Margin Outlook
Q: Where do you see upside in margins despite lower sales?
A: Jeff Howie explained that although sales are expected to be lower, they are holding back-half operating margin guidance flat year-over-year. This is due to sustained benefits in merchandise margins and supply chain efficiencies experienced in Q2. They are confident in sustaining profitability within their long-term operating margin guidance of mid- to high teens.

Promotional Environment
Q: Is the promotional environment affecting your business?
A: Laura Alber acknowledged consistent high levels of promotions in the marketplace but emphasized that they have chosen not to engage heavily in promotions, as it doesn't work long-term. They focus on providing customers with great value without constant promotions. By not participating in heavy promotions, they avoid competing with themselves and maintain stronger margins.

Demand Trends
Q: Are you seeing changes in customer behavior?
A: Laura Alber noted a pickup from Q1 in areas outside of furniture, which remains soft. Their focus on seasonal holidays and life-stage products is paying off, with strong demand in categories like back-to-school and dorm items.

Guidance and Weakness Areas
Q: Where is the business seeing weakness, given adjusted guidance?
A: Laura Alber stated that the guidance range reflects uncertainty due to the macro environment. They had expected acceleration in the back half but adjusted expectations due to factors like interest rates not declining as anticipated. They are taking a prudent approach without relying on promotions to drive short-term sales.

Product Innovation
Q: How is new product innovation impacting sales?
A: Laura Alber reported a strong response to newness and collaborations across brands. For example, West Elm saw double-digit positive comps in new furniture introductions, driven by collaborations like and Marcus Samuelsson. These initiatives are attracting new customers and increasing frequency.

Advertising Investment
Q: Should we expect increased advertising spend?
A: Laura Alber mentioned they are investing in advertising to build customer growth, focusing on areas like creator-led content on platforms like TikTok. However, they constantly evaluate spend effectiveness and adjust accordingly, aiming for both short-term sales and long-term growth without significantly exceeding historical advertising levels.

Freight Costs and Tariffs
Q: How will rising freight rates and potential tariffs impact margins?
A: Jeff Howie indicated they are insulated from spot market fluctuations due to contracted rates, and as the 11th largest container importer, they have scale advantages. Exposure to China has been reduced from 50% to 25% of imports, mitigating tariff risks. They are prepared to pivot sourcing if necessary.

Customer Reaction to Reduced Promotions
Q: How are shoppers reacting to fewer promotions?
A: Laura Alber observed that customers are not waiting for promotions and are purchasing when needed. New products at mid-price points are performing well, and there is no significant trade-down. Full-price selling is leading to improved customer service and shorter lead times.

EBIT Margin Bridge
Q: Can you bridge the full-year EBIT margin guide to the long-term outlook?
A: Jeff Howie reaffirmed their long-term operating margin guidance of mid- to high teens. The current year's guidance puts them in the middle of this range. Sustaining this profitability is achievable as sales accelerate, with flexibility to adjust as needed.

Merchandise Margin Runway
Q: Is the merch margin peak behind us?
A: Jeff Howie agreed that benefits seen in the first half, like improved merchandise margins, will wind down in the back half. They anticipate the operating margin in the back half to be flat year-over-year due to lapping prior benefits.

Long-Term Margin Opportunity
Q: Why can't gross margins be higher as demand recovers?
A: Laura Alber explained that while margins are strong even with negative sales, they aim to provide great value without overpricing products. As housing and consumer confidence improve, sales growth will enhance profitability without the need to inflate margins further.

Stance on Promotions
Q: Any change in promotion strategy to stimulate sales?
A: Laura Alber stated there is absolutely not any change in their stance on promotions. They continue to focus on product innovation and marketing to drive growth rather than resorting to promotions.

Q2 Operating Margin Upside
Q: What drove the operating margin upside in Q2?
A: Jeff Howie attributed the 160 basis points increase to stronger merchandise margins, supply chain efficiencies, and less deleverage in advertising expenses compared to Q1. These factors led to operating margin exceeding expectations.

SG&A Reduction Opportunities
Q: Where can SG&A be reduced in a slower sales environment?
A: Jeff Howie noted that while they don't guide individual lines, areas like advertising costs and variable employment (in stores, distribution centers, customer care) offer flexibility to adjust expenses in line with sales trends.

Sales Cadence and Back-to-School
Q: Any insights on sales cadence and back-to-school trends?
A: Laura Alber mentioned that sales cadence isn't a relevant indicator for them, but highlighted back-to-school as a significant positive, particularly in the dorm category where they are gaining market share with high-quality products and exclusive collaborations like LoveShackFancy and Roller Rabbit.

Phasing of Comps and Fewer Shopping Days
Q: Thoughts on phasing of comps and impact of fewer shopping days?
A: Jeff Howie explained that the impact of a shorter holiday season is already embedded in their guidance. The shift to a 53-week year with 14 weeks in Q4 and the mix of e-commerce (66%) offsets some challenges of fewer shopping days.