Steven Zaccone

Steven Zaccone of Citigroup asked about the expected margin flow-through from the anticipated comp acceleration in the second half, potential drivers for gross margin upside, and the sales growth needed to leverage SG&A expenses.

Answer

Executive VP & CFO Kurt Barton clarified that second-half gross margin expansion will be lower than the first half as the company laps prior-year benefits. However, SG&A deleverage is expected to be roughly half the rate of the first half, driven by higher comps and lapping the opening of a new distribution center. The full-year operating margin guidance remains intact.

Steven Zaccone asked about the expected duration of cannibalization as a headwind to comparable sales throughout 2026 and the outlook for non-food inflation, specifically if it's at peak pressure or could increase further.

Answer

CFO Gary Millerchip explained that cannibalization is a natural outcome of investing in new warehouses to grow overall sales and relieve pressure on busier stores, and he doesn't foresee a dramatic change in this strategy. Regarding inflation, he stated that the current low to mid-single-digit outlook is based on proactive management of existing tariffs, but acknowledged the difficulty in predicting future tariffs or market events, indicating no significant change is expected in current plans.

Steven Zaccone asked if cannibalization is expected to remain a headwind throughout fiscal year 2026 and for an outlook on non-foods inflation, specifically if current levels represent peak pressure or if it could increase.

Answer

CFO Gary Millerchip stated that cannibalization is a deliberate strategy reflecting investment in filling warehouses to grow overall sales and relieve pressure, and is expected to continue. He reiterated the current inflation outlook (low to mid-single digits overall, low single-digit in non-foods) based on present information, but acknowledged the unpredictability of future tariffs or market events.

Steven Zaccone asked if cannibalization to comparable sales is expected to remain a headwind throughout fiscal year 2026 and about the outlook for non-food inflation, specifically if it's at peak pressure or could increase further.

Answer

EVP & CFO Gary Millerchip stated that cannibalization is a reflection of continued investment in filling warehouses to grow overall sales and relieve pressure in busier locations, and he sees no dramatic change in this strategy. Regarding non-food inflation, he reiterated that current inflation is low single-digit, and while the environment is fluid, current plans don't indicate a significant change from what's being observed today.

Steven Zaccone asked if AutoZone is concerned about a potential deferral cycle in 2026 as same SKU inflation is expected to step up. He also inquired about the drivers behind the strong merchandise margin improvement in recent quarters and its sustainability through fiscal 2026.

Answer

Phil Daniele, CEO and President, expressed low concern about a 'massive deferral' cycle unless inflation significantly exceeds mid-single digits, noting that consumers have likely exhausted deferral options for essential repairs and the small dollar amounts of part price increases are manageable. Jamere Jackson, CFO, attributed strong merchandise margin improvement to effective cost negotiations with vendors, category innovation, and an improved product mix, including the Duralast brand, a playbook expected to continue mitigating gross margin pressure from the faster-growing commercial business.

Steven Zaccone followed up on pricing elasticity, asking if AutoZone is concerned about a potential deferral cycle emerging in 2026 as same SKU inflation accelerates, and how this factors into the company's same-store sales outlook. He also inquired about the drivers behind the strong merchandise margin in recent quarters and whether this trend is sustainable through fiscal year 2026.

Answer

Phil Daniele, CEO and President, expressed low concern about a massive deferral cycle unless inflation significantly exceeds mid-single digits, noting that essential break-fix items have limited deferral options and incremental price increases are small in dollar terms. Jamere Jackson, CFO, attributed strong merchandise margins to effective merchandising strategies, including cost opportunities with vendors, innovation, and improved product mix (e.g., Duralast brand). He stated this playbook helps mitigate gross margin pressure from the faster-growing commercial business and is expected to continue.

Steven Zaccone asked if AutoZone is concerned about increased price elasticity and a potential deferral cycle in 2026 as same SKU inflation is expected to rise, and how this factors into their sales outlook. He also inquired about the drivers behind the strong merchandise margin in recent quarters and its sustainability through FY26.

Answer

President and CEO Philip Daniele expressed low concern about a massive deferral cycle unless inflation significantly escalates, noting that the lower-end consumer has been under pressure for over two years, likely exhausting deferral options. He expects demand to remain intact. CFO Jamere Jackson attributed strong merchandise margins to effective strategies by merchandising teams, including cost opportunities with vendors, innovation, and a favorable mix shift towards the Duralast brand, which helps offset gross margin pressure from the faster-growing commercial business.

Steven Zaccone from Citigroup Inc. asked about the Q4 outlook, specifically if the commercial business could return to double-digit comp growth, and about the multi-year opportunity for merchandise margin improvement.

Answer

CFO Jamere Jackson anticipated similar top-line momentum in Q4 as seen in Q3. CEO Philip Daniele added that with only ~5% commercial market share, there is a long runway for growth. He noted that while merchandise margins can improve within both DIY and commercial, the faster growth of the lower-margin commercial business will continue to pressure the overall gross margin rate—a trade-off the company accepts for higher EBIT dollars.

Steven Zaccone from Citigroup Inc. inquired about the Q4 outlook, specifically asking if the commercial (DIFM) business could return to double-digit comp growth, and questioned the multi-year opportunity for merchandise margin improvement given the mix shift to commercial.

Answer

CFO Jamere Jackson stated the company expects similar top-line momentum in Q4 as seen in Q3, driven by its initiatives. CEO Philip Daniele added that with only a 5% market share in commercial, there is a long runway for growth. He also affirmed that AutoZone sees opportunities to improve merchandise margins in both DIY and commercial independently, even though the mix shift to commercial will pressure the overall rate.

Steven Zaccone from Citigroup Inc. asked for details on the sequential deceleration in the DIFM (commercial) business and inquired about the drivers behind the slower SG&A dollar growth rate.

Answer

Executive Philip Daniele attributed the DIFM deceleration partly to hurricane impacts and weakness in segments tied to new and used car dealers. CFO Jamere Jackson explained that SG&A growth has moderated due to a cooling in wage inflation, while the company continues to invest in its growth initiatives.

Steven Zaccone asked for an assessment of industry pricing trends, specifically whether increases due to tariffs are expected to peak in the second half of the year or extend into 2026.

Answer

Chairman and CEO Gary Friedman stated that he expects significant furniture inflation across the industry in the second half of the year due to tariffs, noting a lack of transparency from competitors. He also discussed the unique challenges of tariffs on non-China manufacturing partners.

Steven Zaccone asked for an assessment of industry pricing trends due to tariffs, specifically whether pricing is expected to worsen in the second half of the year and if the peak impact will be in H2 or extend into 2026. He also inquired if the 200 basis point international margin drag is expected to ease next year, or if London and Milan openings will bring heavy startup costs.

Answer

Chairman & CEO Gary Friedman stated that he expects significant furniture inflation in the second half of the year as all industry players will need to raise prices due to tariffs, noting that RH has unique leverage but dislikes winning this way. He confirmed that London and Milan openings will incur heavy startup costs, and the ramp-up in Paris will inform expectations for these new locations.

Steven Zaccone asked for an assessment of industry pricing due to tariffs, specifically whether increases are worsening in H2 and if this period represents the peak or if it will carry into 2026. He also followed up on the 200 basis point international margin drag, asking if it eases next year or if London and Milan openings will incur heavy startup costs.

Answer

Chairman and CEO Gary Friedman stated that competitors lack transparency on tariffs, and he expects significant furniture inflation in H2, forcing everyone to raise prices. He warned that new tariffs could severely disrupt the industry, leading to job losses. Regarding international margins, Friedman confirmed that London and Milan openings will incur heavy startup costs, but the ramp-up in Paris will inform expectations for these new, larger galleries. He highlighted the increasing brand heat and optionality for global expansion (Middle East, Asia) driven by the quality of RH's European work, particularly RH Paris, and the growth of RH Interior Design as a global platform.

Steven Zaccone asked for the key drivers behind RH's significant business acceleration and market outperformance, and followed up on how product margins trended through the quarter.

Answer

Chairman and CEO Gary Friedman attributed the outperformance to RH's superior platform and its unique ability to 'scale taste,' noting the company is now a better version of itself after restarting its product engine. Regarding margins, Friedman and CFO Jack Preston confirmed that selling margins inflected positively on both a demand and shipped basis. However, one-time costs from gallery transformations and inventory rebalancing impacted the reported gross margin for the quarter.

Steven Zaccone asked for an update on the product assortment transformation, specifically if the company has reached its goal of 80-85% newness and what the cadence of new product introductions will be for the remainder of 2024 and into 2025.

Answer

CEO Gary Friedman clarified that RH expects to hit the 85% newness target in the first half of 2025, with significant newness still coming in the second half of 2024. He anticipates being on a more predictable cadence by the second half of 2025. Friedman also detailed the plan to amplify the Waterworks brand on the RH platform, starting with a showroom in the Newport Beach gallery.

Steven Zaccone questioned the performance and economics of new stores, particularly how the current cohort compares to prior ones, and asked about the timeline for needing a new distribution center.

Answer

EVP and CFO Robert Helm stated that new store economics remain strong, stable, and predictable, with the current cohort performing above plan. President and CEO Eric van der Valk addressed the DC timeline, explaining they plan to expand their Texas and Illinois facilities within 18 months, which adds capacity for 100 more stores, pushing the need for a fifth DC three or more years out.

Steven Zaccone inquired about Ollie's assessment of the current consumer environment, how that perception is factored into the 2025 outlook, and the primary drivers behind the 2025 gross margin guidance.

Answer

Executive Eric van der Valk stated that consumers remain under pressure, which benefits Ollie's, as evidenced by strong consumable sales and trade-down from higher-income shoppers. Executive Robert Helm added that the 40% gross margin guidance assumes a stable supply chain and includes reinvesting any outperformance back into pricing to drive customer loyalty.

Steven Zaccone from Citigroup Inc. asked about Ollie's pricing strategy amid the tariff environment, the magnitude of the SG&A pressure in Q1, and the potential earnings power in 2026 from accelerated real estate growth.

Answer

CEO Eric van der Valk reiterated a commitment to maintaining price gaps and value, noting the flexibility of the closeout model. CFO Robert Helm identified unplanned higher medical and casualty claims as the primary SG&A pressure in Q1. He also noted that while 2026 real estate opportunities are strong, the increased number of new stores will have a near-term impact on profitability.

Steven Zaccone from Citi asked for a bigger-picture view of the general merchandise opportunity, inquiring about what 'inning' the transformation is in. He also followed up on merchandise margin expectations for the second half, asking about any differences between Q3 and Q4.

Answer

CEO Bob Eddy described the GM transformation as a long-term build aimed at improving relevance and creating a better balance with their strong grocery business. He stated there is 'a ton of opportunity' left and that they are seeing increased member engagement, but it's a methodical, long-term process. CFO Laura Felice reiterated that the company does not provide specific merchandise margin guidance, emphasizing that the focus remains on delivering value, which may require short-term investments, without detailing a Q3 versus Q4 cadence.

Steven Zaccone from Citigroup asked about the bigger-picture opportunity in general merchandise, inquiring what "inning" the transformation is in. He also followed up on merchandise margin expectations for the second half, asking about any differences between Q3 and Q4.

Answer

CEO Bob Eddy explained that improving GM relevance is a core long-term goal and that there is still a "ton of opportunity" to improve assortments. He characterized it as a long build, not an overnight fix. EVP & CFO Laura Felice reiterated that for back-half margins, the focus is on delivering value, which may require short-term investments, rather than a specific rate, and did not provide a Q3 vs. Q4 breakdown.

Steven Zaccone asked about the outlook for merchandise margins following a strong Q1 and whether the 'wider range of outcomes' commentary on guidance was purely due to macro uncertainty or a change in business trends.

Answer

CEO Bob Eddy acknowledged Q1 had an easier margin compare but pointed to ongoing initiatives like private label and category management that should support margins. However, he stressed that the company will invest to gain market share in the face of potential cost pressures like tariffs. This willingness to invest for the long-term, combined with macro uncertainty, is what creates a wider range of potential outcomes, not a change in the business's underlying momentum.

Steven Zaccone from Citigroup asked about the outlook for merchandise margin for the rest of the year given tougher compares, and sought clarification on whether the 'wider range of outcomes' commentary was purely macro-related.

Answer

CEO Robert Eddy acknowledged Q1 had an easier margin compare and highlighted ongoing drivers like private label and category management. However, he confirmed the 'wider range' reflects both macro uncertainty and the company's explicit strategy to invest to gain market share, which may pressure margins, thus justifying the decision to maintain full-year guidance.

Steven Zaccone inquired about the sustainability of strong Q1 merchandise margins and asked if the 'wider range of outcomes' commentary was purely macro-related, given the company's solid business momentum.

Answer

CEO Bob Eddy noted Q1 had an easy margin compare and that while initiatives like private label and category management help, the company anticipates investing more as the year progresses to gain market share, especially in a dynamic cost environment. This planned investment, balanced against operational control, is why the guidance remains unchanged despite the uncertainty.

Steven Zaccone asked about the outlook for merchandise margin for the rest of the year and sought clarification on the commentary about a 'wider range of outcomes.'

Answer

Chairman and CEO Bob Eddy acknowledged that while Q1 had a favorable margin compare and underlying drivers like private label are strong, the outlook is tempered by potential cost pressures from tariffs. The 'wider range of outcomes' reflects the company's commitment to invest in member value to gain market share, even if it pressures margins in the short term. This strategic priority, combined with macro uncertainty, is why guidance was maintained despite a strong Q1.

Steven Zaccone of Citi asked for more detail on the strong gross margin performance relative to expectations and requested clarification on the timing and impact of tariffs on the margin outlook for the second half of the year. He also inquired about pricing actions and other mitigation strategies.

Answer

CFO Sabrina Simmons explained that the 120 basis point gross margin expansion was a result of disciplined management of both average unit cost (AUC) and average unit retail (AUR). She confirmed that tariff impacts were minimal in Q2 but will become 'meaningful' in Q3 and 'even much more meaningful' in Q4. Simmons noted that pricing has been an ongoing lever all year and will continue to be used with a focus on the customer value proposition.

Steven Zaccone from Citigroup asked for an assessment of the primary opportunities for EBITDA improvement and inquired about the specific merchandise improvements being implemented, particularly regarding the product assortment.

Answer

CFO Sabrina Simmons explained that the main opportunity lies in fundamental retail execution, focusing on disciplined gross margin expansion through vendor negotiations, pricing, and promotion management, alongside instilling a culture of SG&A leverage. CEO Joel Anderson elaborated on merchandising, stating the focus is on improving in-stock levels for consumables and driving innovation in discretionary items. He confirmed that initiatives to optimize vendor negotiations, assortment, and pricing are already underway.

Steven Zaccone asked about the strategy to capture market share, questioning whether the focus is on increasing basket size with existing customers or acquiring new ones. He also asked for details on the drivers of the comparable sales growth, specifically ticket versus transactions.

Answer

CEO Joel Anderson explained that the path to market share gains will initially come from leveraging the current store base by growing services, improving the in-store experience, and potentially entering new categories to improve four-wall EBITDA, rather than unit growth. CFO Brian LaRose confirmed that the positive comparable sales growth was driven more by ticket than by traffic.

Steven Zaccone of Citigroup Inc. questioned the gross margin performance relative to expectations and whether expansion is still anticipated for the full year. He also asked about the potential near-term sales impact from the recent planogram resets.

Answer

CFO Sabrina Simmons confirmed she was pleased with the Q1 gross margin expansion, driven by average unit cost (AUC) improvements, and reiterated the goal for full-year gross margin expansion. CEO Joel Anderson explained that while the category resets are disruptive short-term, they are expected to contribute to growth in the back half of the year, with minimal impact in Q2.

Steven Zaccone of Citi questioned how Q1 gross margin performed against expectations and whether margin expansion is still expected for the full year. He also asked if the recent planogram resets could provide a near-term sales lift.

Answer

CFO Sabrina Simmons stated she was pleased with the Q1 margin expansion, driven by Average Unit Cost (AUC), and confirmed the goal for full-year gross margin expansion remains. CEO Joel Anderson noted that while the resets are disruptive short-term, they were moved up to contribute to growth in the second half of the year, with promising early signs from the cat category reset.

Steven Zaccone of Citigroup Inc. questioned the gross margin performance relative to expectations, the outlook for the full year, and the potential near-term sales impact from the recent cat and dog category planogram resets.

Answer

CFO Sabrina Simmons expressed satisfaction with Q1 gross margin expansion, driven by Average Unit Cost (AUC) improvements, and affirmed the goal for full-year expansion. CEO Joel Anderson noted that while the resets are expected to boost back-half growth, their disruptive nature means a significant positive impact is not expected in Q2.

Steven Zaccone of Citigroup Inc. questioned how gross margin performed against expectations in the quarter and whether it is still projected to expand for the full year. He also asked if the recent planogram resets could provide a near-term sales lift.

Answer

CFO Sabrina Simmons expressed satisfaction with Q1 gross margin, noting Average Unit Cost (AUC) was a significant lever, and confirmed the goal for full-year gross margin expansion remains. CEO Joel Anderson clarified that while the cat and dog category resets are expected to contribute to growth in the back half of the year, they are disruptive in the short term and a significant impact should not be expected in Q2.

Steven Zaccone of Citi questioned the gross margin performance in Q1 relative to expectations and asked if full-year margin expansion is still anticipated. He also inquired if the recent planogram reset could provide a near-term sales lift.

Answer

CFO Sabrina Simmons confirmed they were pleased with Q1 gross margin expansion, driven by Average Unit Cost (AUC), and that expanding gross margin for the full year remains a primary goal. CEO Joel Anderson added that while the resets are disruptive short-term, they are expected to contribute to growth in the second half of the year rather than in Q2.

Steven Zaccone of Citigroup inquired about gross margin performance versus expectations in the quarter and whether the company still anticipates full-year gross margin expansion given recent tariff news. He also asked if the recent planogram resets could provide a near-term sales lift.

Answer

CFO Sabrina Simmons confirmed the company was pleased with Q1 gross margin, driven by Average Unit Cost (AUC) improvements, and reiterated the goal of delivering gross margin expansion for the full year. CEO Joel Anderson noted that while the category resets are disruptive in the short term, they were brought forward to contribute to growth in the back half of the year, with promising early signs from the cat reset.

Steven Zaccone of Citi inquired about the expected gross margin and EBIT margin impact from the FBM acquisition and how this affects Lowe's long-term financial targets, such as the 14.5% operating margin goal. He also asked about capital allocation, specifically if the pause in share repurchases until 2027 signals a long-term shift in priorities.

Answer

EVP & CFO Brandon Sink stated that specific financial impacts of the FBM deal would be provided after closing but reiterated the acquisition is expected to be accretive to adjusted EPS in the first full year. He deferred commenting on long-term targets until later in the year. Regarding capital allocation, Sink confirmed a temporary pause in share repurchases until 2027 to aggressively pay down debt and return to the 2.75x leverage target, emphasizing that investing in the business for growth remains the top priority.

Steven Zaccone asked for an update on the appliance business and the drivers behind its recent stabilization. He also inquired if any material changes in category performance are expected in 2025, particularly for the key spring season.

Answer

EVP, Merchandising, William Boltz attributed strong appliance results to unit growth and innovation, primarily driven by duress purchases from customers with broken appliances. He emphasized Lowe's best-in-class, next-day delivery and installation model as a key competitive advantage. For spring 2025, Boltz expressed encouragement from early results and stated the company has 'a lot of ammunition,' including new products and innovation across decking, tools, paint, and outdoor power equipment.

Steven Zaccone asked if the competitive environment for DIY has intensified from non-traditional retailers and whether the acquisition of Artisan Design Group signals a strategy of pursuing more M&A in the future.

Answer

Chairman and CEO Marvin Ellison acknowledged that retail is always competitive but emphasized Lowe's advantages in product knowledge, service, and technology. EVP, Stores Joe McFarland highlighted specific differentiators like the MyLow Companion app for associates and the gig delivery network. Regarding M&A, Marvin Ellison characterized the ADG deal as opportunistic and a complement to the Total Home Strategy, stating that while they will continue to evaluate opportunities, there is no fundamental shift in their disciplined approach.

Steven Zaccone asked if the DIY competitive landscape has intensified due to non-traditional retailers and whether the Artisan Design Group acquisition signals a new phase of more frequent M&A.

Answer

CEO Marvin Ellison acknowledged the competitive environment but stressed Lowe's differentiation through service and technology, like the MyLow associate app, which EVP, Stores, Joe McFarland detailed. Regarding M&A, Ellison stated Lowe's will remain 'opportunistic' and disciplined, focusing on acquisitions that complement the Total Home Strategy. The ADG deal specifically provides entry into the new home construction market.

Steven Zaccone asked for an updated view on the recovery timeline for large project activity given recent tax clarity and potential rate cuts. He also inquired about the outlook for pricing and average unit retail (AUR) in the second half, considering the reduction in promotional activity.

Answer

Chair, CEO & President Ted Decker acknowledged that lower rates and tax certainty create a better environment for large projects but refrained from predicting a specific timeline for recovery. EVP – Merchandising Billy Bastek addressed pricing, noting that over half of products are sourced domestically and will not be subject to tariffs. He stated that any price movements would be modest and category-specific, with the company taking a portfolio approach to maintain its price leadership position. He clarified the Q2 promotional pullback was mainly limited to smaller garden projects.

Steven Zaccone asked for details on regional performance during the quarter, considering weather volatility, and whether hurricane recovery efforts provided a benefit. His follow-up question was about the current competitive pricing environment and if smaller players have been raising prices.

Answer

EVP and CFO Richard McPhail noted that tougher weather impacted the north and Canada, and that a hurricane benefit was realized as expected and is baked into the annual guidance. EVP of Merchandising William Bastek responded that the pricing environment has been pretty consistent, with no significant price modifications seen in the marketplace so far, reiterating that Home Depot does not plan broad-based price increases.

Steven Zaccone asked for details on regional performance given weather volatility, the impact of hurricane recovery efforts in the quarter, and the current state of the competitive pricing environment.

Answer

CFO Richard McPhail stated that adverse weather was mainly in the north and Canada, and that an expected benefit from hurricane recovery was already factored into the annual guidance. EVP of Merchandising William Bastek added that the competitive pricing environment has remained consistent, and he reiterated that Home Depot does not plan to implement broad-based price increases.

Steven Zaccone of Citigroup asked for more detail on the bottom-line contribution from the SRS acquisition in the 2025 outlook. He also inquired about the current pricing environment and how potential tariffs might affect it.

Answer

EVP and CFO Richard McPhail detailed the 40 basis point year-over-year decline in adjusted operating margin guidance, attributing 20 bps to natural deleverage, 15 bps to the SRS ownership lap, and 5 bps to the 53rd-week comparison. EVP of Merchandising William Bastek described the pricing environment as rational and settled, stating the company is well-positioned to manage any potential tariffs through its scale and diversified sourcing.

Steven Zaccone followed up on gross margin, asking about mix pressure from hurricane sales and the potential medium-term opportunity from shrink reduction. He also asked for an outlook on the housing backdrop for 2025 and whether it could become more favorable.

Answer

EVP and CFO Richard McPhail acknowledged slight gross margin pressure from the hurricane sales mix and noted that while shrink-mitigation investments are yielding results, the external environment remains difficult. CEO Ted Decker reiterated that the company is not prepared to call a turn on large projects or provide a 2025 outlook, emphasizing the ongoing macroeconomic uncertainty.

Steven Zaccone of Citi asked for more color on the sales slowdown in June, inquiring about potential weather or macro impacts and performance thus far in July. He also asked for preliminary thoughts on same-store sales planning for fiscal 2026.

Answer

CEO Lori Flees attributed the June softness to a slower start to the summer holiday season, potentially impacted by weather, but emphasized that customer demand remains resilient. She noted that July traffic has been strong. CFO J. Kevin Willis stated it was too early to provide fiscal 2026 guidance but confirmed the company expects to return to SG&A leverage in 2026 as technology investments are lapped. Flees added that the fundamental business drivers remain unchanged.

An analyst on for Steven Zaccone asked about the expected drivers of same-store sales growth in the second half, specifically the balance between ticket and transactions, and about Q2 gross margin performance.

Answer

CEO Lori Flees stated that Valvoline expects a continued balance between transaction and ticket growth for the remainder of the year. CFO Mary Meixelsperger confirmed that Q2 gross margin performance was in line with internal expectations and that the full-year outlook for a relatively flat gross margin remains unchanged.

Steven Zaccone asked about the drivers of improved transaction performance and the competitive landscape. He also followed up on same-store sales guidance and the gross margin risk from waste oil pricing.

Answer

CEO Lori Flees attributed strong transaction growth to a push-out from Q4 hurricanes, lapping prior marketing softness, and the compounding effect of a growing active customer base, noting no significant competitive changes. CFO Mary Meixelsperger addressed guidance, acknowledging the risk of weather shifts but not seeing a high probability of falling below the annual range. On waste oil, she stated that any lower recovery is expected to be offset by lower product costs, resulting in a negligible impact.

Steven Zaccone from Citi sought clarity on the 5-7% same-store sales guide for FY25, asking about the underlying industry growth assumptions and the ticket versus transaction mix. He also inquired about the criteria for refranchising stores.

Answer

CFO Mary Meixelsperger stated the 5-7% guide assumes more moderate pricing and laps strong non-oil change revenue (NOCR) initiatives from the prior year. CEO Lori Flees added that the guide reflects a less inflationary environment and increased competition from outside the quick lube segment, which affects new customer acquisition. Regarding refranchising, Flees described it as a strategic, capital-efficient method to accelerate network growth by partnering with well-capitalized franchisees committed to faster development.

Steven Zaccone of Citigroup Inc. sought to better understand the outlook for the second half of the year, asking how management's view on the demand environment has evolved. He also requested clarification on the expected comparable sales progression between the third and fourth quarters.

Answer

CFO Bryan Langley explained that the guidance range accounts for different scenarios. The high end assumes a low single-digit positive comp in the second half, with Q3 being the peak. The low end assumes a sequential decline. He noted that the midpoint reflects the current trend of 'bouncing along the bottom.' He specifically highlighted that Q4 faces tougher comparisons due to lapping benefits from Hurricanes Helene and Milton and stronger existing home sales in the prior year.

Steven Zaccone of Citigroup sought to understand the mechanics of the guidance revision, noting the EPS cut was smaller than the sales cut would typically imply. He also asked for confirmation that the impact from tariffs is expected to be gross margin neutral.

Answer

CFO Bryan Langley attributed the resilient EPS guidance to strong cost controls, which have removed $47 million from comparable stores over six quarters, as well as savings from the reduced store opening plan and better-than-expected gross margin performance. CEO Tom Taylor confirmed the goal is to maintain the gross margin rate under a universal tariff scenario, a shift from the historical goal of just maintaining gross profit dollars. Langley added that any reciprocal tariffs would be a bigger impact on 2026.

Steven Zaccone asked for more detail on the 'lower for longer' pricing strategy for exclusive brands, including how price elasticity will be measured. He also questioned the long-term potential for exclusive brand penetration and sought clarity on the SG&A leverage hurdle rate for the year.

Answer

CEO John Hazen explained the company will evaluate price elasticity on exclusive brands before potential price increases in October or January, with a long-term goal of 50% penetration. CFO Jim Watkins confirmed that the company can leverage SG&A at a flat comp for the year and expects to leverage EBIT at a 3% comp.

Steven Zaccone from Citigroup questioned the conservative nature of the second-half guidance, given the company's historical ability to pass on price increases. He also asked for more detail on the drivers of the strong Q4 merchandise margin performance.

Answer

CFO Jim Watkins acknowledged the guidance could be seen as conservative but emphasized the fluid situation with tariffs and pricing. He stated the goal is to keep price increases low, but they will be passed on from vendors, creating potential upside. CEO John Hazen added that MAP pricing from third-party brands complicates opportunistic pricing. Regarding Q4 margin, Watkins attributed the strength to supply chain efficiencies, lower shrink, buying economies, and exclusive brand growth, noting this strength will continue into H1 '26 before tariffs create pressure.

Steven Zaccone asked about specific areas for top-line improvement in the upcoming year and the company's confidence in lapping strong comps in categories like Western wear. He also inquired about tariff exposure from Mexico and the company's mitigation strategy.

Answer

Interim CEO John Hazen identified the work boots category as an area for improvement and expressed confidence in lapping comps, especially in the ladies' business. Regarding tariffs, Hazen and CFO Jim Watkins explained that the company would use a combination of vendor negotiations, supply chain efficiencies, and price increases to maintain margins.

Steven Zaccone asked for the primary driver of the comps inflection (transactions vs. basket) and questioned if there were performance differences between new stores and legacy locations.

Answer

Former CEO Jim Conroy identified that store transactions turned positive for the first time in eight quarters, driving the comp growth alongside a larger basket size. CFO Jim Watkins added that new stores are performing well across all regions and tend to show outsized comp growth in their second year compared to the mature store base.

Steven Zaccone of Citigroup inquired if the current tariff disruption presents an opportunity to accelerate market share gains and asked for the expected level of same-SKU inflation for the rest of the year.

Answer

CEO Brad Beckham stated that while disruption creates opportunities to gain share from less sophisticated competitors, the industry is resilient. He credited O'Reilly's experienced supply chain team for navigating the complexity. CFO Jeremy Fletcher added that the company's guidance does not assume a significant net benefit from inflation in the back half, citing caution about the potential shock to consumers.

Steven Zaccone of Citigroup asked if the industry disruption from tariffs creates an opportunity to accelerate market share gains and what level of same-SKU inflation should be anticipated for the second half of the year.

Answer

CEO Brad Beckham stated that while disruption creates opportunities to gain share from less sophisticated competitors, the industry is resilient. EVP & CFO Jeremy Fletcher added that the company's guidance does not assume a significant ramp-up in same-SKU inflation beyond the current 1.5% level, reflecting caution about the potential shock to consumer demand, despite the possibility of higher inflation.

Steven Zaccone of Citigroup asked how a potential business recovery might differ between the DIFM and DIY segments and inquired about competitive pressures from mass retailers.

Answer

CEO Brad Beckham projected that DIFM will remain more resilient, but the more impacted DIY segment could see a strong recovery as consumers catch up on projects. Regarding competition, Beckham stated that while mass retailers compete on some items, O'Reilly's superior service and convenience model have made its pandemic-era market share gains very "sticky," with most of those customers being retained.

Steven Zaccone asked how much of the recent improvement in the Pro business was attributable to industry-wide trends versus Advance's own execution on its initiatives. He also inquired about the expected breakdown of transactions versus ticket for the flattish Q2 comp guidance.

Answer

CEO Shane O’Kelly attributed the Pro improvement to internal execution, citing revamped incentive plans, enhanced training for sales teams, better call planning, and improved parts availability from the DMA initiative, which has increased the 'yes' rate on parts inquiries. He also noted that shaving minutes off delivery times has made Advance more relevant to Pro customers. EVP and CFO Ryan Grimsland declined to provide a specific transaction vs. ticket breakdown for Q2, citing the volatile tariff environment, but expressed confidence in the overall guidance.

Steven Zaccone of Citigroup sought clarity on the Q4 comparable sales trend and the market growth outlook for 2025, asking whether the larger opportunity lies in Pro or DIY. He also asked about the 2025 free cash flow outlook and what levers exist to protect cash flow if performance falls short.

Answer

CFO Ryan Grimsland confirmed Q4 trends were tracking with Q3, excluding one-time impacts. CEO Shane O'Kelly outlined growth opportunities in both DIY and Pro, with a particular emphasis on strategic initiatives to capture more Pro business. Management did not provide a 2025 FCF forecast but stated operating cash flow would fund CapEx. They expressed confidence in their plan and noted they have levers to pull and will manage liquidity carefully to meet debt obligations and achieve leverage targets.

Steven Zaccone from Citi inquired about the drivers for back-half comparable sales against tougher comparisons and asked if there have been any shifts in consumer or competitive behavior since mid-May price adjustments.

Answer

CFO Matt Bilunas cited the Windows 10 end-of-life cycle, mobile phone growth, and a lessening decline in gaming as key back-half drivers. CEO Corie Barry stated that consumer behavior has not materially changed, with the promotional environment remaining competitive, consistent with a value-seeking consumer.

Steven Zaccone of Citigroup Inc. asked about back-to-school performance, the drivers of the high and low ends of the Q4 outlook, and the interplay between ASPs and units in the growing tablets and computers category.

Answer

CEO Corie Barry noted that back-to-school is performing in line with expectations. CFO Matt Bilunas explained the Q4 outlook range depends on category performance, with the high end assuming continued computing strength and broad improvement, while the low end reflects a more stagnant industry. He stated notebook ASPs were flat-to-down in Q2 while tablet ASPs were up, and future ASPs will be influenced by both high-priced AI innovation and holiday promotions. Corie Barry added that the goal is meeting customer needs across all price points, not just ASP expansion.

Steven Zaccone requested an assessment of the current pet industry landscape, focusing on pet adoption trends and the promotional environment, particularly in relation to the company's guidance.

Answer

CEO Sumit Singh stated that Chewy gained market share in 2024 and expects to continue doing so in 2025, noting that while pet adoption trends are nuanced, net adoptions from shelters remain up. Executive David Reeder added that the Q4 promotional environment was as expected and that the company's 2025 guidance incorporates minimal impact from price inflation, with no broad deflationary pressure anticipated from suppliers.

Steven Zaccone asked about the pricing environment in Q3 and the outlook for Q4 and 2025. He also sought to understand the primary drivers behind the improved customer count outlook, weighing industry factors against Chewy's internal efforts.

Answer

Executive David Reeder stated there was no material pricing impact in Q3 and expects a rational environment ahead, aside from typical holiday promotions. CEO Sumit Singh added that the majority of the recent customer growth is driven by Chewy's internal initiatives, and that a full industry recovery would provide an additional tailwind. He also reiterated that the long-term growth model assumes a 2-2.5% pricing benefit in a normalized market.

Steven Zaccone of Citigroup asked about the current pricing environment, the potential impact of tariffs on product costs, and whether the cat category has continued to show more strength than the dog category.

Answer

CFO David Reeder reported very little like-for-like product inflation, though premiumization trends continue. He noted that tariff impacts have not yet flowed through to hardgoods pricing and that Chewy's guidance embeds minimal impact. CEO Sumit Singh confirmed the continued strengthening of the cat business while also highlighting strong performance in the dog business, reflected in the overall 6% growth in consumables.

Steven Zaccone from Citigroup Inc. asked about the current pricing environment, particularly regarding potential tariff impacts, and inquired if the reported strength in the cat category versus dogs has continued.

Answer

CFO David Reeder stated that there is very little like-for-like price inflation, though the trend of premiumization continues. He noted that any potential tariff impacts have not yet flowed through to hardgoods pricing and that Chewy's overall exposure is minimal. CEO Sumit Singh confirmed that the cat business remains strong, as does the dog business, both contributing to robust growth in consumables.

Steven Zaccone from Citigroup asked about current pricing trends, particularly any impacts from tariffs, and whether the reported strength in the cat category versus the dog category has continued within Chewy's business.

Answer

CFO David Reeder stated there is very little like-for-like product inflation, though premiumization continues. He noted that tariff impacts have not yet flowed through to hardgoods pricing and that Chewy's overall exposure is minimal. CEO Sumit Singh confirmed continued strength in the cat business, while also noting the dog business remains strong and contributed to the 6% growth in consumables.

Steven Zaccone from Citigroup asked about the current pricing environment, particularly regarding potential tariff impacts, and whether the previously noted strength in the cat category versus the dog category has continued.

Answer

CFO David Reeder stated that there is very little like-for-like product inflation, though the premiumization trend continues. He noted that tariff impacts have not yet flowed through to pricing and that Chewy has minimal exposure. CEO Sumit Singh confirmed that the cat business remains strong, while also emphasizing that the dog business is performing well and contributed significantly to the 6% growth in consumables.

Steven Zaccone from Citigroup asked about current pricing trends, the potential impact of tariffs on product costs, and whether the reported strength in the cat category has continued to outperform the dog category.

Answer

CFO David Reeder stated there is very little like-for-like product inflation, though premiumization continues. He noted that tariff impacts have not yet flowed through to prices due to existing inventory. CEO Sumit Singh confirmed that while the cat business continues to strengthen, the dog business also remains strong, contributing significantly to overall consumables growth.

Steven Zaccone of Citigroup asked about current pricing trends, the potential impact from tariffs on product costs, and whether Chewy was also seeing the reported industry strength in the cat category.

Answer

CFO David Reeder stated that there is very little like-for-like product inflation, though the trend toward premiumization continues. He noted that tariff impacts are not yet flowing through to prices and are minimally reflected in guidance. CEO Sumit Singh confirmed strength in the cat business while also highlighting strong performance in the dog business, evidenced by 6% growth in the overall consumables category.

Steven Zaccone asked for clarification on the tariff impact embedded in the 2025 guidance and questioned consumer health regarding big-ticket spending, as well as the levers available to protect margins if the consumer weakens.

Answer

CEO Laura Alber addressed the consumer, stating they are responding well to company-specific strategies like newness, collaborations, and a strong non-furniture assortment, giving them confidence. CFO Jeff Howie detailed the tariff impact, confirming the guidance includes 20% China tariffs and 25% on Mexico/Canada and metals. He outlined a 6-point mitigation plan, including resourcing and price adjustments, stating they have offset most of the impact.

Steven Zaccone of Citi asked about the medium-to-long-term potential for gross margin expansion once the macroeconomic environment and housing market recover, given the structural improvements from reducing promotions.

Answer

CEO Laura Alber agreed there is significant opportunity, describing the operating model as a 'coiled spring' ready to expand profitability when sales turn positive. She noted that when housing recovers, the company is positioned for substantial leverage but will remain focused on providing strong value to customers and not raising margins to a point where brands become inaccessible.

Steven Zaccone inquired about the drivers of the lowered EBITDA guidance, the regional cadence of like-for-like sales, and the strategy behind the new, more elevated Soho Mews House.

Answer

CFO Thomas Allen confirmed that approximately half of the $21 million EBITDA guidance reduction is due to one-time factors like flooding and ERP implementation costs. CEO Andrew Carnie noted that while the U.K. and U.S. saw weakness in October, they bounced back in November. He also expressed enthusiasm for the new Soho Mews House, calling it an 'elevated' concept that the company may roll out in other key cities like New York.

Steven Zaccone asked for clarification on the $21 million EBITDA guidance reduction, inquiring if half was one-time, and questioned the regional cadence of like-for-like sales weakness. He also asked about the strategy for the new Mews House and if it signals a move towards an elevated membership tier.

Answer

CFO Thomas Allen confirmed that about half of the EBITDA guidance change was due to unique, non-recurring factors like flooding and pre-ERP consulting costs. CEO Andrew Carnie added that sales weakness in October was concentrated in the U.K. and U.S. due to macro events but both regions bounced back in November. Carnie also explained that the Soho Mews House is a more elevated concept that has been successful, and the company is exploring similar concepts for New York and Ibiza.

Steven Zaccone from Citigroup inquired about the drivers behind the improvement in in-house revenue, asking for regional specifics and the company's competitive stance amid a weak restaurant market. He also asked about the implications of the increased membership guidance for 2025 growth expectations.

Answer

CEO Andrew Carnie noted that in-house revenue trends improved sequentially across all major geographies, driven by better footfall and higher spend per member, attributing this to new initiatives. CFO Thomas Allen deferred providing 2025 guidance, stating that long-term plans would be discussed at the December Investor Day.

Steven Zaccone inquired about the maturity curve of newly opened houses and where opportunities exist to improve House-Level Contribution. He also asked about the company's membership pricing strategy for the next few years and requested an update on the board's consideration of strategic alternatives.

Answer

CEO Andrew Carnie stated that new houses are progressing well along the maturation curve with further opportunities for growth, and noted that the company is comfortable with its current pricing, focusing more on operational efficiencies. CFO Thomas Allen addressed the strategic alternatives question by stating the board's special committee is assessing options and will make an announcement if there is a development.

Steven Zaccone inquired about the maturity curve of newly opened houses and where opportunities exist to improve House-Level Contribution. He also asked about the future membership pricing strategy and for an update on the company's consideration of strategic alternatives.

Answer

CEO Andrew Carnie stated that newer houses are progressing well along the maturation curve with further opportunities for growth, and that the company's pricing is comfortable, with a focus on operational efficiencies over price hikes. CFO Thomas Allen addressed the strategic alternatives question, noting the Board's special committee is still assessing options and will make an announcement if there is a development.