William Reuter

William Reuter from Bank of America asked about the specific financial impact of elevated tariff rates on Q1 EBITDA and how this should be normalized for future quarters. He also sought clarification on the sequential gross margin improvement guidance and inquired about current input cost trends, hedging strategies for metals like zinc, and potential implications for future price increases in 2027.

Answer

Mark LaVigne, President and CEO, indicated that total tariffs are expected to be around $60 million-$70 million for the year, with Q1 experiencing a larger hit, and the rate improving through the year due to pricing and growing tax credits. John Drabik, EVP and CFO, clarified the gross margin guidance: a 300 basis point sequential improvement from Q1 to Q2, followed by an additional 300-400 basis points improvement between Q3 and Q4. LaVigne detailed input costs, noting an 80 basis point drag in Q1 from freight and production inefficiencies. While raw materials are currently a "push," spot prices for zinc have risen, and there have been negative moves in lithium, silver, and R-134a. Energizer is over 90% fixed on zinc for 2026 and has implemented targeted pricing on the auto side for cost impacts in Q2/Q3, expecting slight negative trends but no huge impact in 2026.

William Reuter, Managing Director and Senior Research Analyst at Bank of America, asked about the normalized EBITDA impact from elevated tariff rates in Q1, the sequential gross margin improvement trajectory for the rest of the year, and the current outlook for input costs (metals like zinc, lithium, silver, R-134a), hedging strategies, and potential future price increases for unhedged products.

Answer

Mark LaVigne, President and CEO, indicated that the Q1 tariff impact was about 300 basis points, which will improve throughout the year, with total tariff impact around $60-$70 million. He clarified the gross margin progression: 300 basis points improvement from Q1 to Q2, and an additional 300-400 basis points between Q3 and Q4. Regarding input costs, LaVigne noted an 80 basis point drag in Q1 from freight and production inefficiencies. While raw materials were a push, spot prices for zinc have risen, and there have been moves in lithium, silver, and R-134a. He stated that zinc is over 90% fixed for 2026 and that targeted pricing, especially in auto, will address some cost impacts in Q2/Q3, with overall trends slightly negative but not a huge impact for 2026. John Drabik, EVP and CFO, directed to the earnings deck for more margin progression details.

William Reuter asked two questions: first, whether consumer weakness indicates reduced pantry inventory or less device utilization, and the basis for expecting a category decline followed by a bounce back; second, about the deleveraging path, the expectation for annual deleveraging, and capital allocation relative to share repurchases.

Answer

Mark LaVigne, President and CEO, explained that consumers typically drain household inventory and may skip purchase cycles, but these are temporary behaviors. He expects stabilization and a return to historical low single-digit growth, noting that these behaviors also manifest in channel shifting and pack size changes. John Drabik, EVP and CFO, stated that debt reduction is the top priority. He expects normalized cash flow in 2026 (north of 10% free cash flow) after 2025's impact from plastic-free packaging transition. He aims to pay down $150 million-$200 million of debt, noting $80 million already paid in Q1, but cautioned that actual deleveraging might be less than half a turn if earnings fall off.

William Reuter inquired whether consumer weakness indicates reduced pantry stocking or less device usage, and asked for clarification on the deleveraging path, debt allocation, and future share repurchases, given past leverage trends.

Answer

Mark LaVigne, President and CEO, explained that consumers typically drain household inventory and may skip purchase cycles, but these are temporary behaviors, and the category is expected to revert to historical low single-digit growth. John Drabik, EVP and CFO, stated that the first priority is debt reduction, with an expectation to pay down $150-$200 million of debt in fiscal year 2026, driven by normalized cash flow after the plastic-free packaging transition. He noted that the deleveraging might be less than half a turn if earnings fall off, but highlighted $80 million in debt paid down in Q1 2026.

William Reuter from Bank of America asked if the company's long-term leverage target of below 4x remains intact and if M&A is still not a priority. He also asked if the company has observed consumer trade-down to smaller pack sizes and the resulting margin impact.

Answer

EVP and CFO John Drabik confirmed that paying down debt remains a priority and the sub-4x leverage target is still the goal, adding that any potential M&A would not materially change leverage. President and CEO Mark LaVigne explained that consumers are bifurcating, either trading up to larger packs or down to smaller ones, and the net effect of these dynamics is incorporated into the company's gross margin guidance.

William Reuter from Bank of America sought clarification on the tariff mitigation outlook for fiscal '26. He also asked about the revised free cash flow guidance, the new debt paydown target for the year, and the potential impact from the repeal of the de minimis exemption.

Answer

Executive Mark LaVigne clarified that while actions are being taken now to offset tariffs over the next 12 months, the P&L impact will be felt in FY26 as higher-cost inventory flows through, but the gross $150M impact should be cut by at least half. He also revised the full-year debt paydown target to roughly $100 million and free cash flow to 6-8% of net sales, citing investments in inventory for tariff mitigation and the plastic-free packaging launch. Executive John Drabik added that the company's sourcing and distribution network provides an advantage regarding the de minimis rule change.

William Reuter asked about the e-commerce channel, inquiring about its growth relative to brick-and-mortar and the state of private label competition online. He also questioned if the current pricing and promotional investments are one-time in nature, potentially leading to future margin expansion.

Answer

Mark LaVigne, President and CEO, confirmed e-commerce remains a growth source with stable private label shares, and noted Energizer is targeting roughly 30% growth in its own e-commerce business in fiscal 2025. John Drabik, EVP and CFO, explained that the promotional investments are related to new distribution and product launches and are front-end loaded for the year. He quantified the impact as about a 100 basis point headwind to top-line and a 70 basis point headwind to gross margin for the full year.

William Reuter inquired about the outlook for input costs in fiscal 2025 and asked what financial targets or conditions would need to be met for the company to shift its capital allocation priority from debt reduction to M&A or other shareholder returns.

Answer

CFO John Drabik projected that the net impact from input costs would be 'slightly positive' in fiscal 2025. On capital allocation, he reiterated that debt paydown remains the #1 priority to strengthen the balance sheet and create future flexibility, stating that no specific targets have been set for a potential shift in strategy.

William Reuter from Bank of America sought clarification on whether the 1% M&A growth is included in the 5% annual growth target. He also asked if CapEx will remain elevated in future years due to cost savings initiatives or return to lower levels after this year's target.

Answer

Mark Scheurer, EVP, CFO and Chief Accounting Officer, confirmed that the 1% M&A growth is included in the 5% annual growth target, focused on 2027 and beyond. He also stated that CapEx is expected to remain elevated at around $130 million in 2027 and beyond, driven by continued automation of factories, back-office activities, and the ERP component over the next 2-3 years.

William Reuter sought clarification on whether the 1% growth attributed to M&A is included within the company's 5% annual growth target. He also asked if CapEx would remain elevated in future years, given current investments related to the $50 million cost savings target, or if it would return to lower levels.

Answer

CFO Mark Scheiwer confirmed that the 1% annual growth from M&A is indeed included in the 5% annual growth target, with a focus on fiscal 2027 and beyond. He also stated that CapEx is expected to remain elevated at approximately $130 million in fiscal 2027 and beyond, driven by ongoing automation in factories and back-office activities, as well as the ERP component over the next 2-3 years.

An analyst on behalf of William Reuter asked about the extent of market share being retaken from private label, the company's long-term leverage target, and whether increased leverage would be considered for M&A or share repurchases.

Answer

Executives explained the strategy is not a 'war on private label' but a 'war on foot traffic,' using Scotts' brands to drive consumers to retail partners, which has resulted in increased share of shelf. CEO James Hagedorn stated the long-term leverage target is a conservative 3.25x to 3.5x. He expressed a bias against major M&A, preferring to focus on organic growth and using free cash flow for shareholder-friendly actions, specifically highlighting a desire to reduce the company's share count once leverage is in the target range.

William Reuter asked if Lamb Weston is currently accepting lower pricing or paying penalties due to past missteps or ERP challenges, and if improved fill rates will allow them to demand greater pricing in the future. He also inquired about how the current stock price decline and leverage ratio will inform capital allocation decisions and potential acceleration of share repurchases.

Answer

President and CEO Michael Smith denied that they are accepting lower pricing due to past missteps, stating that they are winning volume in the marketplace due to innovation, quality, consistency, and service. He emphasized that Price/Mix declines are largely due to mix shifts (branded to private label retail, and shifts between QSR customers) rather than penalties. CFO Bernadette Madarieta clarified that all pricing is based on competitive market conditions. Bernadette Madarieta stated that capital allocation priorities remain consistent: investing in the business, maintaining a strong balance sheet, and opportunistically returning capital to shareholders through dividends and share repurchases, with no change in approach despite the stock performance.

William Reuter asked if Lamb Weston is accepting lower pricing or paying penalties due to past missteps like ERP challenges, and if improved fill rates will allow for greater pricing power in the future. He also inquired how the current stock performance and leverage ratio below the 3.5x target would inform capital allocation decisions and potential acceleration of share repurchases.

Answer

CEO Michael Smith denied paying penalties or accepting lower pricing due to missteps, asserting that North America is strong and winning volume due to innovation, quality, and service, with price mix declines largely driven by mix shifts, not penalties. CFO Bernadette Madarieta clarified that all pricing is based on competitive market conditions. She stated that capital allocation priorities remain consistent: investing in the business, maintaining a strong balance sheet, and opportunistically returning capital to shareholders through dividends and share repurchases.

William Reuter asked if the new customer wins involve creating customer-specific products that might have lower margins than existing offerings, and how the profitability of these new additions compares. He also inquired if the current year's capital expenditure of $500 million, comprising $400 million for maintenance and $100 million for environmental projects, should be considered the expected range for the next two to three subsequent years.

Answer

CEO Mike Smith declined to comment on the profitability of specific customers but affirmed that new customers are being acquired strategically with pricing that supports the P&L. CFO Bernadette Madarieta confirmed that the $500 million CapEx is in the general ballpark for future years, noting a five-year plan for environmental expenditures at approximately $100 million per year, while also exploring opportunities to extend deadlines or reduce compliance costs.

William Reuter asked if some new customer wins involve creating customer-specific products that might have lower margins than existing offerings, and how the profitability of these new additions compares. He also inquired if the current CapEx guidance of $500 million for this year, including $400 million for maintenance and $100 million for environmental projects, should be considered the expected range for the next two to three years.

Answer

CEO Mike Smith declined to comment on specific customer profitability but affirmed that new customers are being acquired "the right way and with pricing that makes sense for the P&L moving forward." CFO Bernadette Madarieta confirmed that the CapEx range is in the "general ballpark" for future years, noting a five-year plan for environmental expenditures at approximately $100 million per year, while also exploring ways to reduce compliance costs.

William Reuter questioned why the company's tone wasn't more bullish on lawn and garden revenue growth for next year, given the projected 10% increase in distribution points (excluding pottery) and a 1% price increase, assuming equal weather conditions.

Answer

J.D. Walker, President of Garden Consumer Products, clarified that distribution points (excluding pottery) would be up high single digits, with manufactured products up double digits. He maintained a 'cautiously optimistic' stance due to the inherent unpredictability of weather, noting that last year saw rain on eight of 16 key weekends. CEO Niko Lahanas added that the unwinding of a large vendor going direct would also be a headwind in 2026.

William Reuter questioned the conservative tone regarding garden segment growth for next year, given the projected 10% increase in distribution points (excluding pottery exit) and a 1% price increase, assuming stable weather. He also asked for clarification on the start date of the peak 16-week garden season and followed up on the company's capital allocation strategy, specifically whether they would consider a larger dividend or share repurchase given the substantial cash balance and modest M&A activity.

Answer

J.D. Walker, President of Garden Consumer Products, reiterated cautious optimism for the garden segment, noting high single-digit distribution point growth (double-digits for manufactured products) but emphasizing weather as an unknown. He clarified that the peak 16-week season runs from March through May, with March 1st being the start. Niko Lahanas, Chief Executive Officer, added that an unwinding direct vendor would be a top-line headwind in 2026. Regarding capital allocation, Niko Lahanas stated the company's bias is to retain cash for M&A, which is foundational to the company, but confirmed they remain opportunistic with share repurchases, having bought back $18 million in the current quarter and over $150 million last year.

William Reuter of Bank of America sought clarification on the quarterly timing of the fiscal 2025 tariff impact, its potential run-rate for next year, and trends in retailers' private label allocation.

Answer

CFO Brad Smith clarified the full-year tariff impact is approximately $10 million, with about $3 million in Q3 and the rest in Q4. However, management declined to provide a run-rate for fiscal 2026, citing the fluid nature of tariffs and ongoing mitigation efforts. JD Walker, President of Garden Consumer Products, explained that private label gains were a result of winning business from competitors and superior in-store execution, not necessarily a broader shift in retailer floor space.

Rob Rigby, on behalf of William Reuter from Bank of America, asked about the company's intended uses of cash, particularly share repurchases, in the absence of M&A, and inquired about retailer sentiment in both the Garden and Pet segments.

Answer

CEO Nicholas Lahanas outlined capital allocation priorities as M&A, internal investment, and opportunistic share buybacks. J.D. Walker, President of Garden Consumer Products, described retailers as highly engaged for the spring season. John Hanson, President of Pet Consumer Products, noted a good start to the year with strong customer relationships, though new pet acquisition remains a challenge.

William Reuter questioned whether acquisition valuations in the Pet sector are declining given the subdued industry outlook. He also asked if the company would consider M&A targets in the durable pet category or the Garden segment.

Answer

CEO Nicholas Lahanas noted that valuation expectations for pet consumables assets remain high, but he is optimistic that overall deal flow will increase in 2025. Regarding targets, he said a durable pet deal would be difficult to consider currently, but an attractive Garden deal would be reviewed. CFO Brad Smith added that a key strategic consideration is avoiding acquisitions that would add further seasonality to the business.

William Reuter asked whether UNFI's automation investments, which will include six facilities by late 2026, are primarily positive ROI investments or defensive measures. He also inquired about the impact of reaching the leverage target a year earlier than expected on capital allocation, specifically considering acquisitions or share repurchases.

Answer

President and CFO Matteo Tarditi stated that automation investments are viewed as both capacity and ROI positive, emphasizing their role in increasing capacity, improving effectiveness, and enhancing efficiency, with safety as a top priority. He noted these are long-term returns modeled within the $250 million CapEx budget. Regarding leverage, Matteo Tarditi reiterated that the current priority remains debt reduction to achieve 2.5 turns or less in 2026 and below 2 turns in 2027, deferring discussions on other capital allocation strategies until these targets are met.

William Reuter asked about UNFI's automation investments, specifically whether they are positive ROI capital investments or defensive measures. He also inquired about the impact of reaching the leverage target a year earlier than expected on capital allocation, including potential considerations for acquisitions or share repurchases.

Answer

President and CFO Matteo Tarditi confirmed that UNFI expects to have six automated DCs by the end of 2026 and views these as both capacity and ROI-positive investments. He emphasized that automation aims to increase capacity, improve effectiveness, and enhance efficiency, with customer and supplier service as the primary focus, alongside safety goals. Regarding leverage, he reiterated that the current priority is debt reduction, aiming for 2.5 turns or less in 2026 and below 2 turns in 2027. He stated that capital allocation discussions beyond debt reduction would occur once these targets are achieved.

William Reuter of Bank of America sought confirmation of the $53 million termination fee for Key Food and asked about UNFI's capital allocation strategy once it achieves its leverage target of 2.5x.

Answer

President & CFO Giorgio Matteo Tarditi confirmed the $53 million termination fee. He reiterated that the company's sole capital allocation focus is on debt reduction until the leverage target is met. After that point, he stated the company will evaluate a full portfolio of options for shareholder returns, including potential buybacks.

William Reuter of Bank of America asked for a quantification of the benefit from lower cotton costs on gross margin and inquired about the company's performance relative to the innerwear category amid private label competition.

Answer

CFO M. Scott Lewis declined to quantify the cotton benefit, noting it's a small part of COGS and that productivity gains are broad. CEO Stephen Bratspies clarified that softness was confined to the intimates category, specifically the Maidenform brand, while the basics business grew. He stated that private label is losing share in men's underwear, and Hanesbrands' strategy to compete is through brand investment, innovation, and strong retail partnerships.

William Reuter from Bank of America Merrill Lynch asked about the potential impact on Hanesbrands' business if retaliatory tariffs were imposed by Mexico or Canada.

Answer

CEO Stephen Bratspies stated there would be zero impact from such tariffs, clarifying that the company does not ship products from the U.S. into its wholesale channels in Mexico or Canada.

Speaking for William Reuter, an analyst asked for the outlook on ocean freight and cotton costs for 2025 and sought an update on the company's cotton hedging. A second question covered which specific debt was repaid in October and the anticipated pace of future debt reduction.

Answer

CEO Stephen Bratspies confirmed strong visibility on input costs, noting ocean freight rates are running below plan and cotton is nearly fully purchased for the upcoming year. CFO Scott Lewis specified that the $870 million debt repayment in October was a mix of Term A and Term B loans. He reiterated the goal of a $1 billion paydown in H2 2024, which would reduce leverage by 1.5 turns YoY, with a target of approximately 3x leverage by the end of 2025.

William Reuter from Bank of America asked for the EBITDA contribution and net proceeds from the LeSueur divestiture, and inquired about the current borrowing availability under the company's credit facility covenants.

Answer

CFO Bruce Wacha declined to provide the divested brand's EBITDA but clarified that net proceeds were approximately $59 million, as detailed in the 10-Q. He added that the primary covenant is a 7.5x leverage test and the company finished the quarter with about 0.7 turns of cushion.

William Reuter asked about potential constraints on the company's revolving credit facility, whether any shelf space was lost during retailer resets in late January, and the rationale behind the increased promotional spending that impacted EBITDA.

Answer

CFO Bruce Wacha clarified that the facility is a cash flow revolver, not an ABL, with significant availability and was primarily sized for acquisitions. CEO Kenneth Keller added that the inventory issue was a destocking of weeks-of-supply, not a loss of shelf space from resets. He explained the increased promotion on Green Giant was a necessary, short-term decision to remain competitive against aggressive market activity and that he is encouraged by the brand's healthy trends after the investment was pulled back.

William Reuter of Bank of America asked for the dollar amount of products shipped from Mexico to the U.S. and inquired about any recent changes in shelf space with retail partners or shifts in their interest in private label products.

Answer

CFO Bruce Wacha stated that the company does not disclose the specific dollar amount of products shipped from Mexico but clarified it is primarily Green Giant frozen vegetables. CEO Casey Keller and Bruce Wacha both confirmed that there have been no macro trends or significant changes regarding shelf space allocation or retailer interest in private label.

William Reuter of Bank of America asked if ACCO has seen retailers allocate more shelf space to non-branded competitors due to the stressed consumer environment. He also questioned whether the company expects to gain or lose market share in the U.S. back-to-school season and sought to quantify the potential incremental sales from gaming accessories tied to the Nintendo Switch launch.

Answer

President & CEO Thomas Tedford responded that shelf space listings for this year are fairly constant and were set before recent tariff announcements, suggesting the sales impact is more from conservative retailer inventory management. He stated it was too premature to project market share gains or losses but expressed confidence in ACCO's brand positioning. Regarding gaming sales, Tedford reiterated that it was too early to provide a specific dollar amount for the Switch 2 opportunity, as the key holiday season is still ahead.

William Reuter from Bank of America inquired about the specific percentage of U.S. cost of goods sold sourced from China, the cost implications of shifting production to other Southeast Asian countries, and sought to confirm the magnitude of the U.S. price increases.

Answer

CFO Deb O'Connor explained that providing a precise sourcing percentage from China is difficult due to the ongoing transition, but it will be insignificant by year-end. President and CEO Tom Tedford added that while there are modest cost increases from moving production, these will be passed through via pricing to protect gross margin targets. He confirmed the first price increase was in the single digits, with a potential subsequent increase of up to 20% depending on final reciprocal tariff levels.

William Reuter asked for a breakdown of the projected $40 million in 2025 cost savings between COGS and SG&A. He also questioned the reason for the more optimistic tone on M&A this quarter and inquired about the maximum leverage ratio the company would be willing to accept following a potential acquisition.

Answer

EVP and CFO Deb O'Connor explained the savings would be roughly 50-50 between COGS and SG&A, possibly more weighted to COGS due to footprint rationalization. O'Connor and President and CEO Tom Tedford attributed the changed M&A tone to the improving interest rate environment and the company's stronger balance sheet with lower debt compared to a year ago. Regarding leverage, O'Connor stated that while it depends on the specific deal, they would not let it rise to the levels seen after the PowerA acquisition and would keep it manageable.

William Reuter questioned if back-to-school retail inventories are lower than last year, potentially aiding next year's sell-in. He also asked about the increased mention of M&A, inquiring about the company's interest level and the types of acquisitions it would consider given its current leverage.

Answer

President and CEO Tom Tedford confirmed that retail inventory levels are in a better position than last year, which should benefit the 2025 back-to-school season. On M&A, he stated the focus is on highly synergistic opportunities in or near existing categories. EVP and CFO Deb O'Connor added that the company is better positioned to consider M&A now than 12 months ago due to its stronger balance sheet and that any deal would be part of a balanced capital allocation approach.

William Reuter inquired if general retail store closures were creating a headwind for Acima's growth and asked about the company's appetite for further M&A given its focus on internal growth and deleveraging.

Answer

CEO & CFO Fahmi Karam explained that store closures have not been a material headwind for Acima due to its diversified merchant base of small-to-medium-sized businesses. On M&A, Karam stated that while they 'never say never,' the primary focus is on executing opportunities within existing brands and paying down debt to reach their target leverage ratio.

William Reuter sought to confirm if the statistic of 70-75% of products being assembled in the U.S. was specific to Rent-A-Center and asked about the company's current appetite for M&A following the Brigit integration.

Answer

CEO Mitchell E. Fadel confirmed the statistic was for Rent-A-Center's direct purchases but noted that many Acima partners have also diversified their supply chains away from China. CFO Fahmi Karam stated that it was fair to assume the company is not actively pursuing M&A, as its focus is on integrating Brigit and capitalizing on numerous internal growth opportunities, especially given the current market uncertainty.

William Reuter of Bank of America inquired about the company's M&A appetite for the next year, asking if they would be in a position to make another acquisition or if the focus would be solely on optimizing the recent Brigit purchase.

Answer

CFO Fahmi Karam responded that the immediate focus is on executing organic growth plans and integrating Brigit. He stated that while they would never close the door on a compelling strategic opportunity that offers the right value and fit, no M&A is planned for the near term as the team is focused on current initiatives.

William Reuter of Bank of America inquired about labor cost inflation, the specifics of the quarterly debt reduction, and capital allocation priorities. In a follow-up, he asked for the estimated EBITDA impact from staffing shortages, the status of retailer destocking, and the product mix within Branded Services.

Answer

CEO David Peacock stated that labor cost inflation is in line with the macro market and that Q1 staffing issues stemmed from internal talent acquisition strategy, not wage pressures. He also clarified that the Branded Services portfolio is approximately 70% food. CFO Christopher Growe confirmed the company repurchased bonds and will maintain a balanced capital allocation approach. Growe estimated that staffing shortages accounted for more than the entire EBITDA decline in the quarter and noted that while destocking trends improved through Q1, he had not yet seen April data to confirm they had ceased.

William Reuter inquired about the progress in refilling the frozen griddle product pipeline and its current capacity utilization. He also asked for clarification on capital allocation, specifically whether the company's leverage target has changed and how that impacts the potential for share repurchases.

Answer

CEO Steven Oakland stated that all griddle production lines are running and the company is refilling the customer pipeline, with the financial benefits expected in the second half of the year. He expressed confidence in a full recovery, similar to their past experience with a broth recall. CFO Patrick O'Donnell confirmed the net leverage target remains 3.0x to 3.5x and that the near-term priority is rebuilding the cash position, with a re-evaluation of capital deployment options like buybacks likely later in the year.

William Reuter asked about capital deployment plans given leverage is near the low end of the target range, and also inquired about the commodity outlook for 2025 and whether pricing actions have been taken to offset expected inflation.

Answer

EVP and CFO Patrick O'Donnell noted that cash was just deployed for the Harris Tea acquisition in Q1, which will temporarily move leverage up. Chairman, CEO and President Steven Oakland reiterated a balanced capital allocation strategy. On commodities, O'Donnell expects low to mid-single-digit inflation, driven by coffee and cocoa. Oakland added that related pricing actions are currently in process with customers.

William Reuter from Bank of America inquired if recent operational issues have harmed retailer relationships and asked about the company's current stance on M&A as part of its capital allocation strategy.

Answer

CEO Steve Oakland asserted that transparency around the operational challenges has actually strengthened customer relationships, and he expects the affected businesses to recover and become larger than before. He reiterated that the top capital priority is internal investment, with M&A viewed through a 'build vs. buy' lens to add capabilities, while maintaining balance sheet strength and considering opportunistic share repurchases.

William Reuter questioned if the company would have suspended guidance even without the tariff uncertainty, probing the relative impact of the leadership transition. He also asked for clarification on the full-year marketing spend plan.

Answer

CFO Richard Westenberger confirmed that both the leadership transition and tariff uncertainty were factors in suspending guidance, stating they likely would have made the same decision regardless, as it is common for a new CEO to take time to assess the business. He also clarified that lower Q1 marketing costs were related to unallocated corporate expenses, not a change to the consumer-facing marketing budget, which remains on plan for the year.

William Reuter of Bank of America inquired about potential changes to the company's sourcing strategy given the uncertain tariff environment and followed up on what makes the renewed investment in the competitive kids' segment less risky this time.

Answer

Executive Richard Westenberger highlighted the successful diversification of apparel sourcing away from China (now below 5%) and noted the next opportunity is to diversify fabric sourcing, which remains concentrated in China. Executive Kendra Krugman explained the kids' segment strategy involves a near-term investment in proven categories like fashion denim and activewear. The long-term plan is to use a new, faster 'concept to consumer' process to be more nimble and reactive to trends, de-risking future assortments.

William Reuter asked about the duration of the pause on share repurchases and inquired about Carter's market share performance in Q3 following its price investments.

Answer

CFO Richard Westenberger clarified the share repurchase pause is for the remainder of the year and will be revisited as 2025 plans are finalized, noting the company avoids taking on debt for capital returns. CEO Michael Casey stated that the company gained market share in the Baby and Toddler apparel categories, which represent over 80% of its business.

William Reuter of Bank of America questioned if the dealerization program is now the exclusive strategy or if other transformative options, such as large-scale acquisitions or divestitures, are still being considered.

Answer

Chairman, President and CEO Arie Kotler confirmed that M&A remains a key part of their strategy, stating the company has the liquidity and team to pursue large acquisitions if the right opportunity arises. However, he clarified that while large acquisitions are on the table, large-scale divestitures beyond the current dealerization plan are not.

Asked about the plans for repaying the company's bonds, whether the softness in the Revelyst business is due to inventory destocking or lower consumer sell-through, and the drivers behind the decline in point-of-sale.

Answer

Executives stated that the plan is still to redeem the bonds around the March/April timeframe. They confirmed that point-of-sale (POS) is down, and retailer sell-in is even slower than POS, indicating both inventory caution and softer consumer demand. The decline in POS is attributed to a mix of constrained consumer budgets and shifts in discretionary spending, although overall outdoor participation remains high compared to pre-pandemic levels.

William Reuter asked about the amount of SG&A associated with the individual Medicare Part D business being exited, the expected profitability of future COVID-19 vaccines, and the company's level of optimism for gaining lives during the current PBM bidding season.

Answer

Matt Schroeder, Executive VP and CFO, responded that it was too early to quantify the SG&A savings from the Part D exit as the company is still analyzing the cost structure. He projected future COVID-19 vaccine profitability would be similar to a flu vaccine, at around $25 in gross profit per shot. He added that while feedback from the PBM selling season is positive, it is too early to provide a projection on net new lives.