W. Andrew Carter

Andrew Carter inquired about the renewed focus on private label products, including distributor positioning and contractor demand, and how tariffs might impact private label programs. He also asked about the reasons for the increased cash flow guidance, future CapEx plans, and capital allocation priorities given the improved balance sheet.

Answer

Kevin Holleran, President and CEO, addressed private label as exclusive distribution rights, acknowledging the entry of lower-priced offshore competitors but asserting that Hayward's value proposition, innovation, complete product line, national service, and U.S. manufacturing (over 90% of U.S. products built in U.S. facilities) continue to resonate with loyal dealers. Eifion Jones, Senior VP and CFO, attributed the $20 million cash flow guidance increase to higher EBITDA, CapEx project timing shifts to next year, and working capital improvements. He outlined future CapEx at 3%+ of revenue for automation and supply chain, and reiterated capital allocation priorities: organic CapEx, M&A in residential, commercial, and flow control, and opportunistic share repurchases.

Andrew Carter inquired about any incremental impact from a renewed focus on private label products, including distributor positioning and contractor demand, and how tariffs might affect private label programs. He also asked about the rationale behind the increased cash flow guidance, anticipated higher CapEx over the next few years, and Hayward's capital allocation priorities, specifically regarding share repurchases.

Answer

Kevin Holleran, President and CEO, addressed private label concerns by emphasizing Hayward's value proposition, including innovation, a complete product line, national service centers, and over 90% of U.S. products manufactured domestically. Eifion Jones, Senior VP and CFO, attributed the $20 million cash flow guidance increase to higher EBITDA, CapEx project timing shifts, and working capital improvements. He outlined future CapEx increases to 3%+ of revenue for automation and ERP implementation into 2026-2027. Capital allocation priorities remain organic CapEx, M&A in residential, commercial, and flow control, and opportunistic share repurchases.

W. Andrew Carter asked for clarification on the impact of USMCA on tariffs, the specifics of mitigation actions shifting sourcing from China, and whether resulting price increases would create a future margin tailwind. He also inquired if price hikes were broad-based or targeted and how the company was managing pre-buys.

Answer

President and CEO Kevin Holleran explained that the USMCA exempts their Mexico-sourced materials from the main tariff impact. He detailed a four-part mitigation strategy: shifting manufacturing to U.S. facilities (raising U.S. production for U.S. sales from 85% to over 90%), supplier negotiations, inventory management, and broad-based price increases to avoid taking specific products out of the market. CFO Eifion Jones added that free cash flow guidance was slightly reduced to $150 million to cover CapEx for U.S. re-tooling and higher working capital costs.

W. Andrew Carter probed for reasons behind the modest margin flow-through in the 2025 guidance, asking about SG&A, gross margin pressures, and currency impacts. He also asked about the drivers of strong working capital performance.

Answer

CFO Eifion Jones reiterated the two-year stack view, stating 2024's strong results were better than expected and that 2025 guidance aligns with their medium-term plan. He noted SG&A as a percentage of sales is expected to decrease modestly in 2025. On working capital, Jones credited focused initiatives that improved the cash conversion cycle by reducing inventory days and net accounts receivable days.

Andrew Carter asked if SiteOne Landscape Supply Inc. possesses sufficient internal levers to achieve its double-digit margin targets in a soft volume environment for 2026-2027, independent of significant volume acceleration. He also questioned the M&A landscape, specifically if activity would pick up in 2026 and if the company would consider another large 'fixer-upper' acquisition like Pioneer.

Answer

Doug Black, Chairman and CEO, confirmed that SiteOne Landscape Supply Inc. has ample self-help capacity through initiatives like focus branches, sales force productivity, delivery efficiency, and private label growth to expand adjusted EBITDA in a soft but stable market. Regarding M&A, Mr. Black expects higher acquired revenue in 2026 compared to 2025 due to the law of averages, emphasizing a preference for well-run companies over 'fixer-upper' opportunities. Scott Salmon, EVP of Strategy and Development, corroborated that they are not actively seeking large turnarounds.

Andrew Carter questioned whether SiteOne Landscape Supply Inc. possesses sufficient internal levers to achieve its double-digit margin targets in a soft volume environment for 2026 and 2027, independent of significant volume acceleration. He also inquired about the M&A landscape, asking if a pickup is expected in 2026, if the focus will remain on smaller acquisitions, and if the company would consider another large, 'fixer-upper' acquisition like Pioneer.

Answer

Chairman and CEO Doug Black affirmed that SiteOne has significant 'self-help capacity' through focus branches, sales force productivity, delivery efficiency, private label growth, and small customer growth, enabling continued adjusted EBITDA expansion even in a soft but stable market. Regarding M&A, Mr. Black noted that while 2025 was lighter, 2026 is expected to be higher due to the law of averages, and the company primarily seeks well-run companies, not 'fixer-uppers' like Pioneer, which was an exception. EVP of Strategy and Development Scott Salmon confirmed that they are not actively searching for large turnaround opportunities.

W. Andrew Carter of Stifel Financial Corp. sought clarification on the full-year gross margin outlook, asking if it is now expected to be slightly up versus the prior flat expectation. He also asked if the guidance is helped by any inventory benefits as pricing turns positive.

Answer

CFO John Guthrie clarified that the 'slightly improved' gross margin comment was for the remainder of the year, not the full year. This improvement is driven by stronger pricing, contributions from acquisitions, and initiatives like private label growth. He noted that year-over-year, pricing is no longer the significant headwind it was in the prior year, which is a net positive.

Andrew Carter asked about SiteOne's ability to negotiate with suppliers on tariff-driven price increases and the competitive landscape. He also inquired about current labor constraints affecting customers.

Answer

CEO Doug Black asserted that as the industry leader, SiteOne aggressively manages supplier negotiations. Executive Vice President John Guthrie added that suppliers are also being cautious with increases due to the economic environment. Regarding labor, Black stated that while the market remains tight, the company has not seen unusual disruptions, and its customers seem confident in their ability to manage their workforce and sustain operations.

W. Andrew Carter asked about the pricing outlook, inquiring what suppliers are signaling for next year and if there's a risk of further price reductions. He also sought to understand the components of the 50 basis point base business gross margin decline, specifically the impact of price/cost spread versus product mix.

Answer

CEO Doug Black stated that unlike this year, suppliers are signaling modest, low single-digit price increases for non-commodity products in 2025. EVP & CFO John Guthrie attributed the majority of the gross margin decline to the price-cost relationship on inventory, with a smaller impact from aggressive pricing. He noted that while the agronomics/landscaping mix shift was not a huge factor, lower grass seed prices did compress margins but also drove volume.

W. Andrew Carter from Stifel Financial Corp. questioned the weak implied fourth-quarter guidance and sought CFO Michael Lee's long-term perspective on necessary supply chain investments and the potential for operating leverage.

Answer

CFO Michael Lee acknowledged the demand choppiness seen year-to-date and stated the Q3 and implied Q4 guidance reflect this ongoing uncertainty, despite strong July momentum. On long-term investments, Lee detailed the strategic importance of the new ERP system, emphasizing it will position Arhaus for scalable growth, improve data quality, remediate material weaknesses, and ultimately drive P&L leverage by improving SG&A efficiency and gross margins as the company grows towards its 165-store target.

W. Andrew Carter from Stifel asked about the significant disconnect between comparable sales growth and demand comparable growth, inquiring about potential cancellation risks and the normalized level for customer deposits as a percentage of revenue.

Answer

An unnamed executive stated there has been zero change in cancellation rates, with customers still wanting their products. SVP of Finance Ryan Brody explained the increase in customer deposits reflects the difference between the strong +4.1% demand comp and the lower net revenue growth in Q1. He added that the current deposit level is not out of the ordinary and does not represent an increased backlog like in 2022-2023.

W. Andrew Carter asked about the impact of weather on the in-ground pool business, specifically if fiberglass pools had returned to growth, and questioned whether the strong Q2 gross margin performance represents a new structural level.

Answer

CFO Oliver Gloe acknowledged an unusual weather impact of $3-5 million in Q2, which affected packaged pools more than fiberglass. He confirmed that fiberglass sales returned to year-over-year growth in June and July. Gloe attributed the 400 basis point gross margin improvement to acquisitions, lean initiatives, and volume leverage, stating it was a 'fairly normal quarter' without significant one-time benefits, suggesting a structurally higher base.

W. Andrew Carter asked about the potential risks or opportunities associated with the short installation cycle of fiberglass pools in the current economic climate. He also requested quantification of the impact of tariffs on COGS and the company's offsetting pricing strategy.

Answer

CEO Scott Rajeski clarified that the pool buying decision is a long-term process (6-18 months), minimizing risks from short-term economic shifts, and noted that demand from their affluent consumer base remains steady. CFO Oliver Gloe quantified the pre-mitigation tariff headwind at approximately $20 million, stating that over half is being mitigated through supply chain actions, with the remainder addressed by price increases to protect profit dollars.

W. Andrew Carter of Stifel inquired about Latham's exposure to potential tariffs, the strategic role of its Kingston, Ontario manufacturing facility, and the capital plan associated with its sand state expansion strategy.

Answer

Executive Scott Rajeski explained that the company has diversified its supplier base, with only about $15 million in material buys from tariff-impacted countries. He outlined mitigation strategies including shifting to domestic suppliers, pre-buying materials, and adjusting production between facilities. Rajeski stated the Kingston plant would likely pivot to serve the local Canadian market, with U.S. plants backfilling Northeast demand. Regarding CapEx, he clarified that current investments focus on new pool models and expanding existing facilities in Florida and Oklahoma, with no need for a major new plant investment in the near term.

W. Andrew Carter asked for a quantification of the hurricane's impact on Q3 shipments and costs. He also inquired about the gross margin differentials between product lines and the potential headwind from product mix.

Answer

CFO Oliver Gloe quantified the hurricane impact at approximately $1.5 million to $2.0 million in Q3 due to rescheduled orders and softer demand, with a similar impact expected in Q4. Regarding margins, Gloe stated that the gross margin profiles across all product categories are very similar and that mix is not a significant factor in overall profitability.

W. Andrew Carter questioned if pool dealers might lower prices to stimulate new construction volume and asked about any signs of product shortages or labor constraints affecting the industry.

Answer

CEO Peter Arvan responded that dealer pricing strategies vary, as most face their own rising operating costs. He noted the average pool price has risen due to a mix shift toward higher-end projects, not just inflation. He also confirmed there are no widespread labor issues for dealers or significant product shortages, stating that industry supply chains are generally in good shape.

W. Andrew Carter sought to clarify the gross margin guidance, asking if it is now flat for the year and if the high end of the EPS range is achievable with a flat margin. He also asked about the immediacy of implementing price increases and how competitors are responding.

Answer

CFO Melanie M. Hart confirmed that the high end of the EPS guidance is achievable with a flat gross margin. CEO Peter Arvan reiterated that the company raises prices on the effective date announced by vendors. He noted that while competitors largely do the same, there are market-by-market exceptions for pre-quoted jobs or competitive situations, but as a rule, the price increases are passed through promptly.

W. Andrew Carter questioned the extent of commodity price pressures from chemicals and PVC. He also asked if the mix shift towards higher-end pools is providing a benefit to results, given the weakness in entry-level construction.

Answer

SVP and CFO Melanie M. Hart confirmed that guidance accounts for continued pricing pressure in chemicals and PVC, particularly in Q1. President and CEO Peter Arvan agreed that the current market is skewed toward larger, more feature-rich pools, as affluent consumers are the primary buyers. He noted that the company continues to invest to capture share for when the entry-level market eventually recovers.

W. Andrew Carter asked a comprehensive question about the chemicals category, inquiring about the pricing outlook for next year and how the company's supply chain has become more diversified. He also asked about the new construction market, questioning if interest rate cuts are necessary to stimulate demand.

Answer

President and CEO Peter Arvan stated that overall chemical pricing is fairly stable and he doesn't foresee major changes. He confirmed their supply chain is now much more diverse, partly due to their own packaging facility. On new construction, he noted that while underlying demand exists, a loosening of the housing market, likely spurred by further rate cuts, would be needed to see a significant pickup, with renovation and remodel likely recovering first.

W. Andrew Carter of Stifel Financial Corp asked if the tariff disruption impacted Q1 results and questioned the implied demand slowdown in the second half given the Q2 revenue shift. He also inquired about traction in the 'To the Trade' business.

Answer

CFO Jack Preston and Chairman & CEO Gary Friedman declined to provide monthly demand details but reiterated confidence in their full-year guidance. Friedman confirmed that the 'To the Trade' business remains very strong, supported by dedicated teams in every gallery, and is a key part of their business model.

W. Andrew Carter from Stifel asked about the drivers of margin expansion in the outlook and the reason for higher cost growth in Q1. He also questioned if competitors have a cost advantage given the new tariffs.

Answer

Jack Preston, executive, attributed higher Q1 costs to the mailing of two sourcebooks versus one in the prior year. Gary Friedman, executive, asserted that no competitor has a cost advantage, as RH's scale provides superior buying power and nearly all competitors are similarly exposed to Asia-based sourcing, creating a level playing field.

W. Andrew Carter asked about the drivers of the inventory increase, including potential safety stock for exiting China and Mexico, and inquired about the prioritization of external investments like the Aspen real estate JV.

Answer

Chairman and CEO Gary Friedman confirmed the inventory build is to support the business transformation and supply chain shifts. He framed potential tariffs as a negotiation, particularly with Mexico. Regarding external investments, he stated the core business is always the priority, but projects like the Aspen ecosystem are strategic moves to amplify the brand. He emphasized that RH is now cycling its largest-ever investment phase, which will lead to significant free cash flow generation.

W. Andrew Carter questioned if the current pace of opening seven design galleries and one design studio is a sustainable annual cadence and asked how 'white space' markets fit into the company's expansion plans.

Answer

CEO Gary Friedman and executive Stefan Duban explained that the opening cadence will vary year to year, as they prioritize making the right long-term real estate decisions over hitting a specific annual number. They confirmed the development pipeline is very strong for the next several years. White space opportunities exist for smaller design studios and even for mid-sized and large galleries in about a dozen North American markets.

W. Andrew Carter of Stifel questioned the risk of consumers 'pantry loading' or pulling purchases forward given strong early-season POS. He also asked for the rationale behind maintaining full-year EBITDA guidance after withdrawing revenue guidance for the Hawthorne segment.

Answer

An executive responded that there is low risk of pantry loading, citing data showing 40% of fertilizer purchasers were new or lapsed consumers, indicating category growth rather than just purchase timing shifts. CEO James Hagedorn and CFO Mark Scheiwer addressed the guidance. They acknowledged Hawthorne's EBITDA would fall short of its internal $20 million target but affirmed the consolidated $570-$590 million guidance. This confidence stems from outperformance in gross margin, SG&A flexibility, and savings from transformation initiatives, which offset the Hawthorne shortfall.

W. Andrew Carter asked about the nature of retailer promotions, questioning if the incremental spend is replacing prior programs and whether promotions are growing the overall category or simply shifting market share.

Answer

An executive, likely COO Nate Baxter, confirmed the company is adding incremental promotions on top of last year's successful volume-driving programs, which should lead to further market share gains. CEO James Hagedorn emphasized a new, 'absolutely aggressive' competitive strategy, using increased brand investment and collaborative retailer programs to drive growth for both parties and establish a more 'dangerous' market presence.

W. Andrew Carter from Stifel inquired about the outlook for distributed partner brands, their impact on cash flow and profitability, and the stability of different customer channels, particularly commercial versus independent retail.

Answer

Executive William Toler explained that partner brands are viable at scale, with new relationships like Quest and Mills showing long-term potential despite recent cash flow impacts. He noted that while brick-and-mortar retail has weakened due to consolidation, the commercial segment is stable but awaiting regulatory catalysts. Toler also highlighted e-commerce as an increasingly significant sales channel.