EVP and CFO, emphasized the focus on achieving the 12.1% operating margin for 2025 (12.3% ex-acquisitions), crediting PPI initiatives for delivering $1 billion split between SG&A and gross margin. He noted that FBM and ADG, along with tariffs, will influence 2026 margins. Regarding Q3 gross margin, Brandon Sink clarified that gains were not related to pricing or tariffs but rather to lapping prior-year storm pressure, outperforming credit portfolio results, and strong sell-through from SKU rationalization efforts.

Seth Sigman asked about the future of operating leverage, specifically the sustainability of gross margin as the primary driver of improvement, how the composition of margin expansion might change, and the business's leverage point. He also requested more details on the Q3 gross margin gains, inquiring about timing, pricing, tariffs, and mixed dynamics.

Answer

Brandon Sink (EVP and CFO) emphasized the focus on achieving the 12.1% operating margin (12.3% excluding acquisitions), driven by balancing gross margin and SG&A, and the $1 billion in PPI initiatives. For 2026, he mentioned the impact of FBM/ADG, housing/commercial markets, and tariffs affecting the first half. Regarding Q3 gross margin, he clarified that gains were not primarily from pricing or tariffs but from lapping prior year storm pressure, better-than-expected credit portfolio performance, and successful sell-through from SKU rationalization efforts.

Seth Sigman requested an update on the progress of vendor cost callbacks, including any quantification, and asked if the company's view on its operating leverage model has changed.

Answer

EVP of Merchandising William Boltz and Chairman and CEO Marvin Ellison described cost management as a continuous, data-driven process, with savings being reinvested into the business. EVP and CFO Brandon Sink noted the benefit was meeting back-half loaded expectations. Regarding operating leverage, Sink referred to their existing framework as a directional guide and deferred a detailed update to the December investor conference.

Seth Sigman inquired about sales performance in markets with more stable spring weather, whether the adjusted April comp of +0.2% represents the current run rate, and the key drivers behind the expected sales acceleration in the second half of the year.

Answer

Chairman and CEO Marvin Ellison confirmed that business performance directly correlates with weather, improving as conditions normalized, which was reflected in the positive adjusted April comp. EVP and CFO Brandon Sink noted a 50 basis point benefit in Q1 from hurricane recovery efforts. For the second half, Brandon Sink reaffirmed that the expected acceleration is based on momentum from Total Home Strategy initiatives, such as Pro loyalty and online growth, which will offset prior-year hurricane-related sales pressures. He stated that macro assumptions remain unchanged from the initial guidance.

Seth Sigman inquired about business performance in markets with better weather, whether the adjusted April comp represents a new run rate, and if the implied second-half acceleration is still driven by internal initiatives.

Answer

CEO Marvin Ellison confirmed that business improves with better weather, as reflected in the positive adjusted April comp, and that May trends are consistent with guidance. CFO Brandon Sink reiterated that the macro assumptions for the year are unchanged and the expected second-half momentum is driven by the Total Home Strategy initiatives, including Pro loyalty, extended aisle, and the online marketplace, which will offset prior-year hurricane-related pressures.

Seth Sigman asked about the implications of transactions slowing while average ticket accelerated, inquiring about signs of elasticity, recent price changes, and whether the transaction slowdown was primarily storm-related. He also sought to reconcile the cautious consumer demand outlook with continued big ticket outperformance, asking if big ticket sales are a leading indicator for larger, pressured projects.

Answer

Billy Bastek, EVP of Merchandising, confirmed the transaction slowdown was strictly storm-related. He mentioned moderate price moves were made after tariff policy changes to protect projects, but it was too early to assess elasticity given recent market dynamics. He clarified that big ticket transaction growth (over $1,000) was driven by individual items like appliances and power tools, not necessarily project-oriented pieces. Ted Decker, Chair, President, and CEO, added that success in pro initiatives and managed accounts also contributed to big ticket performance, indicating market share gains rather than a demand indicator.

Seth Sigman inquired about the dynamics of transactions slowing while average ticket accelerated in the quarter, asking if there were signs of elasticity, details on price changes, or if the transaction slowdown was purely storm-related.

Answer

Billy Bastek, Executive Vice President of Merchandising, confirmed that the slowdown in transactions was strictly related to the storm impact. He mentioned that moderate price adjustments were made following tariff policy changes, with the goal of protecting project profitability, but noted it was too early to definitively assess elasticity given recent market dynamics. Ted Decker, Chair, President, and CEO, added that the outperformance in big ticket items was not necessarily an indicator of broader project demand but rather a reflection of success in pro initiatives and capturing a larger share of complex pro purchases.

Seth Sigman inquired about regional performance, particularly in markets with softening housing activity, and whether home price weakness matters as much given high home equity levels. He also asked about the risk to the demand outlook if other sectors raise prices, potentially pressuring consumer spending power.

Answer

CEO Edward Decker stated that while a couple of markets saw slight softening, there has been no associated change in sales, with weather being the dominant factor in regional performance this time of year. He expressed confidence that broad demand destruction is unlikely, as Home Depot's customer base is financially strong, with high income, home equity, and job security, positioning them well against wallet share pressures from inflation in other categories.

Seth Sigman asked about regional performance, particularly in markets with softening housing activity, and questioned the risk of demand destruction from price inflation in other sectors of the economy.

Answer

CEO Edward Decker noted that weather is currently the dominant factor in regional performance and that they have not seen sales impacted by softening home prices. He expressed confidence that broad demand destruction is unlikely, highlighting the financial strength of Home Depot's core customer, who has high income, significant home equity, and strong job security.

Seth Sigman of Barclays asked if Home Depot is at a point where sales can grow faster than expenses if comps improve, given that both have grown similarly since 2019. He also asked about the underlying drivers offsetting SRS-related dilution in the flat gross margin guidance for 2025.

Answer

EVP and CFO Richard McPhail reiterated that once the market normalizes to 3-4% sales growth, the company expects to achieve operating expense leverage. For gross margin, he explained that pressure from the SRS mix is being offset by supply chain productivity and continued year-over-year improvements in shrink reduction driven by store operations.

Seth Sigman asked about market share performance, noting Home Depot appeared to outperform the industry and requesting details on strong categories. He also questioned the recent step-down in big-ticket sales and what factors are needed for those categories to see an inflection.

Answer

CEO Ted Decker stated that based on macro data and competitor results, Home Depot believes it gained share. EVP of Merchandising, William Bastek, highlighted strength in seasonal, paint, and building materials. Decker attributed pressure on large remodeling projects to the high interest rate environment, suggesting that rate stability, rather than a dramatic drop, is key to restoring homeowner confidence for big-ticket spending.

Seth Sigman asked about market concerns regarding the disappearance of unique drivers that boosted Sprouts' performance over the past year, specifically inquiring if the current slowdown reflects a change in customer spending behavior or lower spend per customer.

Answer

CFO Curtis Valentine explained that the slowdown was due to lapping outsized growth from specific periods (e.g., strong October 2024, competitor strike in February, supply issues in May/June), noting a slight softening in middle-income and younger demographic trade areas, primarily impacting customer spend.

Seth Sigman raised concerns about unique drivers that may have boosted Sprouts' business over the past 12 months potentially dissipating. He asked for insights into what might be proving more difficult to lap, how the retention of new customers acquired last year was playing out, and if there were changes in spending behavior or lower spend per customer.

Answer

Curtis Valentine, Chief Financial Officer, explained that outsized growth in specific periods (e.g., October last year, February due to a competitor strike, May/June due to industry challenges) created difficult comparisons. He noted no structural issues, but observed some business softening in middle-income and younger trade areas, indicating customer pressure.

Seth Sigman asked about the accelerating e-commerce growth, specifically the incrementality of new versus existing customers, given simultaneous improvements in non-e-commerce identical sales. He also inquired about consumer preferences driving demand for shorter delivery windows. Additionally, he asked about the pharmacy's performance, how script share gains translate to other parts of the business, and the outlook for vaccine sales in the second half of the year.

Answer

Ronald Sargent, Interim CEO & Chairman, noted customers seek fresh, correctly priced, complete, and fast deliveries, increasingly willing to pay for speed (within two hours). David Kennerley, EVP & CFO, confirmed e-commerce is attracting new households and increasing order volumes from existing customers, making them more valuable across the Kroger ecosystem. For pharmacy, Mr. Kennerley expects vaccine delays to normalize later in the year and affirmed that pharmacy shopping provides incrementality to the broader business, though specific metrics are not disclosed.

Seth Sigman asked for quantification of the overall lift to comps from the new multi-price assortment and how the $1.25 part of the assortment is performing with more variations.

Answer

CEO Michael Creedon noted strong performance across the entire offering, with a balanced basket and higher average basket size in multi-price stores. CFO Stuart Glendinning added that departments with broader assortments and increased price points, like hardware, are performing exceptionally well.

Seth Sigman of Barclays asked about the sales lift from store conversions, noting a potential moderation, and inquired about the expected comp performance of these stores after their first year.

Answer

CEO Michael Creedon clarified that the performance gap between converted and non-converted stores has tightened because the legacy '1.0' and '2.0' stores are also improving as multi-price learnings are applied chain-wide. He affirmed that stores continue to show strong comp performance the longer they operate under the multi-price model.

Seth Sigman sought clarification on the 'modest improvement' guided for 2025 gross margin, asking if the mitigation of the first tariff round meant there was no net impact. He also asked for other puts and takes affecting the gross margin outlook.

Answer

CFO Stewart Glendinning confirmed that the impact of the first round of tariffs is included in the gross margin guidance, while the second round is not. He stated there are no other meaningful tailwinds to call out, noting that modest freight benefits are more of a market-driven factor. He added that on the SG&A line, there is no net one-time upside to model for the year, as various items offset each other.

Seth Sigman sought to clarify that the mitigated first-round tariffs have no net impact on the gross margin guidance and asked for details on other puts and takes that are offsetting potential tailwinds in the fiscal 2025 gross margin outlook.

Answer

Chief Transformation Officer Stewart Glendinning confirmed the first tariff round's impact is factored into the gross margin guidance, while the second is not. He indicated there were no other significant tailwinds to highlight beyond the ongoing benefits from multi-price expansion and modest freight favorability. He also noted that in SG&A, any benefits from lapping prior year charges are offset by higher depreciation.

Seth Sigman asked about the offsets to the increased benefit from lower freight costs in the updated guidance and inquired about the key drivers for the expected gross margin acceleration in Q4.

Answer

CFO Jeff Davis clarified that while the freight benefit increased by about $0.10 for the second half, this was partially offset by other factors. These included costs of $0.02-$0.03 related to recent hurricanes and necessary inventory markdowns to align with current sales trends. He stated the updated guidance incorporates all of these puts and takes.

Seth Sigman of Barclays Capital inquired about the path back to normal operating leverage, given the 2-3% comp outlook and the return of costs like incentive compensation, asking if the current year represents a 'catch-up' on expenses.

Answer

EVP & CFO Kelly Dilts acknowledged the significant $200 million incentive compensation headwind this year and suggested a more normalized rate after 2025. She emphasized a strong focus on mitigating SG&A deleverage through efficiency initiatives and CapEx optimization, expressing confidence that these efforts, combined with gross margin levers, will enable the company to reach its 6-7% operating margin target.

Seth Sigman from Barclays asked for an update on inventory damages, questioning if the business is at an inflection point and what the size of the improvement opportunity is.

Answer

CEO Todd Vasos linked improvements in damages to better inventory control and the company's "back to basics" operational execution, viewing damages as a form of "known shrink." CFO Kelly Dilts confirmed that damages saw a slight year-over-year improvement for the first time in a while and are expected to be flat to slightly favorable for the full year. She reiterated the long-term goal of a 40 basis point improvement, driven by better inventory management and proactive investments in store remodels.

Seth Sigman from Barclays inquired about the recent inflection in damages, changes in business operations driving this, and the potential size of the margin opportunity.

Answer

CEO Todd Vasos explained that improvements in damages are linked to better inventory control and the execution of 'back to basics' store-level processes, viewing damages as 'known shrink.' CFO Kelly Dilts noted a 3 basis point year-over-year improvement and reiterated the long-term goal of a 40 basis point margin improvement from damages, driven by better inventory management and proactive store investments like Project Elevate and Renovate.

Seth Sigman followed up on the long-term operating margin target of 6-7%, noting that the individual drivers cited seem to add up to a higher potential number, and asked if the target is conservative or if there are unmentioned offsets.

Answer

CEO Todd Vasos acknowledged that the components could mathematically lead to a higher margin but stated that the 6-7% framework represents the 'right anchor point' for now. He emphasized that it strikes a necessary balance between serving customers, employees, and shareholders, while also noting the company's history of striving to outperform its own targets.

Seth Sigman focused on the improving gross margin trend, asking about the potential for year-over-year expansion in Q4 and beyond, particularly from the shrink tailwind, and the overall recoverability of the margin.

Answer

CFO Kelly Dilts identified shrink as the company's biggest gross margin opportunity, expecting it to be a tailwind in Q4 and into 2025. She noted that while it's a continuous journey to reach pre-pandemic levels, they have a clear path and are making significant progress.

Seth Sigman followed up on pricing, asking how competitive price gaps have evolved, for more detail on markdown actions by category, and how much of the guidance change is due to these price investments.

Answer

CEO Todd Vasos stated that their everyday low price position remains strong and stable, providing a springboard for targeted promotional activity rather than broad price cuts. Promotions will focus on traffic-driving categories like food, cleaning, and paper. CFO Kelly Dilts clarified the investment is not a specific dollar amount but that the promotional rate in the second half will be similar to last year's, bringing the full-year rate back to 2019 levels.

Seth Sigman from Barclays Capital sought clarification on the Q3 gross margin outlook, specifically why the unmitigated tariff impact is now guided to 160 basis points versus a prior expectation of 250 basis points, and asked about the expected trend in AUR.

Answer

Interim CFO & COO Kenneth Bull explained the improvement was due to better-than-expected customer response to price adjustments (lower unit degradation), favorable sales mix, and improved cost mitigation. He expects AUR to remain relatively consistent with Q2 levels, though CEO Winnie Park added that product mix will be a factor.

Seth Sigman from Barclays asked for more details on operational changes, such as increased labor hours and efficiencies, and whether the company might increase its investment level given the recent success.

Answer

COO Ken Bull explained that the focus on the in-store experience involves both adding labor hours and, crucially, simplifying workloads through process improvements. This frees up associate time for customer-facing activities. He confirmed that these efforts to enhance efficiency and the customer experience will continue.

Seth Sigman asked for more detail on the recent labor investments, including how they benefited performance and whether further investments are anticipated.

Answer

Interim CEO Ken Bull explained the investment addressed previous underinvestment and improved service levels and in-stocks, leading to better seasonal transitions. He noted the focus is also on workload efficiency. CFO Kristy Chipman quantified the investment as a 5% increase in average store hours, creating a ~50 basis point impact in Q3. Ken Bull also added that manning self-checkout areas has improved crew efficiency and customer service.

Seth Sigman from Barclays asked about the performance of Five Beyond and whether the strategy might have contributed to current challenges like price perception issues or shopping complexity. He also inquired about expected changes to the Five Beyond assortment.

Answer

Interim President and CEO Kenneth Bull and Executive Chairman Thomas Vellios both affirmed their belief in the Five Beyond concept but stated it requires the same strategic refocus as the core business: a disciplined, narrow assortment of key, high-value items targeted at the core customer. CFO Kristy Chipman added that the sales lift and penetration from Five Beyond have remained consistent with what has been previously shared.

Seth Sigman from Barclays sought to reconcile comments on DIY stabilization with transaction trends and asked for clarification on the Q2 reversal of capitalized inventory costs.

Answer

CFO Ryan Grimsland clarified that while DIY comps were stable, transactions did improve late in the quarter, though the company remains cautious about future price elasticity. He explained the capitalized cost reversal was due to working down inventory bought ahead of tariffs; as inventory levels decrease, there is less to capitalize against. CEO Shane O'Kelly added that new training initiatives are underway to improve the DIY business.

Seth Sigman inquired about the impact of store closures on comparable sales improvement, asking to quantify how much underperforming closed stores may have dragged on past results and the extent of sales transfer to remaining stores. He also asked for details on the assumptions for tariffs embedded in the full-year guidance.

Answer

EVP and CFO Ryan Grimsland stated the comp difference between closed and remaining stores was not material, so closures were not a primary driver of the comp improvement. He confirmed planned sales transfer occurred, particularly in the Pro business. CEO Shane O’Kelly added that completing the closures reduces organizational uncertainty. Regarding tariffs, O'Kelly described the situation as volatile, with a blended rate of about 30% on roughly 40% of sourced products. Grimsland outlined a mitigation strategy involving vendor pushback, sourcing alternatives, and measured price pass-through.

Seth Sigman of Barclays asked for more detail on the criteria for store closures, particularly the decision to exit entire states. He also requested specific data points on early wins from the turnaround initiatives to build confidence that the company's issues are not structural.

Answer

CEO Shane O'Kelly explained that closures were based on store profitability and DC productivity, noting that Western markets lacked the store density to justify the DC infrastructure without significant, long-term capital investment. CFO Ryan Grimsland and CEO Shane O'Kelly provided examples of early wins, including a significant improvement in store availability, the completion of the WMS rollout, positive results from pricing actions, and outperformance in markets with new supply chain hubs, underscoring that the plan is based on controllable actions.

Seth Sigman of Barclays Capital asked why the Q2 revenue beat from the accelerated Dallas distribution center ramp-up didn't lead to a raise in full-year guidance and inquired about the drivers behind the demand inflection from June to July.

Answer

CFO Michael Lee explained that the Q2 revenue beat was largely a pull-forward of demand from a Q1 order backlog, and the full-year guidance already assumes the convergence of demand and reported comps by year-end. Chief Marketing & eCommerce Officer Jennifer Porter attributed the demand volatility to macro uncertainty. She noted that July benefited from strong execution, including a fall preview marketing campaign and a successful warehouse sale, and that the company continues to see strength in higher-value orders.

Seth Sigman asked if the summer sales dip was caused by customers waiting for the September promotional event and if this changes the company's pricing strategy. He also inquired about leading indicators, like customer engagement, that might signal future demand.

Answer

CEO John Reed asserted that with over half of customers being new, most are unaware of sale timing, and unique product is the main sales driver, negating the need for more promotions. CMO Jennifer Porter added that new product and catalog launches were also key to September's success. On leading indicators, she noted that while data is choppy, the strong positive response to new collections confirms their strategy is working.

Seth Sigman of Barclays inquired about the long-term potential for non-oil change services, which now exceed 20% of sales, and requested an update on the Glass business, including its performance and market headwinds.

Answer

President & CEO Danny Rivera stated there is no near-term ceiling for non-oil change revenue, citing stores with attachment rates in the 60s and the introduction of new, margin-accretive services like differential fluid replacement. Regarding the Glass business, he noted it is still in an early, multi-year incubation phase within the 'corporate and other' segment, with a continued focus on top-line growth in what remains an attractive industry.

Seth Sigman requested an update on the performance and ramp-up of the auto glass business and asked about the drivers of the strong momentum in the International Car Wash segment, including the impact of weather.

Answer

EVP and COO Danny Rivera described the auto glass business as a multi-year strategy in its 'early innings,' with growth from new commercial and insurance accounts starting to materialize. For International Car Wash, he attributed its strong performance to its independent owner model and market leadership in Europe, while also acknowledging a benefit from favorable weather and noting that comps should normalize.

Seth Sigman from Barclays questioned the medium-to-long-term growth drivers for Take 5 Oil Change beyond unit expansion, focusing on ticket growth and new services. He also asked for a timeline on when the Auto Glass Now business would significantly contribute to results.

Answer

COO Danny Rivera stated there is no near-term ceiling for Take 5 ticket growth, citing opportunities in ancillary service attachment rates and premium oil mix. For the glass business, he described it as a multiyear journey, highlighting recent national rental and regional insurance wins that will begin contributing to revenue in late Q4 2024 and Q1 2025.

Seth Sigman of Barclays inquired about the company's price gaps relative to competitors, given that others have reportedly taken high single-digit price increases. He asked for signs of accelerating market share and the potential margin impact from tariffs next year.

Answer

CEO Tom Taylor stated that Floor & Decor's price gaps have likely widened as competitors raised prices more aggressively, contributing to market share gains. He emphasized that the company's competitive moat also includes assortment, service, and in-stock levels. Regarding future margins, CFO Bryan Langley noted that while new distribution centers will create pressure, the impact from tariffs on gross margin rate is expected to be minimal due to successful mitigation efforts.

Seth Sigman of Morgan Stanley questioned the updated guidance, seeking clarity on the specific tariff impacts embedded in the forecast and how the company plans to manage potential product assortment gaps as it reduces its sourcing from China.

Answer

CEO Tom Taylor and CFO Bryan Langley explained that the guidance includes universal tariffs but not reciprocal ones. They expressed confidence in offsetting impacts through vendor negotiations, modest price increases, and sourcing diversification, noting that receipts from China will drop to mid-single digits by year-end. They feel the company's broad assortment will prevent significant product gaps and that diversification allows them to source products at similar or better costs.

Seth Sigman from Barclays asked for insights on the strength in wood and stone categories and whether the underperformance of the LVT category was due to weak market demand or competitive shifts.

Answer

CEO Tom Taylor attributed the positive performance in wood and stone to improved assortments, better inventory levels, a new outdoor program, and likely market share gains from a competitor's store closures. Regarding LVT, he acknowledged it was tracking below the company average but emphasized that its sales trajectory has been improving significantly each quarter, driven by new products and better in-store execution.

Seth Sigman of Barclays asked for management's perspective on how the competitive landscape in the flooring industry has evolved over the last few years and whether the recent industry shakeout has aligned with their expectations.

Answer

CEO Tom Taylor responded that he expects fewer competitors to emerge from the current downcycle, citing recent store closures by competitors like Lumber Liquidators and some distributors. He believes Floor & Decor's key competitive advantages relative to home improvement centers and independents remain intact and will be the same post-cycle as they were pre-COVID.

Seth Sigman of Barclays Capital requested more detail on Beyond's ownership stakes in its larger assets beyond tZERO. As a follow-up, he asked for a case study on the patio category's performance this quarter and the key lessons learned from that success.

Answer

Executive Chairman & Principal Executive Officer Marcus Lemonis provided specific ownership percentages, stating Beyond holds 53% of tZERO equity, 14% of tZERO ROP tokens, and a significant stake in GrainChain (9% direct, 14% indirect), directing investors to the newly released slide deck for a full breakdown of the Medici portfolio. COO Alexander Thomas added that the success in the patio category was driven by creating engaging promotions with the right assortment at the right price points.

Seth Sigman requested more detail on Beyond's ownership stakes in its larger assets, particularly those beyond tZERO. He also asked for a case study on the patio category's performance, seeking insights on what the company learned from its Q2 execution.

Answer

Executive Chairman Marcus Lemonis detailed the ownership stakes, which are available in the investor slide deck, highlighting a 53% total equity in tZERO, 14% of tZERO ROP tokens, and a combined 23% interest in GrainChain. He confirmed the contingent value right (CVR) would cover assets like Ripio (2% ownership) and others in the Medici portfolio. COO Alexander Thomas added that the success in the patio category was driven by creating engaging promotions with the right assortment at the right price points, a strategy they intend to replicate.

Seth Sigman asked for management's confidence level that Q1 revenue represents a bottom and what specific factors are driving the guidance for sequential revenue growth through the rest of the year.

Answer

Executive Chairman Marcus Lemonis confirmed that he views Q1 revenue as the floor. He expressed confidence in sequential growth because the company now better understands its marketing levers, has improved ad spend efficiency, and has implemented a disciplined culture of only spending on initiatives with a proven positive return on ad spend (ROAS). As the team gains more confidence in these systems, they will increase spending to drive growth.

Seth Sigman from Barclays requested more detail on the cadence of price changes driving second-half inflation, the expected impact from tariffs, and the price elasticity assumptions embedded in the company's guidance.

Answer

President & CEO Hal Lawton explained that the second half outlook assumes a balance of ticket and transaction growth. He noted strong visibility on pricing for consumable 'Q' products. For tariff-affected items, he stated they have good visibility for Q3 but are maintaining flexibility for Q4 pending tariff updates, utilizing a portfolio strategy to manage pricing.

Seth Sigman highlighted confusion around the guidance, asking for a quantification of the sales and EPS impact from tariffs and questioning the assumption for tariffs beyond the initial 90-day period.

Answer

CFO Kurt Barton reiterated that the guidance only embeds the next 90 days of tariff impact due to the volatile environment. He explained the widened guidance range reflects multiple potential scenarios for how costs are shared across the value chain and their effect on volume and margins, stating the company is managing towards the midpoint.

Seth Sigman asked for elaboration on moderating macro headwinds, which specific categories have underperformed, and the outlook for big-ticket items, which moderated in Q4 after strong growth.

Answer

CEO Harry Lawton identified three moderating headwinds: the shift from goods to services spending, commodity deflation, and pet category stabilization. He expects these pressures to neutralize as 2025 progresses. CFO Kurt Barton added that after two years of decline, big-ticket items performed well in 2024 due to newness and innovation. For 2025, big-ticket sales are expected to grow positively, more in line with the overall chain average, supported by new offerings.

Seth Sigman of Barclays asked about the market share impact from a competitor's recent store closures and sought more perspective on the gross margin pressure from shrink, questioning why it won't be an ongoing issue.

Answer

CEO Philip Daniele stated that share gains on the DIY side were broad-based and not just in markets with competitor closures, attributing the growth to AutoZone's own initiatives. CFO Jamere Jackson explained the company has its 'arms around' the causes for shrink, which are related to high activity and new DC openings, and that the pressures are expected to 'largely abate' in Q4 due to easing comparisons and execution improvements.

Seth Sigman of Barclays asked about the impact of a competitor's store closures on market share and sought more detail on the drivers of inventory shrink and why it is not expected to be an ongoing issue.

Answer

CEO Philip Daniele asserted that share gains were broad-based and driven by AutoZone's own initiatives, not just competitor closures. CFO Jamere Jackson attributed the shrink pressure to increased business activity and the ramp-up of two new DCs. He expressed confidence that the company has the issue under control and that the pressure will largely abate in Q4 due to execution improvements and easing comparisons.

Seth Sigman from Barclays asked about the 10% increase in inventory, seeking more detail on the strategic pull-forward of orders and the extent to which improved in-stock levels are driving sales.

Answer

Executive Jeff Howie quantified the strategic pull-forward at $60-$70 million to mitigate tariff impacts, noting that inventory would otherwise be in line with revenue growth. President and CEO Laura Alber added that strong in-stock positions are critical for consumers and are driving sales. She highlighted that improved inventory management is leading to all-time high on-time delivery rates, lower supply chain costs, and strong performance in 'take it home today' products.

Seth Sigman asked about the 10% increase in inventory, seeking more detail on the strategic pull-forward of orders and the extent to which improved in-stock levels are driving sales conversion.

Answer

EVP and CFO Jeff Howie confirmed the inventory increase includes a $60-$70 million strategic pull-forward to mitigate tariff impacts, without which inventory would align with revenue growth. President and CEO Laura Alber added that strong in-stock positions are critical, driving record-high on-time deliveries, reducing costs, and boosting sales, particularly for 'take at home today' products in stores.

Seth Sigman asked about the 10% increase in inventory, seeking details on its composition and whether improved in-stock levels are helping drive sales conversions.

Answer

CFO Jeff Howie clarified that the inventory increase includes a strategic $60-$70 million pull-forward of receipts to mitigate future tariff impacts. CEO Laura Alber added that being in-stock is critical for today's consumer and is driving sales, improving on-time delivery metrics, reducing costs, and supporting the successful 'take at home today' initiative in stores.

Seth Sigman from Barclays questioned the 10% year-over-year increase in inventory, asking for more detail on the strategic pull-forward of goods and how improved in-stock levels might be driving sales and conversion.

Answer

CFO Jeff Howie quantified the strategic inventory pull-forward at $60-$70 million, done to mitigate tariff impacts, and noted that inventory would otherwise align with revenue growth. President and CEO Laura Alber added that strong in-stock positions are critical, leading to all-time high on-time delivery rates, reduced costs, and higher sales, especially for 'take it home today' items.

Seth Sigman asked about the 10% year-over-year increase in inventory, seeking more detail on the strategic pull-forward and the impact of improved in-stock levels on sales conversion.

Answer

EVP and CFO Jeff Howie confirmed the increase includes a $60-$70 million strategic pull-forward of inventory to mitigate tariff impacts, without which inventory would align with revenue growth. President and CEO Laura Alber added that strong in-stock positions are critical for consumers, driving all-time high on-time delivery rates, reducing costs, and improving customer satisfaction. She also noted that increased 'take at home today' inventory in stores is driving substantial comp growth.

Seth Sigman of Barclays asked for more detail on the 10% year-over-year inventory increase, its composition, and the degree to which improved in-stock levels might be driving sales conversion.

Answer

EVP and CFO Jeff Howie explained that the increase was strategic, including a $60-70 million pull-forward of inventory to mitigate tariff impacts. President and CEO Laura Alber added that strong in-stock levels are critical, driving all-time high on-time delivery rates, reducing costs, and boosting sales, particularly for 'take home today' items in stores.