Same-Store Sales Guidance
Q: Can we discuss your adjusted guidance for same-store sales in the second half?
A: Management stated that the first half played out as expected, with most areas in line with guidance. They anticipate a similar performance in the second half, with Q3 continuing the trends of the first half. Q4 presents a broader range of outcomes, potentially strong if conditions are favorable, but could underperform due to factors like winter weather or the federal election. Overall, they see nothing significantly different in the back half compared to the beginning of the year. -

Return to Long-Term Comp Growth
Q: How will you get back to 4–5% comp growth, and what's the timeline?
A: Management remains confident in returning to their long-term guidance of 4–5% comp growth. Two main macro factors impacting current performance are the shift in consumer spending from goods to services and deflation. If average ticket growth and goods spending normalize, they believe they can regain 1.5 to 2 percentage points from ticket growth and another 1–2 points from increased goods spending, bringing comps back to 4–4.5%. The timing is uncertain but expected as deflation moderates and consumer spending balances out. -

Inventory Levels and Quality
Q: Are higher inventories a concern, and do you need to take actions to align with sales?
A: Management is comfortable with current inventory levels and quality. The increase is due to lapping last year's lower inventory (down 1.7% last year), investment in big-ticket items, and improved in-stock rates up 4 points year-over-year, reaching the highest levels since the pandemic. They have no concerns about inventory in the second half and expect their investments to drive continued performance. -

Impact of Social Media Chatter
Q: Did recent social media chatter impact customer behavior and same-store sales?
A: Management acknowledged the situation but has no evidence of a measurable impact on business or results. They moved quickly to remove perceived political and social agendas from policies and continue to monitor the situation, but overall, the company's culture and commitments remain strong. -

Big-Ticket Sales Strength
Q: How significant are big-ticket sales, and how does this change in the second half?
A: Big-ticket items represented a low-teens percentage of sales in Q2, with sales growth of low double digits. While less impactful in the second half, they see opportunities in areas like recreational vehicles, riders, and winter-related products such as heating equipment and snow blowers. Big-ticket sales are considered a tailwind on comps, and the team is leveraging innovation and value to drive continued growth. -

Customer Loyalty Program Trends
Q: What are the trends in customer cohorts and Neighbor's Club membership?
A: The Neighbor's Club has grown to 36 million members with retention at historic rates. Higher-income cohorts show strong retention but modest moderation due to increased spending on services and travel. Focus is on entry-level cohorts; they've lowered tier thresholds and enhanced rewards. They are also excited about a new customer data platform to personalize communications and have launched the Hometown Heroes program, attracting new members. -

Inventory Build Details
Q: Can you provide more color on the inventory build and expectations?
A: Inventory investment is purposeful in growth areas like grills, mini bikes, and riders. They have the best in-stock position since pre-pandemic, with in-stocks up around 400 basis points compared to last year. Clearance and aged inventory is down versus last year, indicating strong inventory quality. They are committed to investing in key categories to drive sales in the back half. -

Commodity Prices and Impact
Q: How are commodity prices like corn affecting your expectations?
A: Commodities like corn, soybean, cotton, and steel are down in the low-teens year-over-year, back to 2019 levels, and 30–40% off their 2022 highs. These costs have been embedded into pricing. They expect commodities to be neutral or slightly inflationary in Q4 and Q1. Corn and soybeans typically impact costs within 60–90 days. Pet food pricing remains stable with no expected average unit retail (AUR) compression. -

Election Impact on Business
Q: How might the federal election affect your performance?
A: Historically, elections have not significantly changed performance. Management is aware of potential consumer sentiment shifts but believes their needs-based business is resilient regardless of the election outcome. They are prepared for various scenarios but are not planning for a specific outcome. -

Sales Trends Amid Weather Changes
Q: Did the wet spring and hot summer affect sales expectations?
A: The wet spring, especially in regions like Texas, did not lead to an elongated selling season as hoped. June turned into one of the hottest months on record, impacting categories like ag fencing, which did not recover as anticipated. They remain hopeful for improvements as they enter August and the fall. -

Sales Per Member Trends
Q: Sales per member are down; what are you learning from customer trends?
A: Management notes modest moderation in higher-income cohorts due to increased spending on services and travel. They are focusing on entry-level cohorts by enhancing rewards and personalizing communications through a new customer data platform. New programs like Hometown Heroes are attracting new customers. Overall, they believe their loyalty program is instrumental to future success. -