Loading...
01/11 16:21
Loading...
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal several concerns: significant CapEx needs, uncertain margin expansion, and potential DIY consumer elasticity issues. While there are optimistic guidance points, such as improving trends and strong Pro initiatives, the negative free cash flow guidance and CapEx requirements overshadow these positives. The market is likely to react negatively, especially given the mid-cap size, resulting in a predicted stock price movement of -2% to -8% over the next two weeks.
Net Sales $2 billion, an 8% decline compared to last year. This decline is mainly attributable to the store optimization activity that was completed during Q1.
Comparable Sales Growth Positive 0.1% for the quarter, which included an approximately 25 basis points headwind due to the shift in timing of Easter from late Q1 into early Q2.
Adjusted Gross Profit $880 million or 43.8% of net sales, resulting in gross margin expansion of about 16 basis points compared to last year. The year-over-year margin expansion was driven by savings associated with our footprint optimization activity completed in March.
Adjusted SG&A $819 million or 40.7% of net sales, about flat compared to last year. The year-over-year reduction in SG&A expense was primarily related to operating fewer stores compared to last year.
Adjusted Operating Income $61 million or 3.0% of net sales, resulting in about 20 basis points of margin expansion.
Adjusted Diluted Earnings Per Share $0.69 compared with $0.62 reported in Q2 last year.
Free Cash Flow A use of $201 million year-to-date, which included a $15 million improvement in operating cash flow compared to last quarter. Q2 free cash flow also included $20 million in cash costs related to store optimization work.
New SKU Growth: Added more than 60,000 new SKUs year-to-date, up nearly 300% compared to last year.
Assortment Framework Rollout: Rolled out a new assortment framework in 19 additional DMAs, now covering the top 30 DMAs, with plans to cover the top 50 DMAs by the end of Q3 2025.
Market Hub Expansion: Opened 3 new market hubs in Q2, including 2 greenfield locations, with plans to establish 60 market hubs by mid-2027.
Supply Chain Optimization: Closed or converted 9 distribution centers (DCs) year-to-date, with plans to close 12 by year-end, improving DC-to-store order fill rates and reducing shipment errors by 33%.
Debt Capital Structure Reorganization: Completed a $1.95 billion senior notes offering and entered a $1 billion asset-backed revolving credit facility to enhance financial flexibility.
Turnaround Plan Progress: Achieved profitability in Q2 2025, supported by store footprint optimization and strategic initiatives.
Vendor Negotiations: Completed about 2/3 of line reviews with vendors, targeting 50 basis points of annualized cost reductions in the second half of 2025.
Tariff-related cost increases: The company is facing challenges in managing tariff-related cost increases, which are expected to have a more pronounced impact in the second half of the year. Approximately 40% of the reported cost of goods is exposed to tariffs at a blended rate of 30%, creating pressure on margins.
Consumer behavior and purchasing habits: There is potential for recalibration in consumer purchasing habits due to higher prices, particularly in the DIY business. While no significant shifts have been observed yet, the company is taking a cautious approach in planning for the remainder of the year.
Debt capital structure and financial flexibility: The company recently reorganized its debt capital structure, which includes a $1.95 billion senior notes offering and a $1 billion asset-backed revolving credit facility. While this provides financial flexibility, it also increases interest expenses and poses risks to achieving an investment-grade credit rating.
Supply chain disruptions and operational efficiency: Efforts to consolidate the supply chain, including closing or converting distribution centers, could lead to disruptions. While improvements in productivity and error reduction have been achieved, the transition poses risks to parts availability and operational efficiency.
DIY business trajectory: The DIY business has shown signs of stabilization but remains a challenge. The company acknowledges significant work is needed to fully turn around this segment, which is critical for overall growth.
Macroeconomic and market conditions: The market is in a transition phase with consumers adapting to higher prices. Seasonal volatility, such as higher-than-normal precipitation levels, has already impacted transaction growth in Q2.
Tariff management and vendor negotiations: Negotiations with vendors to share the tariff burden and secure competitive costs are ongoing. The dynamic tariff environment adds complexity and could impact cost management and profitability.
Revenue Expectations: Net sales for fiscal 2025 are expected to range between $8.4 billion and $8.6 billion. Comparable sales are projected to grow by 50 to 150 basis points on a 52-week basis. The 53rd week is anticipated to contribute approximately $100 million to $120 million in net sales.
Margin Projections: Adjusted operating income margin for fiscal 2025 is expected to range between 2% and 3%. For Q3, adjusted operating income margin is planned to exceed 4%. Sequential improvement in margin leverage is expected in Q4, though it is subject to seasonal volatility.
Capital Expenditures: Incremental capital expenditure is being allocated to refresh stores, including upgrades to HVAC systems, roofing, parking lots, paint, and signage. Year-to-date, investments have been made in over 1,000 stores, compared to 400 stores in 2024.
Market Trends: The market is in a transition phase as consumers adapt to higher prices. Tariff-related price actions are expected to contribute to low to mid-single-digit same SKU inflation in the second half of 2025. The company is closely monitoring consumer behavior and recalibration in purchasing habits.
Business Segment Performance: Pro business is expected to maintain positive low single-digit growth in Q3 and Q4, supported by improved parts availability and elevated service levels. DIY business shows signs of stabilization, with comps in line with Q1 and improved on a 2-year basis.
Strategic Plans: The company plans to open 10 market hubs in 2025, with a goal of establishing 60 market hubs by mid-2027. These hubs are expected to drive stronger sales growth and improve same-day parts availability. The rollout of a new assortment framework across the top 50 DMAs is expected to be completed by the end of Q3 2025, enhancing parts coverage and availability.
Long-Term Objectives: For fiscal 2027, the company targets low single-digit comparable sales growth and an adjusted operating income margin of approximately 7%. The leverage ratio is expected to be approximately 2x to 2.5x, aiming to regain an investment-grade credit rating.
The selected topic was not discussed during the call.
The earnings call reveals mixed signals: strong EPS improvement and positive gross margin outlook are offset by negative free cash flow and complex turnaround plans. The Q&A highlights uncertainty in achieving margin goals and inflation impact, despite stable supply chain finance. Market cap suggests moderate stock reaction, leading to a neutral prediction.
The earnings call summary and Q&A reveal several concerns: significant CapEx needs, uncertain margin expansion, and potential DIY consumer elasticity issues. While there are optimistic guidance points, such as improving trends and strong Pro initiatives, the negative free cash flow guidance and CapEx requirements overshadow these positives. The market is likely to react negatively, especially given the mid-cap size, resulting in a predicted stock price movement of -2% to -8% over the next two weeks.
The company's financial performance shows a decline in net sales and gross profit, with a significant operating loss. The Q&A reveals management's reluctance to provide clear guidance, indicating uncertainty. Despite plans for store optimization and new openings, the negative free cash flow and reduced guidance for 2025 suggest financial strain. The market cap suggests moderate sensitivity to these factors, leading to a likely negative stock price movement in the short term.
The earnings call reveals a mixed but generally negative outlook. The company reaffirmed guidance but reported a 7% YoY net sales decrease and significant free cash flow negativity. Despite cost-saving measures and expected gross margin improvements, the current financial performance shows declining margins and widening losses. The Q&A section highlights uncertainties in inflation and lack of clarity on store closures' impact. Given these factors and the company's mid-cap status, the stock is likely to experience a negative reaction, with potential declines in the range of -2% to -8%.
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
