earnings

Shares of Dollar General (DG -2.64%) are up around 45% so far in 2025. But they are also down more than 55% from their 2022 peak. The retailer’s strong second-quarter-2025 earnings update shows that the turnaround is still going strong. Here’s why I’m excited about Dollar General stock after reading its most recent earnings update.

What does Dollar General do?

Dollar General, as its name implies, is a dollar store. The term is a bit misleading, however. It sells a variety of products, from everyday necessities to clothing and seasonal items, at low prices. For example, it may sell a name brand consumer staples product, like toilet paper, just like another store, but the size of the product might be smaller. Buying a single roll is simply cheaper than buying 20 in a multipack from a club store, even if the per-roll cost from the club store is ultimately a better deal.

Image source: Getty Images.

Dollar General leans into its role of serving less affluent customers with its choice of store locations. The retailer purposely operates relatively small stores in mostly rural areas that are underserved by larger competitors. This makes it more convenient for a customer to stop by a Dollar General store than to drive to a big-box store, even though it might be cheaper to buy from the big box store.

Although Dollar General’s stores are kind of small, the company is actually quite large. It operates over 20,700 Dollar General, DG Market, DGX and pOpshelf stores across the United States (it also operates Mi Súper Dollar General stores in Mexico). It expects to complete over 4,800 real estate projects in fiscal year 2025. That list includes capital investments like renovating older stores but also the addition of as many as 575 new stores in the United States and 15 in Mexico.

DG data by YCharts

Dollar General is turning things around

Although the stock has risen dramatically in 2025, that has erased only a small portion of the decline since late 2022. And that’s the opportunity for long-term investors. But the really big news from the second-quarter earnings update was the company’s financial and operational performance. A look at some income statement highlights tells a very exciting story.

Specifically, sales increased 5.1% year over year, hitting $10.7 billion. However, the real star was same-store sales, which measures the performance of existing locations. That metric rose 2.8%, driven by rising traffic (1.5 percentage points of that total) and an increase in the amount spent by customers on each visit (1.2 percentage points). To put that in plain English, more customers are showing up, and they are spending more.

Earnings for the quarter came in at $1.86, up 9% over the same quarter in 2024. And, notably, earnings came in well above Wall Street analyst expectations, beating consensus by roughly 18%. A big help to the bottom line was the company’s ability to increase its gross margin by 137 basis points year over year, led by less shrinkage, higher inventory markups, and less inventory damage.

This is all very good news and shows that the company’s turnaround effort is working. But the best part of the story is that management updated its full-year 2025 guidance, suggesting that the turnaround is set to continue. Previously, sales were projected to rise between 3.7% and 4.7%. Now they are expected to jump 4.3% to 4.8%. Same-store sales were updated similarly, with a slight increase on the top end and a material change at the low end of the guidance range. Basically, the worst-case scenario that management envisioned appears to be off the table.

There could be more upside from here

My excitement is tempered by the fact that Dollar General’s stock price has risen a great deal in a very short time. Wall Street appears to be aware of the positive reversal in the business dynamics. But that doesn’t change the fact that the stock remains well off its highs, hinting that there could be more room for recovery ahead. Perhaps it won’t happen as quickly as the initial turnaround, but if you think in decades and not days, Dollar General and its still-historically-high 2.1% dividend yield could be a good stock for a deep dive today.

Shares of retailer Kohl’s (KSS -2.02%) rose a dramatic 24% in a single day on Aug. 27. The reason for that spike was the company’s second-quarter 2025 earnings update.

Based on the stock’s advance, it is pretty obvious that it contained some good news, which is true. But there was also some bad news. Here’s what you need to know beyond the fact that Kohl’s crushed earnings expectations.

What did Kohl’s achieve in the second quarter?

Heading into the quarter, Wall Street analysts were projecting Kohl’s to earn an adjusted $0.29 per share. The final tally, however, came in at $0.56 per share, nearly twice as much.

On the top line, revenue totaled $3.35 billion versus an expectation of $3.32 billion. Investors like it when a company beats on both the top and bottom lines, and they particularly appreciate when the bottom-line beat is so dramatic.

Image source: Getty Images.

Given that backdrop, it shouldn’t be too surprising that Kohl’s stock rose. But there’s another factor here to consider, because the retailer has been struggling of late.

Without getting too deep into the details, the board of directors chose to part ways with the previous CEO without having found a replacement. That’s a troubling sign and, roughly three months on, the board has yet to find a permanent replacement.

The company’s income statement has been an eyesore for a while, too. Revenue and earnings have both been fairly weak since their post-pandemic bounce back. And that’s a problem that a single good quarter can’t paper over.

KSS data by YCharts; TTM = trailing 12 months.

Kohl’s turnaround is still a work in progress

First off, until there’s a new permanent CEO in place, Kohl’s corporate direction can’t be counted on. A new CEO could come in to change course, as would be a rightful prerogative. So whatever internal changes may have led to the strong showing in the second quarter can’t exactly be extrapolated into the future with too much confidence.

But that strong showing also needs to be taken with a grain of salt. Sure, Kohl’s beat Wall Street expectations by a wide margin. That’s great news. But what exactly were the numbers? On the top line, Kohl’s brought in $3.35 billion. That figure is down 5.1% compared to the same quarter of 2024. Worse, same-store sales (comps), a metric tracking the performance of stores open for at least a year, fell 4.2%.

The company is not resonating well with customers right now. As a comparison, Dollar General, which is also working on a turnaround, saw sales rise 5.1% with a comps jump of 2.8%. It benefited from higher customer traffic and an increase in the amount customers spent on each visit.

When it comes to turnarounds, Dollar General’s rebound is clearly on sounder footing than the one that’s taking place at Kohl’s. In fact, comparatively, it is hard to suggest that Kohl’s is turning its business around.

To be fair, it did improve its gross margin and managed to cut costs, but the real story is that it did less badly than before. That’s a step in the right direction, but it is not the same as an upturn. And until customers start returning to its stores, this retailer is unlikely to be able to get back on track.

Good news, but not enough good news

Yes, Kohl’s had a strong second quarter compared to what Wall Street was expecting. It is hard to complain about that. However, there is still a lot of work to do with the retailer’s business and a huge amount of uncertainty. Only the most aggressive investors should be buying Kohl’s stock story.

And even then, you need to believe strongly that the business can stop the bleeding and turn things around. That’s a big ask when the company doesn’t even have a permanent CEO yet.

Image source: The Motley Fool.

Date

Aug. 28, 2025, at 9 a.m. ET

Call participants

• Chief Executive Officer — Todd Vasos
• Chief Financial Officer — Kelly Dilts

Need a quote from a Motley Fool analyst? Email [email protected]

Takeaways

• Net sales— $10.7 billion in net sales in the second quarter of fiscal 2025 (period ended Aug. 2, 2025), representing a 5.1% year-over-year increase.
• Same-store sales— Same-store sales increased 2.8% in Q2, with customer traffic up 1.5% and average basket size up 1.2%.
• Gross profit margin— Gross profit was 31.3% of sales in Q2 (up 137 basis points year over year), primarily driven by a 108 basis point improvement in shrink.
• SG&A as % of sales— 25.8% (up 121 basis points), mainly due to higher incentive compensation, repairs and maintenance, and benefits costs.
• Operating profit— Operating profit was $595 million (an increase of 8.3% year over year); margin rose 16 basis points to 5.6%.
• Net interest expense— Net interest expense was $57.7 million, down from $68.1 million in the prior year period.
• EPS— Diluted EPS (GAAP) was $1.86 per share in Q2, up 9.4% year over year and above the company’s internal expectations.
• Inventory— Merchandise inventories totaled $6.6 billion at the end of Q2, down $391 million (5.6%) overall and 7.4% per store.
• Cash flows from operations— $1.8 billion during the first half of the year, an increase of 9.8% compared to the prior year.
• Dividends— $0.59 per common share in the second quarter of fiscal 2025, with a total payout of approximately $130 million.
• Fiscal 2025 guidance— Net sales growth of 4.3%-4.8% expected for fiscal 2025, same-store sales growth of 2.1%-2.6% for the year, and diluted EPS (GAAP) of $5.08-$6.30.
• Capital expenditures— Planned $1.3 billion-$1.4 billion, including approximately 4,885 real estate projects, 575 new U.S. store openings, and up to 15 in Mexico.
• Store remodel activity— 729 Project Elevate remodels and 592 Project Renovate remodels completed in the second quarter of fiscal 2025.
• Delivery partnership expansion— DoorDash is available for 17,000 Dollar General stores, and Uber Eats works with 4,000 stores, with expectations to soon reach 14,000 stores.
• DG Delivery expansion– Management now expects to offer DG delivery for more than 16,000 stores by year’s end, compared to previous expectations of approximately 10,000 stores.
• DG Media Network— Retail media volume grew significantly year over year in the second quarter of fiscal 2025, supporting personalized customer engagement and partner ad spend.
• Non-consumable comps— Each major non-consumable category posted at least 2.5% same-store sales growth.

Summary

Dollar General(DG -2.10%) delivered sales and earnings growth above internal expectations in the second quarter of fiscal 2025, citing balanced performance across both consumable and non-consumable categories. Management committed to keeping more than 2,000 SKUs at a $1 or less price point, and highlighted that its $1 Value Valley assortment achieved same-store sales growth at more than double the total company rate in the second quarter of fiscal 2025. The company emphasized broad-based market share gains, expansion of delivery coverage to urban and rural stores, and successful shrink and inventory management as key drivers of financial improvement. Fiscal 2025 guidance was raised, and the company will redeem $600 million of senior notes early in the third quarter of fiscal 2025, using cash on hand, signaling a focus on improving balance sheet metrics.

• Todd Vasos noted, “To that end, we’re pleased to see growth with customers across all income brackets in [the second quarter of fiscal 2025]. This includes our core customer, who increased spending despite worsening sentiment. In addition, we continue to see trade-in growth with middle- and higher-income customers, which we believe is contributing to the strong performance in our non-consumable categories.”
• The company maintained that its price gaps remain within three to four percentage points of average mass retailers, underlining Dollar General’s positioning on everyday value.
• Dollar General’s initiatives in store remodels (Project Elevate and Renovate) are contributing to first-year annualized comp sales lifts in the range of 3%-8% for completed locations, based on the second quarter of fiscal 2025 results, with early customer satisfaction data described as significantly improved post-remodel, according to management commentary in the second quarter of fiscal 2025.
• DG Media Network is delivering incremental returns for partners seeking rural and lower-income customer reach, supported by proprietary customer data assets.

Industry glossary

• Project Elevate: Incremental remodel initiative targeting mature stores, focusing on merchandising optimization and physical investments to achieve 3%-5% first-year annualized comp sales lifts.
• Project Renovate: Traditional full remodel program targeting older stores, designed to deliver 6%-8% first-year annualized comp sales increases.
• DG Media Network: Dollar General’s retail media platform providing partners with retail ad space, audience data, and multichannel marketing access to Dollar General’s unique customer base.
• SKU: “Stock Keeping Unit”; a unique identifier for each distinct product carried for sales and inventory management.
• Value Valley: Merchandising set within Dollar General featuring rotating SKUs at the $1 price point, aimed at price-conscious customers.

Full Conference Call Transcript

Todd Vasos, our CEO, and Kelly Dilts, our CFO. Our earnings release issued today can be found on our website at investor.dollargeneral.com under News and Events. Let me caution you that today’s comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, such as statements about our financial guidance, long-term financial framework, strategy, initiatives, plans, goals, priorities, opportunities, expectations, or beliefs about future matters and other statements that are not limited to historical fact. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

These factors include, but are not limited to, those identified in our earnings release issued this morning under Risk Factors in our 2024 Form 10-K filed on March 21, 2025, and any later filed periodic report. In the comments that are made on this call, you should not unduly rely on forward-looking statements which speak only as of today’s date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law. At the end of our prepared remarks, we will open the call up for your questions. To allow us to address as many questions as possible in the queue, please limit yourself to one question.

Now it is my pleasure to turn the call over to Todd.

Todd Vasos: Thank you, Kevin, and welcome to everyone joining our call. I want to begin by thanking our team for their great work to fulfill our mission of serving others every day in our stores, distribution centers, private fleet, and store support center. These efforts are resonating with our customers as well as driving strong operating and financial performance. To that end, we are pleased to deliver strong second-quarter results highlighted by earnings growth that significantly exceeded our internal expectations. For today’s call, I’ll begin by recapping some of the highlights of our second-quarter performance as well as sharing our latest observations on the consumer environment.

After that, Kelly will share the details of our financial performance as well as our updated financial outlook for fiscal 2025. I will then wrap up the call with an update on some of our key growth-driving initiatives. Turning to our second-quarter performance, net sales increased 5.1% to $10.7 billion in Q2, compared to net sales of $10.2 billion in last year’s second quarter. This growth was driven by strong performance from new stores and our mature store base. We grew market share in both dollars and units highly consumable product sales once again during the quarter.

In addition to growing market share in non-consumable product sales, same-store sales increased 2.8% during the quarter driven by relatively balanced growth of 1.5% in customer traffic and 1.2% in average basket. The basket growth was driven by an increase in both average unit retail price per item and average items per basket. We were excited to see a second consecutive quarter of broad-based category growth with positive comp sales in each of our consumables, seasonal, home, and apparel categories. From a monthly cadence perspective, we saw same-store sales growth above 2% in all three periods, with our strongest comps in June and July.

We believe these strong and balanced top-line results are a reflection of the hard work the team has done to improve execution and further enhance the value and convenience proposition for both existing and new customers. To that end, we’re pleased to see growth with customers across all income brackets during the quarter. This includes our core customer, who increased spending despite worsening sentiment. In addition, we continue to see trade-in growth with middle and higher-income customers during the quarter, which we believe is contributing to the nice performance we’ve seen in our non-consumable categories. Ultimately, customers across all income brackets are coming to Dollar General as they seek value.

As America’s neighborhood general store in more than 20,000 locations across the country, we recognize and embrace our role in being here for what matters for our customers. This includes providing the items they want and need at prices they can afford. With that in mind, we are committed to delivering everyday low prices that are within three to four percentage points on average of mass retailers. While we are pleased that we continue to operate within the targeted price range, we are also focused on maintaining our substantial offering of more than 2,000 SKUs at or below the $1 price point.

We know this price point is important in helping our core customers stretch their dollar particularly at the end of the month and when budgets are tight. In fact, our $1 Value Valley merchandising set which is comprised of more than 500 rotating SKUs was one of our strongest performing areas in the quarter with same-store sales growth more than twice the rate of the overall company. We believe this holistic approach to offering value will continue to be important for our customers, particularly in the back half of this year. Now I’d like to provide a brief update on how we’re thinking about tariffs.

With the rates currently in place, we believe we will be able to mitigate the majority of the impact on our cost of goods. The proactive approach of our sourcing team coupled with our relatively low direct import exposure has positioned us well to serve our customers with a quality assortment at tremendous value. While the landscape remains dynamic, tariffs have begun to result in some price increases and we will continue to work to minimize them as much as possible. Most importantly, we know this further amplifies the need for value with our communities. And we remain committed to serving our customers with the everyday low prices they have come to know and appreciate from Dollar General.

Overall, we’re proud of our performance during the quarter and the tremendous progress we’ve made throughout the first half of the year. Our actions are delivering an enhanced shopping experience for our customers and driving strong operating and financial results. We are further strengthening our value and convenient proposition for our customers, while making significant progress on our long-term financial goals. Before I turn the call over for our financial update, I want to thank Kelly for her partnership. As well as her leadership of our financial organization over the last few years. We wish her the very best as she prepares and begins her new chapter.

I also want to note that we’re excited to welcome Donnie Lau back to Dollar General as our next CFO beginning in October. He is highly regarded throughout the organization for his deep understanding of the business, thoughtful strategic leadership, and appreciation for our culture and values. We look forward to his leadership of our financial organization as we seek to drive excellence and create long-term shareholder value. With that, I’d now like to turn the call over to Kelly.

Kelly Dilts: Thank you, Todd, and good morning, everyone. First, on a personal note, I wanted to express my appreciation to this team, our customers, and our shareholders. This is a special organization with a unique mission and I’m grateful for the time I’ve had to serve alongside them. Now that Todd has taken you through a few of the top-line highlights of the quarter, let me take you through some of the other important financial details. Unless we specifically note otherwise, all comparisons are year-over-year, all references to EPS refer to diluted earnings per share and all years noted refer to the corresponding fiscal year.

For Q2, gross profit as a percentage of sales was 31.3%, an increase of 137 basis points. This increase was primarily attributable to lower shrink higher inventory markups and lower inventory damages. Our focus on reducing shrink has continued to produce positive results. Including a healthy year-over-year improvement of 108 basis points in the second quarter. We’re excited to be outperforming the shrink reduction expectations contemplated within our long-term financial growth framework. In terms of both timing and magnitude. Given these results, we are optimistic about the potential for shrink reduction to contribute more than 80 basis points toward the operating margin goal of 6% to 7% contemplated within our long-term financial framework.

In addition, we were pleased to drive a reduction in damages in the second quarter as our efforts in this area have begun to take hold as well. The gross margin increase was partially offset by increased LIFO provision as well as increased markdowns and increased distribution cost. Now, let’s turn to SG and A. Which as a percentage of sales was 25.8%. An increase of 121 basis points. The primary expenses that were a higher percentage of net sales in the quarter were incentive compensation, repairs and maintenance, and benefits. Moving down the income statement, operating profit for the second quarter 8.3% to $595 million. As a percentage of sales, operating profit increased 16 basis points to 5.6%.

Net interest expense for the quarter decreased to $57.7 million compared to $68.1 million in last year’s second quarter. Our effective tax rate for the quarter was 23.5%, and compares to 22.3% in the second quarter last year. Finally, EPS for the quarter increased 9.4% to $1.86 which exceeded the high end of our internal expectations. Turning now to our balance sheet and cash flow, where we continue to make great strengthening our financial position. Merchandise inventories were $6.6 billion at the end of Q2, a decrease of $391 million or 5.6% compared to prior year. And a decrease of 7.4% on an average per store basis.

The team continues to do a tremendous job reducing inventory while increasing sales and improving in-stock levels which is having positive operational impact in both stores and distribution centers. The business generated cash flows from operations of $1.8 billion during the first half of the year an increase of 9.8% compared to the prior year. Our strong top and bottom line results along with our focused inventory management efforts continue to generate significant cash flow. During the quarter, we returned cash to shareholders through a quarterly dividend of $0.59 per common share outstanding for a total payment of approximately $130 million. Our capital allocation priorities continue to serve us well and remain unchanged.

Our first priority is investing in our business including our existing store base as well as high return growth opportunities. Such as new store expansions, remodels, and other strategic initiatives. Next, we seek to return cash to shareholders through a quarterly dividend payment and over time and when appropriate, share repurchases. And while our leverage ratio remains above our goal, which is below three times adjusted debt to adjusted EBITDAR, we are making great progress towards reaching our target level. Importantly, we remain focused on improving our debt metrics in support of our commitment to middle BBB ratings by S&P and Moody’s. Overall, we’re very pleased with our operating performance and financial results.

Our strong performance has positioned us to raise our financial outlook for 2025. This update primarily reflects our outperformance in the second quarter and improved outlook for the second half of the year. While considering the potential uncertainty, particularly on consumer behavior as we move through 2025. With that in mind, we now expect the following for 2025. Net sales growth of approximately 4.3% to 4.8% same-store sales growth of approximately 2.1% to 2.6% and EPS in the range of $5.08 to $6.30. Our EPS guidance continues to assume an effective tax rate of approximately 23.5% and that we will not repurchase shares under our share repurchase program. Now I want to provide some additional context around our expectations.

While we’re not providing specific quarterly guidance, the low end of our sales and earnings guidance ranges allow for increasing pressure on consumer spending as we move through the back half of the year with Q4 potentially more than Q3. In addition, we expect shrink to be a continued tailwind throughout the remainder of the year, though to a lesser extent in Q4 as we begin to lap the improvements we made toward the end of last year. Turning to SG and A, given our strong performance we now anticipate incentive compensation expense to be a headwind of approximately $200 million.

Moving to the final portions of our guidance for 2025, we continue to expect capital spending in the range of $1.3 billion to $1.4 billion designed to support our ongoing growth. This includes our continued expectations to execute approximately 4,885 real estate projects in 2025 including 575 new store openings in The United States and up to 15 in Mexico. 2,000 project renovate remodels 2,250 project elevate remodels, and 45 relocations. Finally, as a result of our strong cash position, we are using cash on hand to redeem $600 million of our senior notes in the third quarter, earlier than their April 2027 maturity.

In summary, we’re pleased with our Q2 results, and we’re proud of the work that the team has done to strengthen our operating and financial position. This business model is strong and we believe Dollar General is well positioned to drive sustainable long-term growth on both the top and bottom lines while creating long-term shareholder value. With that, I’ll turn the call back over to Todd.

Todd Vasos: Thank you, Kelly. I’ll take the next few minutes to provide updates on three of the most important initiatives across the business. As we look to further advance our progress toward achieving our short and long-term goals. I’ll start with our real estate work. As we continue to focus on driving sales and market share growth by expanding our unique real estate footprint while also enhancing our mature store base. We opened 204 new stores in Q2, primarily using our 8,500 square foot format in rural markets. Dollar General continues to serve as a vital partner, bringing value and convenience to communities across the country through new store growth.

In addition to our US growth, we opened four new stores in Mexico during the quarter, bringing us to a total of 13. Our team is doing a wonderful job serving those communities as we continue to test and learn and further develop that potential growth opportunity. We are also pleased with the progress of our remodel projects, As a reminder, in addition to our traditional remodel program, which we call Project Renovate, we have introduced a new incremental remodel program called project elevate in 2025. This initiative is designed to drive sales and market share growth in portions of our mature store base that are not yet old enough to be part of a full remodel pipeline.

These projects include physical asset investments as well as merchandising optimization, product adjacency adjustments, and category refreshes, all of which impacts approximately 80% of the total store. We completed 729 project elevate remodels in Q2 and an additional 592 project renovate remodels during the quarter. While still early, we expect to reach our goal of delivering first-year annualized comp sales lifts in the range of 6% to 8% for project renovate stores and three to 5% for project elevate stores. Importantly, we’ve seen significant improvements in customer satisfaction in these locations upon completion of the remodels.

And we believe the improved performance and customer response in these stores paves the way to make Project Elevate a key component of our real estate strategy in the years ahead. The next area I want to discuss is our digital initiative. Which serves as an important complement to our expansive store footprint as we continue to deploy and leverage technology to further enhance convenience and access for our customers. Our digital capabilities include an engaging mobile app and website that continues to be very popular with our customers as well as growing our delivery options and DG media net. We continue to expand the reach of our delivery options with solutions targeted both new and existing customers.

Our DoorDash partnership, now serves more than 17,000 stores, continues to drive significant incrementality and sales growth. To that end, our Q2 sales through this platform increased by more than 60% year over year. Building on this success, we partnered with DoorDash to launch our own same-day delivery offering through our DG digital solutions late in 2024. We have now expanded this offering to nearly 6,000 stores. We are also excited to note that we now expect to offer DG delivery for more than 16,000 stores by year’s end. Compared to our previous expectation of approximately 10,000 stores.

And most recently, we entered a partnership with Uber Eats to further expand the reach of our delivery capabilities as we provide value and convenience to customers on their platform. We have already expanded to approximately 4,000 stores with Uber and expect to be in approximately 14,000 stores by the ‘3. Collectively, more than 75% of the orders through these offerings are delivered in one hour or less. Ultimately, we believe this suite of delivery options will introduce new customers to Dollar General and drive incremental sales growth while also further enhancing the value and convenient proposition for our existing customer base.

The linchpin of our digital initiative is our DG media network, which enables a more personalized experience for a unique customer base while delivering a higher return on ad spend for our partners. We continue to be pleased with the performance of DG Media Network. Which is driving significant year-over-year growth in retail media volume as partners seek to access our unique customer base.

This initiative is an important component of our strategy to deliver on our long-term growth framework and we are excited about its Over time, we believe we can leverage our digital initiative to increase market share and drive profitable sales growth while further evolving our relationship with our customers and driving greater customer loyalty within the digital platform. The final initiative I want to discuss is our non-consumables growth strategy. As a reminder, we are focused on a few key growth drivers in our non-consumable categories over the next three years. These include brand partnerships, a revamped treasure hunt experience, and reallocation of space within our home category.

During Q2, we were pleased to deliver positive quarterly same-store sales growth in each of the three non-consumable categories for the second consecutive quarter. Notably, the magnitude of growth was broad-based with same-store sales increases in each of these categories of at least two and a half percent. Our brand partnerships are resonating with customers, and we have been pleased with the strong sell-through in many of these sets. As a result of the success, as well as our improved execution, our home products category saw its largest quarterly same-store sales increase in more than four years. In addition, our pop shelf stores delivered another quarter of strong same-store sales growth.

We continue to be pleased with the performance of the new store layout in this banner including a greater emphasis on categories such as toys, party, candy, and beauty. The pop shelf banner also continues to produce learnings that we are able to apply to our non-consumable categories in our Dollar General stores to further strengthen that offering for our DG customers. We believe our non-consumable sales performance both in Dollar General and Popshelf stores also benefited from improved execution in our stores and supply chain. As well as from the expanded trade in shopping we’ve seen from middle and higher-income customers.

These results, strong sales performance and market share gains continue to demonstrate that our treasure hunt approach is resonating with the customer. In turn, we believe we are well-positioned to serve them in these discretionary categories in stores across both banners and ultimately drive further growth in both sales and gross margin. In closing, we’re pleased with our second-quarter performance. Operationally, we are improving execution stabilizing our workforce through lower turnover rates, advancing our key initiatives, and enhancing our position for sustainable long-term growth. Financially, we’re delivering balanced sales growth significant margin improvement, and strong earnings, while also strengthening our balance sheet and operating cash flow.

With that said, we have ample opportunity in front of us to drive growth and further improve our operating and financial performance. And this team is laser-focused on delivering on these goals. As an essential partner in communities across the country, our customers rely on Dollar General in all economic environments. Delivering on our mission of serving others continues to guide everything we do, and we are excited about our plans for the back 2025 and beyond. Lastly, I want to thank our more than 195,000 employees for their commitment and dedication. And I’m looking forward to all we can accomplish together in the second half of the year.

With that operator, we would now like to open the lines for questions.

Operator: Thank you. At this time, we’ll be conducting a question and answer session. If you like to ask a question, please press star 1 from your telephone keypad, a confirmation tone will indicate your line is in the question queue. May press star 2 if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We may address questions for as many participants as possible, ask you to please limit yourself to one question. One moment please for our first question. And the first question is from the line of Michael Lasser with UBS. Please proceed with your question.

Michael Lasser: Good morning. Thank you so much for taking my question. Given that you are optimistic that shrink could contribute more than 80 basis points to your long-term financial framework. Does that mean that you expect to be able to realize the six to 7% operating margin maybe as soon as next year, or, alternatively, your long-term range should be recalibrated above 7%, or are you seeing anything in the environment that might suggest you’ll have to take some of this upside and shrink and other factors and reinvest it back in the business in order to drive the top line. Thank you so much.

Kelly Dilts: Yeah. Thank you, Michael. Great question. So we are definitely optimistic that we could potentially outperform on shrink and get a little bit more than 80 basis points over the mid to longer term. But we’re still targeting that long-term framework of 6% to 7% on the operating margin. This quarter just solidifies the fact that we feel good about where we are. Shrink is a big component of that and we’ve got a lot of strategies and initiatives in place to achieving that long-term framework. I think what’s important for us is not only getting to that 6% to 7%, but also the sustainability of that operating margin as we go forward.

Operator: The next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Simeon Gutman: Hey. Good morning, everyone. And, Kelly, good working with you, and then eventually, congratulations to Donnie. I’m gonna ask you a two-part you’re welcome. Two-part question. So first, if you take the gross margin in the second quarter, and we hold that base, it does look like it steps down in Q3, but is there any reason why it should step down more than expected seasonally? Meaning, is there anything temporal about the gross margin that’s not a good proxy? And then second, Todd, from when you came back in 2023, thinking about all the execution items, can you talk about what’s left and what you’ve gotten done? Thanks.

Kelly Dilts: Yes. So I’ll answer the gross margin question first. What we’re seeing now is obviously just an outperformance on shrink. So 108 basis points this quarter of the 137 basis points improvement. As we think about cadence for the back half, we’re certainly expecting a year-over-year improvement in both of the quarters. But what I would tell you is we actually have tougher laps in Q4 on the gross margin front. And so we would expect maybe a little bit less on Q4 as far as improvement over year-over-year. And then you didn’t ask about SG and A, but I do want to call out just one thing on the SG and A front.

We would expect more pressure in SG and A in the third quarter, and that’s really around repairs and maintenance. It’s kind of the season for repairs and maintenance we get into hurricane season and we’re still kind of in that warm weather. But what’s the big contributor there is we’re also wrapping up our project Elevate and Renovate. Projects mostly in the third quarter, and so that puts a little bit of pressure on Q3.

Todd Vasos: Yes. And Simeon, I am very, very pleased with where we are, with our back-to-basics work. I would tell you that the team has done a really good job from, back of house. So our supply chain, our merchants, to front of house, if you will, and that’s in our stores and the execution. It really is paying off. You can see it in our top line. Not only a strong 2.8% comparable sales number that we posted, but as you look at that sales number, it’s very balanced. Consumables and non-consumables contributed very nicely to that 2.8%. I would tell you that we are retailers.

We always have work to do as it relates to a lot of what we’ve been working on. But, again, if I was to step back and think about it and base terms and innings, I would say we’re in the very late innings of this game. And then we’re really into now sustainability. Of what we have worked on. And I would tell you, feel real good about that as well. From a couple standpoints. Number one, we have done a really nice job in our turnover rates have come down. We’ve had some consecutive quarters of those decreases and we continue to be happy with where we’re at.

I would tell you that our pipeline for folks coming into the organization is as robust as ever. And I’m very happy to say that our store manager turnover rates are down again this quarter. So a lot of what we’ve been working on to make life easier at the store level is starting to really resonate not only with the customer, but our employee base, which is really important.

Operator: Our next question is from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Rupesh Parikh: Good morning, and thanks for taking my question. And also, Kelly, best of luck. So I’m gonna focus my comments just on delivery. So as you look at the DoorDash and I guess Uber is still very early, but just any surprises or key learnings to date? And then, you know, as you’ve added Uber, like, how do you think about the incrementality of that offering? Thank you.

Todd Vasos: Yeah. Rupesh, thank you. Yeah. I can tell you, our digital solutions in general, just totality, we’re very happy with where we are. Very early innings. Again, baseball analogy for you. Very early innings on our digital journey. But as you know, and you’ve pointed out, DoorDash has been really the start of our digital journey, if you will, from a delivery perspective. We’re up to 17,000 locations which is great to see. And I would tell you that we saw a 60% year-over-year increase on that platform. And by the way, off of a pretty robust number to start with. So very happy with what we’re seeing there.

But the team isn’t slowing down here because again, we’re in the early innings. Saw where we just signed a deal with Uber Eats. We are happy with what we are seeing very early there in the partnership. 4,000 stores up and running. And by the end of the third quarter, we’ll have 14 stores is what our goal to have up and running on that platform. And that just expands the reach to our to our consumer. And then last lastly, on our delivery piece, white label program that we stood up Again, very early days, but we’re seeing both incrementality there as well as larger bass baskets.

And these larger baskets and some of them well north of $20 baskets for us would point to incremental ality and would point to more of a fill up versus a fill in. With that notion, you would feel that and we feel that a lot of it is incremental to our base. The great thing about our delivery piece is we are going to have more and more stores up and running. Believe we were great to be able to put out there 16,000 by year end now. Which is an acceleration from where we were. And I think that’s a real testament to what we’ve already seen so far.

You know, to use my terminology, we’re gonna put the pedal to the metal here. Because we see some real opportunity ahead. And I would tell you again the platform across all the digital properties The linchpin of this is our digital media network. And again, it has shown strong results this quarter. And continues to show strong results. So stay tuned there because I believe there’s going to be even more incrementality that comes from that media network. We have a very unique customer base, as you know, being that 80% of our stores are in small town rural America.

And it is hard for CPG companies and other companies to get ahold of clientele that is just in those areas and we have all that data. And so that data will be used in our media network. And I would tell you that our partners already very interested in that. And then lastly, our secret sauce here, if you will, is that so far to date, we have seen that 75% plus of our deliveries are in one hour or less. And I would tell you that is the fastest that we’ve seen out there across the spectrum so far. Rural America where it is hard to reach many, many customers.

So, we believe that’s a competitive advantage for us. And will continue to be as we move forward.

Operator: Our new question is from the line of Matthew Boss with JPMorgan. Please proceed with your question.

Matthew Boss: Thanks and congrats on a nice quarter. So Todd, on your forecast for increasing pressure, on the low-income consumer as the year progresses, what are you seeing in your survey work today across your income, customer cohorts? And where do you see DG’s value proposition as it stands today relative to opportunities maybe planned to amplify value? And Kelly, on the gross margin, where do you see shrink recovery in terms of innings today? And how best to think about additional drivers of gross margin multiyear from here?

Todd Vasos: Yeah. I’ll start, Kelly, and, send it over to you. You know, right now, Matt, I would tell you that, I would characterize the number one as resilient. And number two, seeking value. And seeking value we’re seeing that in all cohorts of customer, meaning our core customer, mid and high-end customers, all seeking value at this point. We’re seeing in our numbers, our trade-in has been accelerating over the last few quarters. We saw that again And what we’re seeing from the customer You know, coming into and out of Q2. is a good start to Q3. Our back-to-school offering was solid and in good shape.

And I would tell you our harvest and Halloween programs are off to a great start. It really shows and what we see in our data is not only our existing customers, but those new customers coming in. And those new customers coming in have a little extra money in their pocket to spend on that non-consumable categories. And as you heard in my prepared remarks, and I mentioned earlier, we saw a really nice balance in our sales of both consumables and non-consumables. But I would tell you, it’s it’s much deeper than that as well. As they seek value, we have a great proposition for them. Right?

So our everyday low price stance, we have never lost focus on that. We’re as good as ever across all classes of trade on our everyday price, and our customers resonate with that very nicely. We have a great promotional cadence that we use. To continue to stimulate that consumer and especially stimulate these newer consumers as they come in to, to deliver value because they’re not as familiar with that value proposition and what we offer them. So that digital through digital properties, we’re able to reach them. And, so a nice promotional cadence in as well.

Here’s the other value proposition that I think gets lost at times, and that is we still have and will continue to have at least 2,000 items at a dollar or less every day on the shelf. Matter of fact, our Value Valley area, which I know you know, Matt, pretty well, we have over 500 SKUs, and they’re rotating SKUs. At that $1 price point still today. With 2,000 overall inside the store. And I would tell you in Value and across the store, the gross margin on those items are it may exceed the category margins in each one of those items that they play in. So it’s very sustainable for us.

And by the way, when you look across the retail spectrum, it’s a very elusive price point at this point. I would say we’re one of the only ones that have really doubled down here and really pushed that $1 price point. So value to me, and I believe as our consumers look at it, is multi-pronged here at Dollar General and is very sustainable.

Kelly Dilts: On the gross margin side, take it in a couple of pieces. So first on the shrink side, again, we were just really excited to be outperforming the shrink reduction that we contemplated in our long-term framework again and timing and magnitude. Shrink continues to build then the trend and like I talked to earlier, we do anticipate it’s going to continue to be a tailwind. Into 2025 even with the tougher lap in the second half and particularly in Q4. If you don’t mind, I’m just going to list out all the actions that we’re taking because as you know, we’ve got a full team that sits on this shrink problem and they are really producing it results.

The first thing was just the self-checkout conversion and that’s been a big tailwind. But we’re also getting back to our operational excellence with strong in-store control environments and we see that because we continue to see shrink improvement in stores that never had self-checkout. And so that’s great to see. All the inventory reduction and SKU rationalization work is contributing. The improving retail turnover that you heard us talk about is certainly a contributor to this as well as just the expanded shrink incentive programs that we put in place.

We’re still utilizing the high shrink planograms Then as you know, we really worked at this end-to-end process in so that we make sure that we’re mitigating shrink at all points of exposure. I think what all of this combined gets us really excited because there’s as you can remember, it takes a full year for benefits of any actions to truly show up in the P and L. And our workaround shrink never ends, as we add continual actions, we should see some improvement.

So over the mid to long term, we do feel optimistic that we would give it more than the 80 basis points of shrink improvement I think the other piece that we’ve talked about in the long-term framework and that we’re starting to see improve is also around damages. So our goal going into 2025 for damages was flat to slightly favorable. We’re still holding that in the back half but I’ll tell you that Q2 exceeded our expectations and as you saw, it was actually a call out of the good guy in our variance analysis in our earnings release.

So really pleased to see that starting to take hold and just like shrink, we’ve got a team after this A lot of the things that help us on the shrink side also help us on the damage side, which is the inventory reduction, SKU rationalization. We’re also having a full court effort around product rotation, getting more precise in our inventory allocation, which helps us to mitigate future expiration damages. Then just that proactive investment in the repairs and maintenance through our two remodel programs should also help us reduce cooler damages.

So I would tell you between the two overall, we are just feeling really good about the path to improvement, that 80 basis point on shrink, the 40 basis points on damages that we identified in our framework that we rolled out in March. And then just on the initiative side, think you’ve heard Todd talk all about the initiatives that we have in place to drive their 150 basis points around DG media network, all the exciting things that we’re doing with delivery and the non-consumable as well. So we feel good about gross margin as we head into that mid and longer term.

Operator: Our next question is from the line of Edward Kelly with Wells Fargo. Please proceed with your question.

Edward Kelly: Hi. Good morning, everyone. Thank you for taking my question. I wanted to follow-up on the gross margin. Obviously, a very strong result this quarter, shrank a big driver. You know, but LIFO was an offset, and it does seem like there’s I don’t know, roughly, like, 80 basis points in here of, you know, a tailwind that I mean, I guess, it seems like a lot of it is initial markup. So can you just talk about, you know, what that is? And then just a quick follow-up. SG and A, you know, there has been some talking about increased higher liability claims.

Just kinda curious, is that something that are seeing, sort of like where you are in the process there, from, an actuarial standpoint in assessment, and if there’s any risk there. Thanks.

Kelly Dilts: Yeah, thank you for the question. So, yeah, on the LIFO, would say, you know, year to date Q2 reflects what we know as regards to current tariff rates as well as it contemplates any cost increases that we’ve gotten from any of our vendors. If you step back and just take a look at the big picture what I would say is of the 137 basis points improvement in gross margin, we got 108 basis points of that in shrink. And then we’re getting 29 basis points tailwind from all of the other areas combined. Solid improvement on the gross margin front.

Todd Vasos: You to address workers’ comp and those people?

Kelly Dilts: Yeah. Thank you, Todd. And then on the general liability front, we are seeing some impact. It’s not material. Generally, we’re seeing the trend towards claims being more expensive as resolve those, but not material impact to us right now. Trends that we are seeing has certainly been contemplated in our guidance.

Operator: Our next question is from the line of Zihan Ma with Bernstein. Please proceed with your question.

Zihan Ma: Great. Thank you so much for taking my question. I wanted to break down the comp sales performance a bit more. In terms of, you mentioned, the trade-in benefit and also, of course, the better store operations driving more traffic. Can you help us better understand what proportion of the comp is driven by more macro-oriented trade-in versus more company-specific? And then going into next year as we start to lap the tougher trading comps, what is going to be sustainable on the top line? Thank you.

Todd Vasos: Yeah. Well, I would think as we look at where we are today, let me address the first part. And then we’ll get to that sustainability piece. We feel good about where we are both from our core consumer as well as the trade-in consumer. And I would tell you that a lot of the work that we did Back to Basics has served us well. And, quite frankly, has set us up nicely for that trade-in consumer. As that trade-in consumer came into the brand, over the last few quarters, they’ve seen a better store both from cleanliness in stock, as well as friendly as well as having somebody at the front end to meet and greet them.

So I would tell you that from all the work that the team has done organically, has produced a nice outcome. On the comp of 2.8%. I would tell you that as I look at the composition, as I mentioned earlier, being pretty balanced between consumables and non-consumables, that The work the team has done on the merchandising side on our non-consumable business has been phenomenal. All these brand partnerships that we’ve been talking about along with great execution at store level, and the flow of freight from our distribution centers has all been very, very good to deliver that outsized comp that we saw in our non-consumable businesses.

We believe as we move to the back half of the year, we’re well positioned. Think about it this way, right now, as we look at the back half of the year, our value proposition is as strong as ever. Matter of fact, we’ve got about $1 SKUs for the seasonal piece for the back half of the year. 25% of the offering is at $1 or less. So even in the face of tariffs, we’ve been able to maintain a $1 price point in our seasonal offering, which should resonate with the consumer. Matter of fact, 70% of the total offering is at $3 or less. So again, the team has done a great job.

What that shows me, and I believe will show in our results with our customer is that value is alive and well at Dollar General. They’re and they are seeing that as they trade into the brand. So I would say it’s really both sides. It was some self-help but also that consumer coming into the brand. But without that self-help, I’m not so sure that she would have stuck with us. That really brings me to the second part of your question. And we do this very well and that is being able to retain that trade-in customer We’ve got a playbook that is very robust and dense. We digitized it a few years back coming out of COVID.

And what I mean by digitize it, we had a great playbook coming out of the great recession, call it that 02/1011 time frame. We digitized it coming out of COVID in 2122. And now we’re pulling that playbook back out. Matter of fact, we’ve already started marketing to these new customers digitally. To, one, continue to keep them engaged and two, hopefully keep them on that Dollar General journey even if time start to get a little better or different for that core consumer. So or I’m sorry for that trade-in consumer. So we’re working on all angles as you would imagine from Dollar General. But comp sales are the lifeblood of this business.

And we’re pushing to deliver a comp at or above where we said we would be.

Operator: The next question is from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Chuck Grom: Thanks. Good morning. Real nice work here, Todd. You know, it seems like the only really missing ingredient here is getting the comp back above 3% and being able to do it consistently. I guess, how are you feeling about that opportunity and what are the drivers to get there? And then, Kelly, the gross margin line, a lot of questions there. Can you talk about the interrelationship between shrink and inventory damages and maybe size up the damages opportunity relative to maybe where you were the past couple of years? Thank you.

Todd Vasos: Yeah, Chuck, thanks for the question. In our long-term framework, as you probably recall, we feel very comfortable in that two to 3% to deliver that. Now we are retailers. You know me pretty well. You know this team well. We will strive for more to drive it above those numbers. But I would tell you, we feel very comfortable in two to three range as we go forward. Now in saying that, we’ve got a lot of drivers, not only the self-help that we talked about, not only that great value proposition, that we continue to have for our core consumer as well as these trade-in consumers But what we also have is a plethora of initiatives.

So when you start to think about our project renovate and elevate, stores, those are great comp drivers. Matter of fact, our mature store base really threw off a very nice comp this past quarter. A lot of that driven again on all of the initiatives that we laid out but also as you start to look at what projects elevate and renovate, are doing, they’re they’re they’re starting to produce those comps of six to eight for renovate and starting to produce and working our way to three to five on the on the project elevate stores. So those are all great mature store based comp drivers.

And we’ve got a long runway for that as you would imagine over the next few years. With 20 to almost 21,000 stores now in the portfolio. So we’ve got a great opportunity there. And by the way, the customer response has been overwhelming on these remodels. And as important, so has our associate our employee base has really loved the and because they’re very proud because the customer is loving it. And then lastly, we want to deliver a very balanced portfolio sales. Those non-consumable initiatives continue to be very important.

And I would tell you that, that PopShelf will continue to be important for us as we continue to test learn, and then bring back to the mothership, if you will, Dollar General, those learnings and then deploy those across the chain. We’re doing that as we speak, and I believe that’s been some of the comp driver you’ve also seen on our non-consumable businesses.

Kelly Dilts: And then just as I think about shrink and damages, one thing I’d just like to say is, seeing shrink and damages improve together is a real positive. And so you know, we’ve talked a lot about strengths and maybe I’ll just give you a little bit more color on the damage side. Like I noted just a little bit earlier that we did expect damages to be flat to slightly favorable as we work towards that 40 basis points improvement over our mid to long-term framework. And we believe we’re well on our way to that with Q2 exceeding our expectations there.

And so as you as you’re probably noting in your question, a lot of the things that improve shrink will also improve damages and we’re seeing all of those things come to fruition. And so we feel good about our ability and our to that 40 basis points of improvement.

Operator: The next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Seth Sigman: Hey, good morning, everyone. I wanted to focus on SG and A. Q2 seemed unique because of the incentive comp Returning. You talked about maintenance and repairs, I guess, in Q3. Can you talk a little bit more about the path back to normal operating leverage in light of the 2% to 3% comps that you mentioned? Guess a lot of costs have come back over the last two years, including this year or year to date. Should we assume this is just catch up and then we enter next year with a more normal expense base? How do you guys think about that? Thank you so much.

Kelly Dilts: Yes. No. That incentive piece is certainly a big headwind for us this year, almost $200 million. And so I think probably a more normalized rate is one that we would exit out of this year. As we think about going into 2026. I will say, there’s just been a ton of work around just making sure that we’re mitigating SG and A deleverage as we move forward. It’s part of our framework that we called out so that the huge focus for us. Specifically around simplifying work and driving efficiencies, as well as we think about the CapEx side and how it plays into depreciation. Just optimizing CapEx to stabilize depreciation and amortization.

And so working hard to make sure we’re mitigating that SG and A deleverage. And then with all of the gross margin levers that we have in place, that’s where we feel really good about getting to that 6% to 7% framework as we go over the mid to longer term.

Operator: The next question is from the line of Kelly Bania with BMO Capital Markets.

Kelly Bania: Hi. Good morning, and best of luck to you as well, Kelly. Thank you. Wanted to wanted to dig into the to the comp on the discretionary side. Sounds like the they were in that maybe 2.5 range, but can you unpack that between the price mix and units and just help us understand what is in the plan in terms of inflation for those discretionary categories in the back half?

Todd Vasos: That’s a great question. I would tell you that the AUR was very similar year over year in those categories. Matter of fact, you know, a lot of this is spring and summer during Q2 sales in seasonal areas as an example, and a lot of the goods that we brought in prior to tariffs really were the drivers here. So tariff and price increases were not a real factor in our overall comp in non-consumables. And as I mentioned earlier, even with tariff numbers starting to flow into our seasonal home and other categories, we’re still holding price points on many of them.

You heard me mention the 25% of our holiday assortment will be at a dollar or less. And as we look at 70% of our offering, still being at $3 or less. I would tell you that the team has done a really good job of trading off items and bringing in new items for the seasonal areas to keep price points pretty stable for our consumer overall, especially as we look at non-consumable businesses. I feel as if the business is very stable but growing. And the reason I am bullish there is we’re seeing the takeaway early on our holiday, especially in our harvest and Halloween areas. And those areas, again, have tariff rates embedded in them.

But again, very manageable for our core consumer. And then lastly, I would tell you that all of the work that the team has done in non-consumables is really starting to come together and start to generate this positive momentum we’re seeing. To your point, each of the three major categories in our non-consumable areas comped at 2.5 plus. Some of them couple of them crossed in the three mark. And I would tell you, you know, feeling really good about that sustained momentum as we go forward with all the work that the team has done through brand partnerships, as well as the what the team has done at execution at store level.

And I can’t say enough about that. That is a very big component especially for our trade-in consumer that’s coming in to resonate with these items.

Operator: The next question is from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Peter Keith: Hi, thank you. Nice quarter, guys. And, Kelly, best wishes. Thank you. I was wondering if you had an early view on how the one big, beautiful bill will have an impact on your core customer And then maybe digging into that a little bit, looks like Snap Dollar’s will get cut starting in October. Maybe by about high single digit percent. Is that something that’s factored into the outlook? Do you think that will have any impact?

Todd Vasos: Yeah. Let me take the first one first. It Everything we know to date is factored into our outlook. Now, we don’t believe in snap things that are out there, especially those related to work requirements, will be very impactful for us. As we went through this a few years ago, the work rule requirements was not really a factor for that SNAP customer for us. Now as you look at the bill in totality, whether it s this year and items that will be coming up from 26 through ’29. You know, we believe, overall, it should be a little bit of a tailwind for our core consumer.

Some of you may be surprised at that, but I would tell you as you look at those areas, especially the ones that are already in play, even though a lot of them won’t be they won’t recognize the income until tax time next year. You know, things like no tax on tips. Up to the, you know, up to the levels. No tax on overtime. The Social Security no tax pieces. All of that is very beneficial for our core consumer. And we believe we will get our fair share of those benefits. As we move forward. So a lot of positives, at least initially early.

Some of the headwinds broader snap cuts perhaps and a few other things that probably come more in late twenty seven, twenty eight. We’ll continue to watch for. And see how they progress and what they look like But overall, feel really good about what our core customer initially will see from these tax benefits. We believe it really will be including the child tax credits, really be a benefit for our core consumer.

Operator: Thank you. Our last question is from the line of Robbie Ohmes with Bank of America. Please proceed with your question.

Robbie Ohmes: Oh, thanks for sneaking in sneaking me in here. Todd, can you just talk about what Dollar General? Remind what you guys are doing on the fresh initiatives you guys are doing with DG Market and maybe how you see competing with Walmart and I guess, maybe even Amazon at some point trying to get more fresh food delivery into the rural markets.

Todd Vasos: Yeah. Thank you for the question. We’re really proud about the work that we’ve done in these fresh categories. And quite frankly, that work has been going on and accelerating for the last twelve, thirteen years here at excuse me, at Dollar General. As you As a reminder, we stood up our own fresh distribution network in 2021 and into early twenty two. Which has given us a real leg up and opportunity to get product to our stores. Timely and in full. We’ve got produce now in 7,000 plus stores. We have got fresh meat in thousands of others.

We are building our DG market concept and also putting produce in even outside of DG Market concept in our in our Dollar General stores where it makes sense. Especially as you mentioned in rural America. And the great thing about our delivery pieces is that and we’re already seeing it in rural America where folks are buying those fresh items, fresh, frozen, deli, dairy, produce online and being delivered in an hour or less. To our consumer base. We believe again, as I mentioned earlier, that to be a competitive advantage as we move forward, especially the speed that we’re able to offer her and at the value pricing that she knows and loves for that Dollar General already.

So we believe that it’s a powerful combination. That we will continue to cultivate in the years to come.

Operator: Thank you. At this time, we’ve reached the end of our question and answer session. This will also conclude today’s conference. You may now disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Image source: The Motley Fool.

DATE

Thursday, August 28, 2025 at 5 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Max Levchin

Chief Financial Officer — Michael Linford

SVP, Investor Relations — Zane Keller

SVP, Finance — Rob O’Hare

Need a quote from a Motley Fool analyst? Email [email protected]

TAKEAWAYS

Record Quarterly Performance—Affirm Holdings(AFRM 3.08%) reported new records for most key operational and financial metrics, which management noted is unusual for a fiscal fourth quarter ended June 30, 2025, outside the normal seasonal peak.

Repeat Borrower Rate— 95% of transactions in the fiscal fourth quarter ended June 30, 2025, were from repeat borrowers, indicating high platform engagement.

0% APR First-Time User Penetration— Approximately 50% of first-time users in the most recent quarter originated on 0% APR products, with these users exhibiting repeat usage patterns similar to the broader user base.

Conversion from 0% to Interest-Bearing— Customers who initially use 0% APR loans convert to interest-bearing products, according to management, providing incremental future revenue streams.

Merchant Adoption of 0% APR— The number of merchants subsidizing 0% APR loans doubled year over year.

Funding Capacity Growth— Funding capacity grew by approximately 55% year over year, as Affirm secured additional “blue chip” capital partners focused on long-term relationships.

Affirm Card Metrics— Card annualized GMV reached $1.2 billion and the attach rate reached 10%, with trailing 12-month average GMV per cardholder rising from $3,500 to $4,700 for the period ended June 30, 2025.

AI-Powered Adaptive Checkout (Adapt AI)— Adapt AI deployment led to an average 5% increase in GMV for participating merchants by optimizing financing offers at checkout.

International Expansion Progress— Initial “friends and family” testing has begun in the UK in partnership with Shopify, with early results showing higher interest-bearing product mix.

Enterprise Merchant Relationship Wind-Down— Guidance assumes integration with a significant enterprise partner will be fully concluded in the second quarter of fiscal 2026, with zero volume expected thereafter.

Revenue Less Transaction Cost (RLTC) Outlook— Management expects the RLTC take rate to remain at the high end of the targeted 3%-4% range based on current product mix trends.

SUMMARY

Management confirmed accelerated growth across core metrics in the fiscal fourth quarter ended June 30, 2025, and significant expansion of the 0% APR product among both users and merchants. Repeat engagement climbed, with a substantial proportion of total volume attributed to returning customers. Funding capacity grew by approximately 55% year over year and deepening long-term partnerships with leading asset managers. Innovative AI deployments, notably Adapt AI, demonstrated measurable uplift in merchant sales conversion. International entry is underway via UK pilots, supported by the Shopify channel, signaling future additional geographic moves.

Max Levchin said, “our growth is accelerating, and we are firing on old pistons.”

Michael Linford said, “a one-point move in reference rates should translate to about a 40 bps change in our funding cost,” with impacts flowing through gradually given portfolio duration.

The company highlighted that 0% APR loans remain “still profitable” for Affirm despite lower margins, as they convert users to more lucrative products over time.

Affirm indicated no anticipated impact to its underwriting standards or credit controls despite an increasingly competitive funding and lending landscape.

INDUSTRY GLOSSARY

GMV (Gross Merchandise Volume): The total dollar value of transactions processed on the Affirm platform within a period.

RLTC (Revenue Less Transaction Cost): A profitability metric defined as revenue net of direct transaction costs, used by Affirm to track unit economics.

Attach Rate: The proportion of total eligible transactions in which a specific product, such as the Affirm card, is used.

Adaptive Checkout / Adapt AI: Affirm’s proprietary checkout flow enhanced by machine learning, which customizes financing offers for each consumer to optimize conversion and merchant economics.

0% APR Product: A loan or installment financing offer provided at zero interest to the consumer, typically subsidized by participating merchants.

Repeat Borrower Rate: The percentage of total transactions originated by customers who have previously borrowed through the Affirm platform.

Full Conference Call Transcript

Max Levchin: Thank you, Zane. The results, which I do think are exceptionally strong, is all the explaining we need to do. So just one tidbit. Left on a cutting room floor. That we didn’t just crush this quarter. We actually set a new record most of our metrics, which is unusual fiscal Q2 is a normal peak, but this is Q4, and, yep, it is the record. So that’s really cool. Tell you that our growth is accelerating, and we are firing on old pistons. Also, we just celebrated Libor’s decade at a firm a few months ago, and so I want to Michael on his seven years here as of yesterday. And Rob’s upcoming fifth anniversary this Sunday.

Privilege to lead an extremely talented and dedicated team, and I don’t take for granted that they and their families are willing to put up with my antics for so many years. Thank you guys, and here’s to many more years of building a firm together. Back to you, Zane.

Zane Keller: Okay. Great. Thank you, Max. With that, we’ll now take your questions. Operator, please open the line for our first question.

Operator: Great. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. Confirmation tone will indicate that your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions.

Dan Dolev: And our first question comes from the line of Dan Dolev with Mizuho. Please proceed with your question.

Dan Dolev: Hey, guys. Max, Rob, Michael. Great results as always. So obviously, really strong quarter, amazing guide for next year. It sounds like last quarter, you were talking a little bit about the potential stress and the impact on the firm. It sounds like things have gotten a little better for you from when you reported last time to now. And it has what is, you know, what is your best take on how things stand now and what are the reasons for that optimism? Again, really strong stuff. Very good.

Max Levchin: Thank you, Hans. You know, as Michael loves to say, we take our guidance very seriously and on the side of being thoughtful and, aiming to, get ourselves some a pluses. Instead of just straight a’s. And, we typically, do deliver. Not a forward-looking statement. But you know, from the consumer point of view, which I gather was the question we think that it continues to perform. It’s really maybe a commentary on how strong the momentum is in The US and to at least similar degree Canadian consumer. And, soon, we’ll find out that looks like for UK one. But we’re feeling very good about the originations we’re driving.

We feel quite excellent about our ability to get paid back on time. So the credit side of the equation, continues to perform really well. On the demand for our service, you see the acceleration in GMV and the, new record in that sense. It off calendar, if you will, is also a reflection of the fact that folks are using Affirm for more and more things.

Dan Dolev: Thank you. Great stuff again. Thank you. And our next question comes from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.

Dan Perlin: Thanks. Good evening, everyone. So I want to go back to the 0% APRs with the first-time users coming in. I think you said that was, like, 50% Mhmm. Which is, again, like, a very, very strong number. So the question is it’s bringing in a lot of new users. I’m wondering when you look at kinda prior quarters, obviously, you can’t look at it this quarter, but prior quarters, what kind of, like, repeat rates are you able to, I guess, glean from those initial users coming in? And the real crux of the question is, are they coming on the platform because of 0% APR, but they’re not using it again?

Or are they behaving similar to maybe more traditional firm user? Thank you. It’s a great question. I appreciate the implied dig at how real are these growth users, but I have good news on that front. They do repeat. Obviously, every credit strata behaves a little bit differently in a sense that folks choose us more or less depending on what alternatives they have, how they feel about the merchant coverage or the deal covers that they want.

But generally speaking, there’s not a tremendous difference in terms of repeat of users that have been acquired through zeros or not, But the more interesting thing, which you didn’t ask, but I’m gonna answer anyway, is do zero users flip over to interest bearing? And they do. And that’s, I think, is a really, really important indicator. Obviously, 0% transactions are somewhat less profitable for us. They’re still profitable, so this is not a loss leader. But the interest income that comes in interest-bearing loans, is obviously more profitable, and those folks enjoy zeros when they are available to them.

But experience using Affirm is so positive, they do convert to interest-bearing users just fine and, come back to us for many other things than just zeros. That’s great. I figured I’d sort of dig in early. So thanks. Oh, yeah. That’s a good it’s I when I was reading her numbers, like, you know, what would I stick my finger and be like, how good is that? And this is a good one to ask. Yeah. And the answer positive. Awesome. Yeah. That’s fantastic. Thank you. Have a good one.

Adam Frisch: Thank you. And our next question comes from the line of Adam Frisch with Evercore ISI. Please proceed with your question.

Adam Frisch: Hey, guys. Good afternoon. It seems like you guys are just Max, I’ll quote you. You guys are crushing it. The only thing I could see kinda derailing the story is what’s going on with the consumer. And if you expect things like the resumption of college loans and so forth, maybe the data around consumers gets a little dicier in the next couple months into the end of the year. Could you just remind us where you are in your spectrum of the folks that use your platform, where they are on the FICO scores relatively, like, how many of your transactions are with consumers that are near prime, prime, or super prime?

So when the data inevitably comes out, the consumer might be getting a little shakier, we have someone to fall back on in terms of the quality of the folks engaging. With Affirm. Thank you.

Max Levchin: I don’t know if it’s gonna come out any sooner than right now. It’s all our supplements, I think. But generally speaking, student loan repayment resumption is something that we’ve all been aware of. Of for quite some time and have definitely taken measures to make sure we are not overextending that borrower and also monitoring how that is going for them. And so it the reason or the fact that we don’t give or didn’t give an enormous amount of attention to the credit performance in this particular letter, isn’t because we forgot. It’s because it’s been highly consistent and con perform really well.

But it also doesn’t mean we’ve taken our eyes off The sort of the thing that we kept on repeating for years and years is that credit is job number one. It still is. The team still gets the executive team still gets a full credit performance update every single Monday. And anytime the disturbance in the force we move that from once a week to three times a week and you know, daily if that’s that warrants it. And so we are very, very mindful of threat performance. Are not even a little bit asleep with the switch. The numbers you see are there exactly because we want them to be there. Set a many times before.

Credit performance is an output of our settings of the models that we run. You know, not sure to belabor the obvious, but we underwrite every single transaction, and there’s reserve the right to decline transactions we feel are too risky for the end borrower and for Affirm, and we do. And if there’s ever a deviation from our normally, extraordinarily high net promoter scores because not everybody enjoys hearing, hey. You shouldn’t borrow. You’re overextended. But we won’t change our point of view on their ability to borrow and our willingness to lend if they are in fact overextended, be it with a firm or overall in their credit utilization. So no, I’m not concerned about that.

Obviously, macroeconomic shifts are a thing that happens to everybody at the same time. That’s not a thing we control, but we can control our results and have controlled the results for years and years as the macroeconomic environment moved up and down, sometimes pretty suddenly.

So I feel very good about our performance, feel good more importantly, in our ability to control that performance so long as we keep our eyes on the credit numbers, and we certainly And I would just add that I think given the short duration of the loans that we’re originating, the most important things for us is that we have a full picture of the borrower’s wherewithal to repay the loan at the time of origination. And then the asset is so short-dated and we’re increasingly working with consumers that we’ve seen before. 95% of our transactions came from repeat borrowers this quarter.

So that setup really allows us to focus on underwriting the consumer here today where they are and making sure that we’re instrumented to catch changes in the future, but we don’t really stare at those problems in advance. I think we’re really focused on making sure that the cohorts that we originate today pay us back. And if we need to adjust the underwriting, you know, to be more inclusive or less inclusive in the future, we’ll we’ll do that. In normal course.

Will Nance: Thank you. And our next question comes from the line of Will Nance. With Goldman Sachs. Please proceed with your question.

Will Nance: Guys. Thanks for taking the questions. Nice results today as always. Wanted to ask a question just on the funding environment. Max, we’ve continued to see the capital markets be wide open for consumer lenders. Like your funding capacity was up roughly 55% year over year, utilization is way down. We’ve also seen that in pretty much every other lender in the space. With the rise of kind of alternative credit coming into the space. How do you think about the incentives that this creates in the market and, like, the risk of credit issues that result from more of an oversupply of funding from of the lower quality competitors in the space.

Or, you know, people who are kind of flush with funding and haven’t have kind of incentives to make a lot of loans because of that. Thanks.

Michael Linford: I can start and Max can add like, I don’t know the way I can really speak to the people in the in the broader ecosystem. I know that we are really mindful of the health of the capital markets when we think about picking our partners. As important that we pick capital partners who we think are going to be our partners for the long term and not just worrying about who’s the lowest bid today. And as a result, we partner with what we think is the blue chips of these asset managers.

And that can come in the form of large strategic partnerships, with world-class investors like Sixth Street or very good insurance asset managers up and down our stack. That’s not an accident. We think really long and hard about picking the partners who we think are gonna be, committed and long term with us. And therefore, we don’t move too quickly either. We don’t pivot out of a strategy. We think in the better part of decade increments. So we’re not so concerned with, what those partners do because they’re obviously thinking about the problem, in the right way. I will say the conditions are very favorable as you pointed out, and that’s to our to our benefit.

We’re really mindful of that, and I think that’s part of the reason why the execution is so good right now.

Moshe Orenbuch: Thank you. And our next question comes from the line of Moshe Orenbuch with TD Cowen. Please proceed with your question.

Moshe Orenbuch: Thanks. Thanks very much for taking my question. I was hoping we could talk a little bit about the Affirm card. You gave some statistics, you know, talk about it being a billion 2 volume, a 10% attach rate. And also that the 0% volume on the card kinda tripled you just talk a little bit about, you know, the current strategy with respect to the card, how you think it’s gonna you know, impact the firm’s customers and volume going forward, and maybe is there any special significance to the 0% of that product?

Max Levchin: Yeah. Try to parse all the really cool threads to pull on here. Actually, cars are growing really well. So the meaning of the update for the avoidance of doubt was it’s kicking ass and taking names, and we’re very proud of it. And we got a lot more to go before we think it might change. The percent attach rate is just a number. We’re we’ll celebrate more when it increases. The strategy with the card, I learned the hard way that I’m not gonna front run what’s next for it. But it is an extremely active area of investment for us. So we have more coming more things coming. Some really we think, yeah.

It incrementally powerful boosters to this particular rocket are on the way. So we’re pretty excited about what’s to come there. I will not pronounce them now. But you know, I’m I’m still spending a lot of my time figuring out how to make the card even more compelling. You can see a little bit about the offline category growth. In the update, I think, and that sort of speaks to the fact that we are learning how to offer it in the right way to the consumer so that they remember to take it with them to places where they haven’t used for EG, a gas station, which is just not a thing you can integrate you know, online.

In terms of zeros on the card, it’s actually a more than anything an amazing surprise and delight. And frequency driver. So if you remember last call, we said that the really ambitious version of the card gets us to 10,000,000 card the vision version of the card future is 10,000,000 cardholders active and, something along the lines of 7,500 plus. Transaction GMV per year. The current trailing twelve months of the cardholder is about $4,700. So think the last time we dropped this number, it was along the lines of 3,500. This is across all Affirm services. So this is card and all the other places where you might go with CART. Dominates.

That’s been, obviously, The only way he’s So we’re not quite at the 7,500, but we’re more than halfway there. And so like, there are many things that are coming together to make sure the card is the best expression. Of the firm. So just as far as I think I wanna go right now, we’re kinda long-winded on this one. But there’s a lot to do, and there’s some unexpected things that are coming soon.

Rob Wildhack: Thanks very much. And our next question comes from the line of Rob Wildhack. With Autonomous Research. Please proceed with your question.

Rob Wildhack: Hey, guys. You know, you’ve been extolling the virtues of the 0% APR product for several quarters now. I mean, as far as I can tell, we haven’t really seen your peers lean into that product in the same way. I appreciate that you’re not them, but even so, like, why do you think that is? Why has no one else be it fintech or legacy, gone into the 0% APRs with the same kinda vigor that you have?

Max Levchin: Because underwriting is hard. And we’re good at it, and others aren’t. So couple of things. First of all, I mean to come off of quite so arrogant, but we do think that this is a difficult thing to do, and we spent a long time being good at it. And plenty of internal consternation. Every time we look at a model and ask ourselves, is this a good idea or a bad idea, It’s not just cool. Let’s give people promotional rates. It’s gonna be amazing. If you remember, our zeros are real zeros. It’s in the letter as well, but, we don’t do deferred interest.

We don’t charge fees, which means that if it’s zero, consumer really does pay nothing above sticker. That means the transaction has to be profitable strictly through merchant subsidies. Which is a thing to negotiate in a custom contract and a lot of control services that you have to offer to the merchant because they need the ability to turn it on and off if they don’t have the margin to do it forever, and we have to have the support infrastructure internally to guide them through such campaigns. Do you wanna do zeros? During this holiday period but not? And you have to do it in a way that compliant with fair lending laws.

Because if you start doing things that are a little too creative, you might end up discriminating advertently against the group that should not be discriminated against. And you’re not just doing zeros. Zeros are easier in a sense that at least you know it’s a 0% loan. But for a large swath of consumers, actually, five ninety-nine APR is extraordinarily compelling. It’s way better than anything else they could get. And so when I see 0% in the letter, what we really mean here is consumers get the benefit of reduced APRs as merchants subsidize them.

And doing that in real-time price to perform on the credit side, on a capital market side because these loans are purchased downstream by people who expect yields that are strong whatever the deal the consumer got. Making sure that these are truly incredible for merchants. It’s a massive multivariate problem, and we love math here more than just about anything else. I think most of our competitors just don’t. And, that’s our strength. Our advantage is we you know, live better through mathematics.

Rob Wildhack: It’s helpful. Thanks. And just quick on the guidance, in the comment that the enterprise merchant will transition off in the fiscal second quarter. It’s kind of an important time with the holiday season. So a little in the weeds, but do you think that happens at the end or the beginning of that quarter? I guess I’m asking if you’re gonna get the holiday spend there or not.

Max Levchin: The assumption in our outlook, Rob, is that enterprise partner is wound down Please proceed with your question. Great. Good afternoon, guys. Nice results. Thanks for taking the questions. I want to touch on the outlook and the take rate. It looks like it’s going to be kind of fairly stable with at least the run rated four q level. I guess, does that imply that the mix the product mix that we saw in the fourth quarter should be fairly steady or are there any other you know, take rate impacts that we should be mindful of? Like, for example, with the enterprise partner or anything that might influence some of these numbers as well. Yeah.

We stopped short of guiding to mix specifically, but as you saw this quarter, monthly 0% loans were growing north of 90 year on year. So we would expect that loan product in particular continues to take a bit of share within our mix. But, otherwise, you know, I think most important thing for us is that the units we’re creating are profitable and that we have a funding plan and a mixed plan that allows us to sort of stay in that 3% to 4% RLTC range and with the guide, we’re expecting to be at the very, very high end of that range from a revenue less transaction cost take rate perspective. Okay. That’s really helpful.

And then I guess just a follow-up following up on Will’s question around funding. I want to ask are you guys seeing, just given that the funding environment is the best, it’s been in quite some time, have you guys seen any, like, uptick in competition or like, irrational players that might be kinda spoiling the water. And I guess, like, it’s so how are you guys kind of dealing with that and continuing to grow while maintaining really solid credit. Yeah. For us, the crawl the quality of the credit isn’t a isn’t really a decision It’s it’s something we constrain the business with. Then we operate from that point. And that’s not lost on our capital partners.

Again, I think the reason why what I consider to be the best investors in the world wanna partner with a firm and do is because of that commitment we’ve made operate the business in a certain way. And we’ve done that not just when things are really good. We’ve done that back through all of the turmoil you’ve seen over the past half decade. Our best investors see that. They recognize that, and they’re attracted to it. Again, we think about these things as long term partnerships. Think some of the behavior or concerns that you’re alluding to would exist in people who are looking for just kind of more trade y type relationships, one time y.

And that’s just not how we operate our business. So kinda far away from us. And again, when you think about choosing your partners and we have the luxury of choice given our performance, think about the partners we choose to do business with. Our team is really selective around partners who we know are gonna be thoughtful and not get over their skis and chase anything away from them. Know, I talked to partners, and they share that they, you know, either pursuing opportunity and didn’t get it because they weren’t willing to pay up.

I both of us are happy in those moments because I know that my partner is being disciplined and that discipline will benefit us in the long run. And I think there’s just so much capital to go to work right now that it doesn’t really give me any concern. Great. To hear. Thank you, guys. Nice results.

Andrew Jeffrey: Thank you. And our next question comes from the line of Andrew Jeffrey with William Blair. Please proceed with your question.

Andrew Jeffrey: Hi. This is Adeeb Chaudhary on for Andrew. Thanks for taking our questions. We wanted to ask on the international strategy in The UK, but also in other geos. You might be looking at and kind of the opportunity for a firm to bring its underwriting product to the rest of world. And then secondly, how the mix of GMV might look differently internationally kind of versus Affirm’s core domestic business?

Max Levchin: It’s a great question. Happy to report that we are in friends and family testing in The UK. With our Shopify friends. It’s very exciting. So that’s obviously an enormous potential up of that is not lost on anyone. Obviously, we have merchants that we’ve taken live there and are excited to bring on a few more of our own, but Shopify is just an incredible partner in our growth. And we think we have it for them as well. So that’s coming quite soon. The mix is little hard to tell in the following sense. We know that the market has tremendous appetite for pain three and pain four, which are traditionally zeros.

Because that’s what the majority of the competition does the totality of their business in But we also know that all the major merchants we’ve spoken with are signed have said, what we really need from you guys is longer terms. We want six months, twelve months, which obviously to a large degree, will be interest bearing. So as of right now, I think the mix that we have in The UK is skews more interest bearing than not. As we scale Shopify that is absolutely subject to change just based on what this will do relative to what’s available. So I you know, little too early to make claims.

You know, we are absolutely going to be as mindful and as attentive to credit in The UK as we have in The US and Canada. Like, that’s not an optional thing. Not going to play it fast and lose whatsoever. But we feel very good about our ability to get the data we need to underwrite and, just to achieve the scale we need to make sure that the levers of control are useful. In terms of other geographies, I think we’ve been pretty transparent that we’re not gonna show you a map, but if we drew one, it would look like Europe.

Andrew Jeffrey: Got it. And if I could ask a quick follow-up, can we just get a high-level update on the Apple Pay partnership and if there’s anything kind of incremental to share there? Thanks so much.

Max Levchin: We as is our custom, do not talk about, generally speaking, individual partners, but in particular, we do not talk about all the partnerships in any detail.

John Hecht: Thanks. And our next question comes from the line of John Hecht with Jefferies. Please proceed with your question.

John Hecht: Afternoon, guys. Good quarter. You know? And I’m looking at a globe, and I can’t find anything that looks like Europe other than Europe. So, thank you for that. New Zealand kinda looks like Japan. Sorry. The Question on, I guess, customer engagement. You know, higher frequency of engagements. You know, as a I guess, a customer seasons on the platform, platform, do the dynamics or characteristics of their typical transaction change as they kinda mature?

Max Levchin: That is a really good question. I don’t know if I have a really thoughtful answer for you right now. The theory behind the card and things like Affirm Anywhere and all the other products we’ve built to gain frequency, was largely that we already understood to be a considered purchase helper. If you’re buying a bicycle or a mattress, that’s a once every in a year type purchase. You obviously should use Affirm because you will probably find a great brand sponsored zero or subsidized APR, all that. And so as we added more products, they were always meant to take the AOV down at the average. So we would be useful in more situations more frequent situations.

And that’s generally speaking been the case. Yeah. I think if you track our average ticket, you can sort of see a gentle downtrend even as the frequency increased. Faster than the downtrend for sure. As we sort of grabbed onto more purchases just some with more frequent ones. So that’s sort of the best I got off the cuff. I am sure we can publish something off cycle explaining really happens. But needless to say, we’re very happy with the increased frequency. We’re not super fussy about AOVs. We don’t think it’s our job to make you buy two mattresses.

We’re answering demand that you naturally have versus telling you in any sort of promotional way to buy a mattress, buy another one. And so that means whatever natural average ticket average spend the user has on any unit time that’s what we should have. We’re still ahead of the averages if you look at things like debit cards, which is kind of our primary debit card and credit cards, which are prime primary replacement goods. Or services, you will see that we’re still ahead of them, but we’re coming closer and closer.

And we wanna rest until we are a proper replacement for credit cards, of course, and at that point, our AOV should be roughly the match to them.

John Hecht: Okay. That’s very helpful. And then you guys provided the general framework to think about the impact of rising rates. I mean, the futures curve or the forward curve looks like there’s a high probability of lower rates. So maybe can you guys give us a framework to think about the impact of lower rates on the business?

Michael Linford: Yeah. Great question, John. You know, it should be generally the rough the same rough mechanics that we outlined during the rising rate environment where a one-point move in reference rates should translate to about a 40 bps change in our funding cost. So that should be true whether the rates are going up or down. The other part of the framework that we shared previously just for everyone is that there will take time for those mechanics to play out because a portion of our funding is variable in nature, but the majority of our funding actually is not truly variable and will adjust with the time lag.

So it may take a year or two, or even longer for those rate changes to fully show up in our funding cost and in our platform portfolio base. So there’s nothing to believe. There’s nothing in our agreements with merchants or otherwise that would lead us to believe that we wouldn’t see the same impact of a declining rate environment as a rising rate environment if you’re looking purely at funding costs. I think the question that we make sure we ask internally is if rates are declining, why is that happening? Right?

And there could be offsetting impacts elsewhere in the business, you know, if rates were to decline because unemployment was rising or there was stress on the consumer, obviously, that lead to costs. Elsewhere, in our in our base.

Matt Code: Okay. Thank you very much. Thank you. And our next question comes from the line of Matt Code with Truist Securities. Please proceed with your question.

Matt Code: Hi. Hey, guys. Thanks for taking the question here. Wanted to go back to the 0% topic. But wanted to address it from the merchant side. So you talked about the number of merchants funding this offering double. Doubling year over year. And I believe that’s up to 7% of your total merchant base now. That’s funding the 0% APRs. Curious, like, as we look forward, what you think that penetration rate can get to?

Max Levchin: It should round up to almost a 100. There are and I’m prone to some hyperbole with numbers, and Rob was laughing at me. But the here’s what I really mean by this. So merchants are broadly divided into a handful of categories, but one way to do it is to think of the margin they spend on marketing. My contention is that marketing budget is at least as well spent at the bottom of the funnel as it is at the top. If you’re broadcasting a story why somebody should come shop with you’re frequently doing it in terms of going out of business sale, hopefully not, more like, you know, 20% sale or Christmas sale.

So the sort of sales driven sale driven, consumer acquisition. Is a little bit of a hand grenade approach to trying to make sales. At the very bottom of the funnel or at the product exploration level of the funnel, you can be much more precise. And with our technology such as Adapt AI where we offer consumers the exact or our estimation of exact financing offer that would compel them to buy, is just much cheaper for the merchant. They would spend a lower percentage of their marketing budget if they thought of it this way at the bottom of the funnel.

The adoption curve of these tools, the 0% APR contract, is entirely a function of these merchants’ realizing that the marketing money they’re spending is better spent on such promotions at the bottom of the funnel versus the blanket coverage at the top of the funnel. And every year, we’re just doing slightly better making sure this is convincing. You know, everything from showing the results, and or working with them to test this. Publishing white papers, educating our salespeople, helping them educate their internal, accounting people, etcetera. And so at the limit, I think every single merchant will benefit from these programs. There are merchants whose margins are quite low, naturally.

And they spend very little of the overall GMV marketing themselves, maybe because they’re already at scale, maybe because they just have an alternative distribution model, that will be the last holdout. But generally speaking, this is a more efficient way of driving sales It is apparent to a large enough body of GMV producers that it will eventually trickle down to the rest of the bunch. So that’s my conviction, and I’m standing by it. And every year, we have more and more zeros to show for it. It will, it will keep happening until morale improves.

Matt Code: No. Thanks, Matt. That Anything for that, Rob? Oh, if I could just sneak in a follow-up, Max, you addressed this in the shareholder letter. You touched a lot on AI. Was hoping you could just talk about it on the call here too. Just kinda like how you’re thinking about the future for AgenTek Commerce and Affirm’s role in it.

Max Levchin: It’s in a letter. I try to try to boil it down to be relatively pithy, so you’re tempting me to give the longer form that Michael successfully talked me out of. Putting in, but it the letter speaks to it pretty well. We think that AgenTek Commerce is going to be extremely successful for some categories of transactions. It may not be super successful for all of them, Many transactions require final human approval just because they have to do with taste. Kind of the unstated weakness of today’s state of AI. Is it’s fundamentally taste free. It doesn’t know what’s beautiful. Certainly, it doesn’t know what’s beautiful to you.

A lot of purchases are made with taste as the front and center of the y. But the need to finance beautiful things or things that you require isn’t going away. So, inherently, we will be in those transactions just like we have been able to find our way into all the other ones. The thing that’s compelling for us about AgenTek Commerce in particular it’s fundamentally a rehashing or remixing of ecommerce as it exists. Before AI. Like, you can imagine you know, the conversation about universal carts has been around forever. No one’s ever really built the universal cart of any kind of scale. Universal shopping cart is very much what’s going to happen inside these chatbots.

If you are to close these transactions from multiple brands, multiple stores, multiple warehouses, in the same chat session. So this idea of remixing ecommerce is what I think successful certainly successful first act, maybe all the act of agenda commerce looks like. We are built to be mixed into all environments. Do you see us pop up in places like shop pay installments, which is a really deep integration? We are a component of someone else’s wallet. You see us inside Chrome Autofill, which is a completely different integration. But not actually very different from our point of view because our services work in that environment. Very different environment, very similar integration.

Almost identical consumer experience as far as Affirm is concerned. You will see versions of this in Agenda Commerce as that rolls out as well. And we’re pretty excited about it. I don’t I’m generally a techno optimist, so you should be careful what you sort of believe with my sort of rose-colored glasses on, but I don’t think it’s going to cannibalize commerce a fundamental level. I think it’s actually going to increase volume for a lot of merchants. I think we will find that some things are still going to be purchased the old way, and other things are just gonna become naturally more obvious inside of the assisted or assistance driven transactions.

And we’re gonna be for here for all of this.

James Faucette: Really helpful. Thank you. Thank you. And our next question comes from the line of James Faucette. With Morgan Stanley Investment Management. Please proceed with your question.

James Faucette: Hey. Good afternoon, everybody. Wanted to ask on the PSP integration Pretty interesting announcement of BNPL with Stripe terminal. I think we there’s potential for that to or similar type announcements to be made with other payment service providers. I’d be curious if there’s any framing you would provide in terms of how important think the PSP channel will be for your business, particularly when we think about the business overall excluding Amazon and Shopify as a way to add additional merchants? And how do you intend to lean into that channel etcetera? Good question.

Max Levchin: Generally speaking, offline is still kind of the greenfield of buy now, pay later. The fraction of online to offline is still whatever it is these days. 10 to one eight to one. So there’s a lot more there than inside ecommerce, and, yeah, binoculator is a minute fraction that world because the integrations are just difficult. And discovery is hard. Know, placement of you should think of this in more affordable terms sort of messaging prompting at the product level is difficult. So it’s important. It’s important insofar as when we go to talk to a merchant that has a large offline presence, talking to them about let’s promote something together, and then integrate something together are two conversations.

Being able to say, actually, we don’t have to worry about the latter. It’s already built into your point of sale processor. Let’s just talk about the promotional details and how we’re gonna advertise the opportunity to finance things without fees, frictionlessly, without gimmicks, makes the conversation easier because now you are talking about that marketing budget and discussing it with just one part of the retailer versus a whole separate IT environment that says, well, We’d love to do it, but our road map is busy until 2030. So in that sense, it’s a huge boost. It’s an enabling technology. Not a now that we have it every offline partner is just gonna fall into our lap.

So the work isn’t eliminated, but it’s meaningfully reduced.

James Faucette: Got it. That’s really helpful. And then just a quick clarification on 0%. I certainly understand and think that it’s the push there and the benefits you get are pretty clear. But I’m wondering in terms of the shorter duration of 0% that you called out, and how that evolved during the course of the June. Is that a seasonal thing? Is that just an expansion of availability? A change in the type of customers that are eligible and opting for 0%? Just trying to get a little bit of color to think about that component on a go forward basis. Thanks.

Michael Linford: Yeah, thanks for the question, James. I think the answer really was in the question. It was really a mix of both. We do have seasonality in our business generally, but certainly seasonality within our 0% programs, and that showed up a bit as well, especially when you’re comparing Maybe across Q3 and Q4. And then also, you know, when we introduce zeros to a new merchant, one of the ways that we can do that is by making the shortest term that’s presented in the financing program a 0% offer. And so that has the natural output of shortening term links for that merchant’s program as well.

So it really is a range of things that were at play in this quarter. And I think it speaks to the flexibility and just our ability to customize across multiple surfaces, term length, and APR, to make sure that we’re putting the best program together for our merchants and for consumers.

Reggie Smith: Great. Thanks so much, guys. Have a good day. Thanks. Thank you. And our next question comes from the line of Reggie Smith with JPMorgan. Please proceed with your question.

Reggie Smith: Good evening, guys. Thanks for taking the question. It’s funny. I wanted to follow-up. On the question that James just asked, but taking in a slightly different direction. So I’m thinking about PSPs you know, primarily online, so ecommerce. Not named Shopify. Is there a way to kind of frame how do you guys think about your penetration within that channel? And, I guess, the maturity of that channel. So, like, if you were to look at the volumes in that segment, are they growing faster than the line average, slower? Like, help, you know, kinda frame, that channel for us to the extent that you can.

And then, you know, whether or not you guys often have default on status or how that how that works. And then my last question, just around the follow-up to that is just quickly on that merchant that’s leaving in the end of the first fiscal quarter. Is the thinking that you’ll still your logo will still be available on the website? Or has that changed at Thank you.

Max Levchin: I’ll start and let Rob finish. Just because I think you’re asking about assumptions in the guide. On the PSP side of things, we’re pretty early there. Obviously, default on is a really important, really powerful thing. We have multiple partnerships of this matter with PSPs not named Shopify, and we’re working pretty hard on expanding the list and being default on I don’t have the growth rates of the top my head, so I don’t wanna perjure myself here But I think they are accretive to the growth rate of the business, not detracting. But I will let Zane or Rob look this up. And if I’m wrong, I’m sure they’ll correct me soon enough.

But I’m pretty sure I’m right on this one. So it’s a really important channel. It’s pretty early. If you just follow our announcements, you’ll see that these are significantly more recent than example, the Shopify announcement. So just from the pure scale and time to penetrate, These are latercomers, and there’s more to be had there. So all of that we think, accretes to the future growth merchant sets are a little bit different sometimes. Obviously, Shopify has an extremely broad appeal, but given they have some degree of this is the canonical Shopify merchant, the same is true for every other platform. Aggregator or payment processor, etcetera, etcetera.

So each one gives us to something that we probably haven’t seen before to at least some degree. I think that’s all I wanna say on Tuesdays.

Rob O’Hare: Yeah. And in terms of the question around the merchant, I think the easiest way to talk about the relationship is just to outline what’s in our Outlook and what we’ve assumed in the Outlook is that the integration goes away, at the end of this quarter. And so it’s unclear exactly the mechanics will be of how the relationship plays out. But that’s what we’ve assumed, and we think we’ve taken a pretty conservative stance in terms of volume. In fiscal twenty-six coming from this merchant.

Reggie Smith: Got it. And not to belabor it. When you say go away, is that does that mean zero volume from that merchant, or am I that net would go away? What does that mean exactly?

Rob O’Hare: What we’ve assumed in the Outlook is that through the integration, there would be zero volume. After Okay.

Reggie Smith: Yes. Got it. Okay. Thank you.

Harry Bartlett: Thank you. And our next question comes from the line of Harry Bartlett. With Rothschilds and Company re Redburn. Please proceed with your question.

Harry Bartlett: Hey, guys. Yeah. Thanks for taking the question. I just wanted to touch on international again. So I mean, I’m just thinking about shop pains. You talked about going to but, you know, in terms of how quickly you can roll that into other geographies, is it now a case of you have a playbook and then you’ll be able to kinda move a bit faster if you’re looking to move in other areas of Europe. And, also, I guess, just outside of shop, you know, do you have any, I guess, difference in your approach to how you’re gonna expand internationally?

I’m guessing just curious from this from the point of know, brand awareness maybe isn’t quite as strong as it is in The US, and are some incumbent players at checkout. So I just know, wonder if you have a dip approach here on maybe the sales and marketing or consumer loans. Thank you.

Max Levchin: I’ll try to touch on all these things as quickly as I can since there’s a lot here. So the short answer to your first question is yes and no concurrently. So in terms of the platform build, and a lot of the technology, it is certainly built to be reusable. Not gonna launch UK and go off into build another complete different system to be live and fill in your favorite European country. That’s all reusable and designed to be reusable. Etcetera. We’re also not too concerned about spinning up technological or data center presence in AWS that they exist in every market.

The different things that are or things that are different about every market is access to data, Some of the peculiarities of local regulation and then also local licensing is really important. So some things you can infer pretty easily about how might one approach to not having to do double and triple work on licensing or following regulatory regimes. So you can be assured that we’re doing all those things as intelligently as we can. But there’s some work involved even if you’re sort of as intelligent as you can possibly be with all those things. So that part, I think we’re in really good shape.

We don’t expect you know, to go off the radar for too long, and we’ll have more to say about it in coming quarters. Things like Apple markets is, not a concern. Just for the avoidance of doubt. In terms of sales and marketing, we said it before, so this shouldn’t be news to anybody. But we have a nice list of multinational partners. There are partners that are with us in The US or Canada or UK who are multinational and are generally speaking, very pleased with our performance. We think we have a very good shot at talking those folks into being useful to them in more than one market.

We’ve been successful at it US and Canada, certainly. So see no reason why with the appropriate level of attention and good hygiene, we couldn’t do this again. So that’s the expansion plans for kind of these lighthouse brands. We don’t anticipate a dramatic investment in our brand in The US or UK or beyond. Mostly because we market very successfully with our partners, and there’s a the majority of the marketing spend in our financials reflects the go-to-market efforts we share with our merchant partners where we come together in all sorts of interesting promotional ways. So we’ll do that. We have some pretty exciting plans for that in our latest market.

I don’t wanna spoil any surprises just yet, but that’s certainly coming. It will not break our bank by any stretch. So it’s all fully priced into the guide.

Harry Bartlett: That’s great. Thank you.

Jamie Friedman: Thank you. And our next question comes from the line of Jamie Friedman with SIG. Please proceed with your question.

Jamie Friedman: Hi. Back to the AI conversation. I know Max wanna keep it pithy, but I wanna ask specifically about what you call it here in adaptive checkout. And specifically the Adapt AI deployments that show an average 5% increase in GMV. What is that about? Can you, like, unpack the business process of how that works?

Max Levchin: Sure. And we are not the best at naming products here as we were lamenting earlier today internally, so you’ll have to forgive the repetitive sounding names. So adaptive checkout is the umbrella name of all the various manifestations of how checkout at Affirm works. So if you encounter an Affirm powered checkout, Affirm checkout inside a wallet, Affirm checkout inside a website, directly integrated. So on and so forth. It’s all powered by this thing called adaptive checkout. And it wasn’t always this way we had a bunch of different builds. Of a firm checkout flow. And over the years, we’ve been we generally have a tendency to refactor and rewrite a bunch of our products.

Because we think it’s just good hygiene. So as we maintain good hygiene, we’ve over time consolidated into almost a single thing with lots and lots of very thoughtful configurability pieces. Until Adapt AI came along, most of this configurability was essentially manual in a sense that we would sign a contract with the merchant. The merchant would say, here are the terms I want. Here are the programs I’m willing to fund, and I would like a lot of control over when I them on and turn them off.

And, of course, we’re very happy to oblige because a huge part of our moat is this configurability is very powerful for the merchant, but it’s also not replicable with any of our competitors. Adapt AI was sort of the answer to the question of alright. So we’ve now built this thing that’s the ultimate mousetrap of optimization of checkout. But there’s a lot of human effort involved in getting to the best results, and it’s not really there’s not a book we’ve published on best practices of tuning adaptive Check out for merchants and we should And then they say, well, actually, we have this really great AIML effort.

Don’t we, instead of writing a book about it, build a model that automatically figures out the absolute best way of converting consumers at an Affirm powered checkout. And while we’re at it, let’s try to transition a lot of our merchant relationships any all of them if we could, to something that looks like we will take care of all the optimization.

Let us figure out the best set of programs for any given consumer as they’re staring at a cart or a product on your site or in your store, and we will take care of the rest We will convert them to a buyer from a shopper, at the best possible terms for them that is compelling to them. Not everybody wants a zero percent deal. Many people actually really care about the monthly cash flow impact, and they’re far less APR sensitive or total interest sensitive. Many people are extremely headline APR sensitive. And you can sort of slice and dice it from there. Tuning that manually works beautifully. Tuning that automatically is an extraordinary improvement.

And the 5% is great early result. We expect more, and we’ll certainly brag about it as we get there. But adapt.ai is AI powered configuration of adaptive checkout. And that’s what we talked about rolling it out Last quarter, we’ve rolled it out with select versions now. Obviously, we are asking for more control from the merchant. We’re telling them, look. If you just give us the ability to tune for each individual consumer what they see it will cost you less, and it’ll convert into more volume. It’ll take a little while for everyone to sign up for that.

But the ones that have are enjoying the benefits early, and we’re tuning the models more and more as we go.

Jamie Friedman: Fascinating. Thank you. I’ll jump back in the queue.

Giuliano Bologna: Thank you. And our next question comes from the line of Giuliano Bologna with Compass Point. Please proceed with your question.

Giuliano Bologna: Well, thanks for taking my questions and, you know, congratulations on another incredible quarter. As a question and this is Yale. Somewhat of a high level, you know, concept. But I’m curious when you look at a lot of the wall partnerships, there’s kind of a new frontier where you know, some of the wallet partnerships can enable offline transactions in the future, and, you know, how you would plan for that and how, you know, material that could be you know, in terms of, you know, driving incremental GMV growth. And then maybe how you think about the underwriting because you have an interesting opportunity Yep.

Continue to differentiate and, you know, increase your leads, you know, ahead of your competitors with such products like that. Yep.

Max Levchin: Certainly very excited about offline commerce. I’m on the record. Talking about that every quarter, I think. Think if you look back at some of the announcements made by some of the largest wallets out there, you will see that they too are excited about offline applicability of the products that Affirm offers. So some of that is, in the near future. We try to be to be con as always conservative in our sort of promises and degrees of excitement about things that aren’t live yet. So I’ll hang back on the sort of exactly what we expect from it I think the opportunity is enormous. I think there yeah.

It sort of covers a little bit earlier question, but they’re two very distinct puzzles. Number one is how do you inform someone that this thing, this thing being a firm, works in their favorite store? We have some we think, really good ideas on how to do that. You will see some of them actually quite soon. On our own surfaces. But, there’s also the problem of integration and what in payments nerd slang is called tender delivery. Tender delivery is integration with point of sale systems, digital wallets, various forms of NFC, all of that’s in our radar. All of that is really important to us, and we’re quite engaged in all those things.

Again, the greenfield size is roughly 10 x of what we’re chasing in ecommerce. If you believe we can solve the latter problem, which we’re very confident in, it becomes a question of how well can you communicate it and how aggressive can you be in communicating it to shoppers from the brand point of view, which I think asked five years ago, some of them would have been wondering when might if someone might go first, I think at this point, it’s flipped to actually it should be promoted because it’s so successful in driving conversion. One fun fact, we see increase in demand for Affirm anytime anyone in the industry runs a large promotional campaign.

There’s just the notion of, oh, yeah. Buy now pay later is available. Accretes to Affirm naturally even if we’re not the ones putting our name on the ad. So it’s just a matter of awareness more than it is anything else. In the offline world.

Giuliano Bologna: That is extremely helpful, and I really appreciate that. I’ll jump back in queue.

Operator: Thank you. And with that, there are no further questions at this time. I’d like to turn the floor back to Zane Keller for closing remarks.

Zane Keller: Thank you for the questions today, everybody. We’ll see many of you on the conference circuit soon, I’m sure. Have a good Labor Day weekend, and talk to you soon. Bye.

Operator: Thank you. With that, this does conclude today’s teleconference. We thank you for your participation. May disconnect your lines at this time.

Image source: The Motley Fool.

Date

Aug. 28, 2025, 9:00 a.m. ET

Call participants

Chairman and Chief Executive Officer — Efraim Grinberg

Executive Vice President and Chief Financial Officer — Sallie DeMarsilis

Need a quote from a Motley Fool analyst? Email [email protected]

Risks

There was a $2.2 million impact from unmitigated U.S. tariff expenses in the fiscal second quarter ended July 31, 2025. Management stated mitigation actions “will predominantly impact future periods.”

Gross margin fell by 20 basis points to 54.1% from 54.3% in the fiscal second quarter of the prior year, primarily due to increased tariffs and unfavorable foreign exchange, according to management.

The Movado brand experienced a 5.6% sales decline in the fiscal second quarter.

Management confirmed it will not provide a fiscal 2026 outlook, stating, “Given the current macroeconomic environment and the ongoing uncertainty of the impact of tariffs on our business.”

Takeaways

Net sales— $161.8 million, up 3.1%, with constant currency growth of 1.4% in the fiscal second quarter.

Adjusted operating profit— $7 million, more than double the $2.6 million reported in the fiscal second quarter of the prior year.

Gross margin— Gross margin was 54.1%, down 20 basis points in the fiscal second quarter, primarily due to higher tariffs and currency headwinds, partially offset by a favorable mix.

Net income— $5.3 million, or $0.23 per diluted share, compared to $3.5 million, or $0.15 per diluted share in the fiscal second quarter of the prior year.

Inventory— $28.3 million higher than the prior year (+15.5%) in the fiscal second quarter, with $16 million pulled forward in the U.S. to mitigate tariff exposure.

International sales— Increased by 6.9% (reported) and 3.9% (constant currency) in the fiscal second quarter, led by growth in Europe, Latin America, and India.

U.S. sales— Decreased 1.6% in the fiscal second quarter, impacted by continued channel rebalancing.

Licensed brands— Reported growth of 9.5%, or 6.5% at constant currency, in the fiscal second quarter.

Movado brand sales— Declined 5.6% in the fiscal second quarter, though e-commerce posted 6% growth and brick-and-mortar sell-through improved.

Operating expenses— Fell by $2.0 million to $80.6 million (adjusted) in the fiscal second quarter, due to lower marketing spend, partially offset by higher performance-based compensation.

Annualized cost savings— $10 million in expected savings for fiscal 2026 from prior operating expense reductions.

Cash balance— $180.5 million with no debt reported at the end of the fiscal second quarter.

Outlet stores segment— Grew 2.4% in the fiscal second quarter, supported by recent initiatives and positive momentum.

Share repurchases— 100,000 shares repurchased, with $48.4 million remaining on the authorization as of the fiscal second quarter.

Summary

Management stated it established a “strong position in inventory of Swiss-made watches in the United States” to cover a substantial portion of anticipated demand in response to the new 39% tariff as of the fiscal second quarter ended July 31, 2025. Tariffs and currency pressures were cited as the primary drivers of lower gross margin, with strategic pricing actions implemented on July 1 and further actions planned. Cost-saving efforts are expected to deliver approximately $10 million in annualized reductions for fiscal 2026, which management stated are mitigating operational increases and supporting profitability growth. International growth outpaced the U.S., with Europe, Latin America, and India leading performance in the fiscal second quarter, while the U.S. saw a 1.6% decline in net sales due to strategic changes in distribution channels.

The CFO explained that approximately $4.6 million of reciprocal tariff costs remained embedded in inventory at the end of the fiscal second quarter.

Management described licensed brands as benefiting from a resurgence in “fashion watch and jewelry category” demand, citing heightened Gen Z interest on digital platforms.

Efraim Grinberg said, “We would expect our inventories to be in line by year-end,” addressing concerns about the significant rise in inventory levels.

Management referenced the completion of most restructuring charges and expects these “will be reduced significantly” in future quarters, as discussed on the fiscal second quarter earnings call.

Recent trends in mini and microwatch sizes have drawn young women back to the category, creating product opportunities across the brand portfolio.

Industry glossary

Mini watches: Wristwatches with case diameters typically between 23 to 28 millimeters, positioned as appealing to younger and female consumers per discussed brand trends.

Microwatches: Even smaller wristwatches than mini watches, referenced in the call as an emerging size segment within the portfolio.

Full Conference Call Transcript

Efraim Grinberg: Thank you, Allison. Good morning, and welcome to Movado Group’s second quarter conference call. With me today is our Executive Vice President and Chief Financial Officer, Sallie DeMarsilis. After I review the highlights of the quarter and share our progress on key strategic initiatives, Sallie will take you through the financial results in more detail. We will then be happy to answer questions. We are pleased with our overall results this quarter as we return to growth in both sales and profitability. Sales grew by 3% to $161.8 million, and adjusted operating profit more than doubled to $7 million from $2.6 million last year despite a $2.2 million impact from unmitigated U.S. tariff expenses.

Although we have taken certain actions to partially offset tariffs, those actions will predominantly impact future periods. After the quarter ended, the United States implemented a tariff rate of 39% on Swiss imports. During the second quarter, we have built a strong position in inventory of Swiss-made watches in the United States and would expect a substantial portion of the year’s needs are covered. We are hopeful that over the next several months, the United States and Switzerland will agree to lower tariff rates. Of course, we continue to monitor the situation closely and to develop mitigation plans. We continue to operate with a strong balance sheet, with over $180 million in cash and no debt.

Overall, we are pleased with the progress that we have made on our strategic initiatives, with a focus on returning the company to growth and profitability. We would expect to see approximately $10 million of annualized savings spread evenly throughout this year as a result of the actions we took late last year to reduce operating expenses. Although we experienced a 5.6% sales decline in our Movado brand, we continue to make progress on our Movado strategy, which I will discuss later in my remarks. In our licensed brands, we grew by 6.5% on a constant currency basis or 9.5% on a reported basis.

Overall, we reported gross margins of $54.1 million versus 54.1% versus 54.3% in Q2 of last year despite the 130 basis point impact of additional tariffs in the U.S. Most of our strategic pricing actions to partially offset the impact of tariffs became effective July 1. Our international business grew by 6.9%, or 3.9% on a constant currency basis, led by a strong performance in Europe, Latin America, and India, with Europe seeing particularly strong trends. As expected, this performance was offset somewhat by the Middle East, where we are in the process of rebuilding our team.

Our U.S. business declined by 1.6% as we focus on rebalancing our chain jewelry store distribution, although we had an improved performance in our domestic department store and e-commerce channels. Our outlet stores segment grew 2.4% for the quarter, and we are excited by the recent initiatives and accelerating trends in that channel. As we look at the progress that we are making in our brands, we are particularly pleased by the success that we are seeing in the overall performance of trend-right products across our brand portfolio. In Movado, we are making significant progress in returning the brand to growth in our wholesale distribution.

We have seen strong performance in our own e-commerce site, with 6% growth and strong trends in our digital partners. In brick and mortar, Movado brand sell-through has returned to growth in the second quarter in our department store channel, where we have implemented and expanded our coverage as a point of sale and installed our new point of sale display. We will continue to execute behind these initiatives as the year progresses. On the product front, Movado has seen increased penetration and success in women’s watches, including our new iconic bangle watches and our new mini quest in bold, which along with our bold tank watch is a best seller.

On the men’s side, we are seeing strong performance in the Movado bold collections, including Verso automatic and Quest automatic. Our heritage collection inspired by Movado’s rich heritage continues to do particularly well in a limited distribution across the country. The Movado brand marketing campaign for the second half will include new creative featuring our Movado icons, Ludacris, Jessica Alba, Julianne Moore, Christian McCaffrey, and Tyrese Halliburton. We are very excited by the digital-first content that our team has executed with a greater focus on products associated with each of the icons. We have exciting new products debuting this fall, like the new Museum Imperial with Christian McCaffrey and Our Heritage 1917, with Tyrese Halliburton.

On the women’s side, Jessica Alba and Julianne Moore will be featured with different shapes of our museum bangle collection and a women’s version of the museum imperial and Heritage 1917. Turning to our licensed brands, we are seeing a return to the fashion watch and jewelry category with increased interest by Gen Z consumers across digital platforms like TikTok, Reels, and YouTube. Sales in our licensed brands grew by 9.5% for the quarter or 6.5% in constant currency. In Hugo Boss, we have experienced strong growth in our iconic families, Time Traveler and Candor. Our new updated Grand Prix is quickly becoming a best seller.

We are also excited by our new women’s watches led by the May family with a petite square shape. In Tommy Hilfiger, we are very excited to be refocused on the women’s watch category. Our EMEA family is already showing signs of strong sell-through and will be featured in our fall campaign. Complementing Mia is Moira, a new mini East West Oval that has gotten a strong reception. On the men’s front, we are excited by our new seventies-inspired Chronograph Hudson Collection, which will be featured in our holiday campaign, as well as by RegattaTH, a new sports watch collection in exciting colors opening at $139.

In Lacoste, we are introducing a new black and gold version of our iconic LC 33 collection and will complement our Tang Parisienne with a new oval version. Our Lacoste jewelry business continues to exceed expectations, and we are very excited to introduce the Arthur and Crocodile families to complement our best-selling Metropole bracelet collection. In Calvin Klein, we are launching a new mini version of our best-selling Pulse collection, as well as a new 18-millimeter contemporary collection that has really piqued our retailers’ attention. Coach continues to perform extremely well, particularly in the United States, and is now showing momentum in Europe as well.

For the second half, we have several new introductions in our best-selling Sammy Oval collection with a strong new 20-millimeter Reese tank. We will also be expanding our best-selling charter collection for him. As we enter the second half of the year, we recognize that uncertainty remains around tariffs and the broader retail environment. At the same time, we are excited by the new products we have introduced and encouraged by the resurgence we are seeing in the fashion watch market. As a leadership team, our focus remains on driving profitability and delivering consistent growth in both sales and operating margin while maintaining the strength of our balance sheet and executing against our strategic plans across all of our businesses.

While some of our initiatives have longer time horizons, we are confident that we are taking the right actions for the long term and positioning Movado Group for sustainable success. I am happy about the plans that we are building for the year ahead, and I would now like to turn the call over to Sallie.

Sallie DeMarsilis: Thank you, Efraim, and good morning, everyone. For today’s call, I will review our financial results for the second quarter and year-to-date period of fiscal 2026. My comments today will focus on adjusted results. Please refer to the description of the special items included in our results for the second quarter and first six months of fiscal 2026 in our press release issued earlier today, which also includes a reconciliation table of GAAP and non-GAAP measures. Turning to a review of the quarter, overall, we were pleased with our performance for 2026. Sales were $161.8 million as compared to $157 million last year, an increase of 3.1%. In constant dollars, the increase in net sales was 1.4%.

Net sales increased across licensed brands and company stores, partially offset by a decrease in net sales in owned brands. By geography, U.S. net sales decreased 1.6% as compared to the second quarter of last year. International net sales increased by 6.9%. On a constant currency basis, international net sales increased 3.9% with strong performances in certain markets such as Latin America and Europe. Gross profit as a percent of sales was 54.1% compared to 54.3% in the second quarter of last year. The decrease in gross margin rate as compared to the same period of last year was primarily driven by increased tariffs and unfavorable foreign exchange, partially offset by favorable channel and product mix.

Operating expenses were $80.6 million as compared to $82.6 million for the second quarter of last year. The $2 million decrease was driven by a strategic reduction in marketing expenses, partially offset by an increase in performance-based compensation. The combination of higher revenue and gross profit and a decline in operating expenses drove operating income to $7 million, a $4.4 million improvement from $2.6 million in 2025. We recorded approximately $1.1 million of other non-operating income in 2026 as compared to $1.8 million in the same period of last year. Other non-operating income is primarily comprised of interest earned on our global cash position. We recorded income tax expense of $2.7 million in 2026 as compared to $843,000 in 2025.

Net income in the second quarter was $5.3 million or $0.23 per diluted share as compared to $3.5 million or $0.15 per diluted share in the year-ago period. Now turning to our year-to-date results, sales for the six-month period ended July 31, 2025, were $293.6 million as compared to $291.4 million last year. Total net sales increased 0.8% as compared to the six-month period of fiscal 2025. In constant dollars, the increase in net sales for the year-to-date period was 0.3%. U.S. net sales declined by 1.6%, and international sales increased by 2.6%. Gross profit was $158.9 million or 54.1% of sales, as compared to $158.2 million or 54.3% of sales last year.

The decrease in gross margin rate for the first six months was primarily due to unfavorable foreign exchange and increased tariff costs, partially offset by favorable channel and product mix. Operating expenses were $151 million as compared to $153.4 million for the same period of last year. The decrease was driven by a strategic reduction in marketing expenses, partially offset by an increase in performance-based compensation. For the six months ended July 31, 2025, operating income was $7.9 million compared to $4.8 million in fiscal 2025.

We recorded approximately $2.7 million of other non-operating income in the six-month period of fiscal 2026, which is primarily comprised of interest earned on our global cash position, as compared to $3.8 million in the same period of last year. Net income was $7.2 million or $0.32 per diluted share as compared to $5.5 million or $0.24 per diluted share in the year-ago period. Now turning to our balance sheet, cash at the end of the second quarter was $180.5 million as compared to $198.3 million of the same period last year. Accounts receivable was $94.4 million, up $7.7 million from the same period of last year, primarily due to timing and mix of business.

Inventory at the end of the quarter was up $28.3 million or 15.5% above the same period of last year. $5.1 million of the increase was due to foreign currency, and $4.6 million of reciprocal tariffs is included in inventory on hand at the end of the second quarter. As Efraim mentioned, as of July 31, we have built a strong position in inventory of Swiss-made watches in the United States and would expect that a substantial portion of this year’s needs are covered. We are comfortable with the composition and balance of our inventory at year-end.

In the first six months of fiscal 2026, capital expenditures were $2.8 million, and we repurchased approximately 100,000 shares under our share repurchase program. As of July 31, 2025, we had $48.4 million remaining under our authorized share repurchase program. Subject to prevailing market conditions and the business environment, we plan to utilize our share repurchase program to offset dilution in fiscal 2026. As Efraim mentioned, we closely monitor the changing tariff landscape, and we will continue to develop mitigation plans. Given the current macroeconomic environment and the ongoing uncertainty of the impact of tariffs on our business, the company is not providing fiscal 2026 outlook. I would now like to open the call up for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. One moment, please, while we poll for a question. Our first question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hamed Khorsand: Hi, good morning. So there was lots of commentary about mini watches, and I just wanted to understand what you are seeing from consumer habits or purchasing that you think that the mini is the route that you are taking?

Efraim Grinberg: So I think, and you know, we have both what we call mini watches, and we have microwatches, which are smaller. Mini watches for us are watches from, like, 23 to 28 millimeters. And what had happened is that for a period of time, watches had gotten bigger both for men and for women. So over the last few years, they have gotten smaller again. And with that aspect, it has actually brought young women back into the category. And there is a lot of social media around that and layering of women’s watches with jewelry. And so we believe it represents a significant opportunity across our brand portfolio.

And that trend has, as many trends do, begun in luxury and then moves into more accessible products as well.

Hamed Khorsand: Okay. And during Prime Day, I know you guys were participating. Was there anything that stood out of that event that has continued since? Or was it purely the consumer responding to price?

Efraim Grinberg: So we are probably a bigger participant in the prime events in Europe than we are in the United States. But we have seen our overall digital business with those retailers that are completely focused on the digital environment, whether it be Zalando or the Amazons of the world, really doing very well on a global basis. And that is really good to see, and that is really across our brand portfolio. So we believe that is an increased opportunity as we continue to progress down our strategic plan.

Hamed Khorsand: Okay. And then I know you have talked about raising inventory because of the Swiss watches, but earlier this year you had also raised inventory because of what is going on with tariffs. How much of your increase overall year to date, and I am speaking on calendar so excuse me, year to date on the calendar, can you just digest through the channel by the holiday shopping season?

Efraim Grinberg: Sure. So I will start, and then I will turn it over to Sallie. Our inventories got very low at year-end, so we began to rebuild inventory in Q1 of this year. We would expect our inventories to be in line by year-end. And what that has allowed us to do at the same time is to offset some of the tariff impact by having inventory moved to the United States prior to the implementation of certain tariffs. Obviously, we cannot offset all of it, and then we have taken other actions, whether it be pricing or negotiations with suppliers, to help mitigate some of the effect as well. But I will turn it back to Sallie as well.

Sallie DeMarsilis: The only detail I will add to that, and thank you, Efraim, that was very thorough, is we have, as I mentioned, about $28 million of additional inventory at this time. We do expect to work it down by the end of the year to something more reasonable. But of that, about $16 million of it is in the U.S. So we did pull it forward into the U.S. so that we can manage through these tariffs and kind of get ahead of some uncertainty with that. As we also mentioned, just to reiterate, we do think that a substantial portion of what we need in the U.S. is probably already here.

We will add in what might be new styles or something that is an advertisement or maybe something that is just selling faster than we had anticipated. Bring it in, but we should be in relatively good shape.

Hamed Khorsand: Okay. Can I ask one more question?

Efraim Grinberg: Certainly. Absolutely.

Hamed Khorsand: You have taken a lot of these restructuring charges in the last few quarters. When do they stop? And when do us investors see it show up in quarterly results?

Efraim Grinberg: Well, I think it is a combination both of charges dealing with our event that occurred in the Middle East last year, as well as some charges on the restructuring side. I would think on the restructuring side, they are predominantly done. There could be some laggard expenses on the other charges, but I would expect overall that they will be reduced significantly.

Sallie DeMarsilis: And just to remind you that we did mention when we were talking about the savings and the initiatives we were putting in place, those are offset by some increases this year in our costs. So you will see they offset some of the increases that we would have for regular year-over-year increases for merit, adding back performance-based compensation, and, of course, currency.

Hamed Khorsand: Okay. Very good. Thank you.

Operator: Thank you. And we have reached the end of the question and answer session. I would like to turn the floor back to Efraim Grinberg for closing remarks.

Efraim Grinberg: Okay. Thank you all for participating with us today, and we look forward to joining you again for our third quarter conference call where we will hopefully be able to share with you the progress that we continue to make on our strategic initiatives. Thank you.

Operator: Thank you. And this concludes today’s conference, and you may disconnect your lines at this time. We thank you for your participation.

Shares of Nvidia (NVDA -0.01%) are down 3% in Wednesday’s after-hours trading as of 7:42 p.m. ET, following the artificial intelligence (AI) tech leader’s release of its report for its second quarter of fiscal 2026 (ended July 27, 2025).

The stock’s modest decline can likely be mainly attributable to the uncertainty still surrounding the Chinese data center market. On the earnings call, management said it has received U.S. government licenses to resume selling its H20 data center AI chip to several Chinese customers, and that it has the immediate capacity to sell $3 billion to $5 billion of these chips to China in the third quarter. However, due to geopolitical issues still being “open,” as management put it, it did not assume any H20 sales in its third-quarter guidance.

That said, Q2 revenue and adjusted earnings per share both beat Wall Street’s estimates, as did Q3 guidance for both the top and bottom lines.

In my Nvidia earnings preview, this chain of events is as I predicted: “I’m predicting it [Nvidia] will beat Wall Street’s earnings estimate. That said, I think the stock’s movement will largely depend on H20 news and related Q3 guidance.”

Image source: Getty Images.

Nvidia’s key numbers

Data source: Nvidia. YOY = year over year. GAAP = generally accepted accounting principles. Fiscal Q2 2026 ended July 27, 2025.

Investors should focus on the adjusted numbers, which exclude one-time items.

Wall Street was looking for adjusted EPS of $1.01 on revenue of $46.13 billion, so Nvidia exceeded both expectations. It also handily beat its own guidance, which was for adjusted EPS of $0.98 on revenue of $45 billion.

For the quarter, GAAP and adjusted gross margins were 72.4% and 72.7%, respectively.

Platform performance

Data source: Nvidia. OEM = original equipment manufacturer; OEM and other is not a target-market platform. YOY = year over year. QOQ = quarter over quarter.

The data center segment’s revenue accounted for about 88% of total revenue, so it continues to drive the company’s overall performance.

The data center platform’s strong year-over-year and sequential growth was driven by “demand for our accelerated computing platform used for large-language models, recommendation engines, and generative and agentic AI applications,” Colette Kress said in her CFO commentary.

Notably, within data center, Blackwell revenue grew 17% sequentially. Blackwell is Nvidia’s graphics processing unit (GPU) architecture that is currently in full production.

The other platforms also performed very well. Auto had particularly powerful year-over-year growth. Its growth was driven by “strong adoption of our self-driving platforms,” Kress said. The driverless vehicle revolution is advancing — and Nvidia is the best driverless vehicle stock, in my view.

What the CEO had to say

CEO Jensen Huang stated in the earnings release:

Blackwell is the AI platform the world has been waiting for, delivering an exceptional generational leap — production of Blackwell Ultra is ramping at full speed, and demand is extraordinary. Nvidia NVLink rack-scale computing is revolutionary, arriving just in time as reasoning AI models drive orders-of-magnitude increases in training and inference performance. The AI race is on, and Blackwell is the platform at its center.

Guidance for the third quarter

For Q3 of fiscal 2026, which ends in late October, management expects revenue of $54 billion, which equates to growth of 54% year over year. This outlook does not assume any H20 chip sales to China.

Management also guided (albeit indirectly by providing a bunch of inputs) for adjusted EPS of $1.22, or 51% growth.

Going into the report, Wall Street had been modeling for Q3 adjusted EPS of $1.19 on revenue of $52.76 billion, so the company’s outlook beat both estimates.

A fantastic quarter and guidance

In short, Nvidia turned in a fantastic quarter and guidance. The stock’s modest decline is likely due to short-term traders and will be recovered shortly, in my opinion.

The results were particularly impressive since they did not include any sales of H20 data center AI chips to China due to the U.S. government’s export controls spanning the entire quarter. And Q3 guidance was also particularly impressive for the same reason — it assumes no H20 sales to China. So any H20 chips that are sold to China in Q3 will be icing on the cake.

Image source: The Motley Fool.

DATE

Tuesday, August 26, 2025 at 8:00 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Kristian Sorensen

Chief Financial Officer — Samantha Xu

Need a quote from a Motley Fool analyst? Email [email protected]

TAKEAWAYS

Time Charter Equivalent (TCE) Income— $38,800 per available day and $37,300 per calendar day, both above prior guidance of $35,000 per day.

Profit After Tax (Attributable to Equity Holders)— $35 million profit with earnings per share of $0.23.

Dividend Declared— $0.22 per share dividend declared, representing 75% of shipping NPAT, supplemented by retained dividends from Product Services 2024 results.

Product Services Segment Profit After Tax— $6 million net profit after tax for Product Services, with realized gross profit of $15 million.

Aggregate Realized Product Services Profit YTD— $39 million as of June 30, 2025.

Dry Docking Days— 139 days in Q2 2025; management expects 143 days in Q3 and 135 days in Q4 2025, impacting available earning capacity.

Third Quarter Guidance— Approximately $53,000 per day fixed for 90% of available days, exceeding all-in cash breakeven of $24,800 per day for the year 2025.

Financing Activity— New $380 million term loan and revolving facility secured for advanced gas fleet, plus $215 million term loan facility for BW LPG India; $250 million shareholder loan terminated early.

Fleet Composition and Growth— 409 VLGCs in service globally as of Q2 2025, with only 7 new deliveries expected in 2025 and an order book of 111 vessels.

Time Charter Portfolio Exposure— 44% of shipping exposure, including 32% fixed rate; Q3 2025 fixed at 90% of available days.

Segment Profitability— the balance of fixed time charter out estimated to contribute $74 million in the second half of 2025.

Net Leverage Ratio— 31% in Q2, down from 33% at the end of last year primarily due to lease liability reduction.

Operating Expenses (OpEx)— $9,000 per day OpEx in Q2 2025; own fleet operating cash breakeven expected at $19,100 per day for full year 2025 and total fleet at $21,700 per day for full year 2025; all-in cash breakeven projected at $24,800 per day for the year.

Liquidity Position— $287 million in cash at the end of Q2 and $421 million in undrawn revolving credit lines at quarter end.

Trade Finance Utilization— $303 million trade finance utilization, equating to 38% of total available credit for trading activities.

Kristian Sorensen— “VLGC market is characterized by solid fundamentals with robust growth in export volumes from the U.S. and Middle East; fleet inefficiencies and Panama Canal congestion are absorbing capacity and elevating rates, with spot rates reaching above $70,000 per day for certain routes as reported in Q2 2025.

Product Services Value at Risk— Average bar value at risk was $6 million, reflecting a balanced trading book.

Return Metrics— Shareholders’ equity was $1.9 billion as of Q2 2025; annualized return on equity and capital employed were 98%, respectively.

SUMMARY

Management highlighted a volatile quarter driven by exceptional geopolitical disruptions and shifting trade flows, resulting in elevated freight rates and increased demand for very large gas carriers (VLGCs). The company’s ongoing drydocking program is expected to constrain operational days through Q4, which may affect near-term capacity and reported income. BW LPG Limited’s time charter strategy has provided downside protection but has also limited exposure to recent spot rate surges, influencing guidance for Q3 2025. Liquidity remains robust following recent financings and early loan repayments, with the next major maturity not due until 2029. Management underscored the significant impact of Panama Canal congestion and evolving cargo flow patterns on market fundamentals.

CEO Sorensen stated, “the supply-demand balance in the VLGC market is tight, and the bargaining power is in the shipping market’s favor.”

Samantha Xu said the reported net asset value for Product Services does not include a $10 million unrealized physical shipping position as of Q2 2025, indicating additional latent value not recognized in current financials.

Fleet renewal and newbuild activity remain limited in the near term, with only seven new VLGCs expected for delivery in 2025 and approximately 60 ships in the global fleet over 20 years of age.

Spot rates above $70,000 per day are described as sustainable by management under current conditions, though potential downside risk remains if market dynamics shift.

The CFO cautioned that unrealized gains and losses for Product Services will continue to see fluctuations before the positions are realized, underscoring ongoing earnings variability tied to market volatility.

INDUSTRY GLOSSARY

VLGC (Very Large Gas Carrier): Ocean-going vessel designed for the bulk transport of liquefied petroleum gas (LPG), typically with a capacity exceeding 80,000 cubic meters.

FFA (Forward Freight Agreement): Derivative contract used for hedging freight rate exposure by locking in future shipping rates for a particular route and timeframe.

Tonne Mile: A demand metric calculated as the volume of goods shipped multiplied by the distance transported, reflecting overall transportation demand in shipping markets.

NPAT: Net Profit After Tax; company earnings after all expenses and taxes.

Full Conference Call Transcript

Kristian Sorensen: Thank you, Aline, and hello, everyone, and thank you for taking the time to be with us today as we review our second quarter financial results and recent relevance. So let’s turn to Slide four, please. The second quarter was marked by extraordinary geopolitical and market events, which substantially increased the market volatility both for shipping and trading. For the quarter, we reported a TCE income of $38,800 per available day and $37,300 per calendar day, above our guidance of $35,000 per day. In a quarter with spot rates fluctuating between $10,000 and $70,000 per day, the time charter portfolio played a vital role in protecting our downside.

After minority interests, the Q2 profit was $35 million, equivalent to an EPS of $0.23. And the Board of Directors has declared dividends of $0.22 per share, consisting of 75% of our shipping NPAT, topped up with retained dividends from Product Services 2024 results. Moving on to our trading operations. Product Services achieved a gross profit of $15 million and a profit after tax of $6 million. Samantha will take you through the details later in the presentation. And it’s important to keep in mind that it is the realized result, which generates Product Services dividend capacity. As of June 30th, the aggregated realized result for 2025 is $39 million.

Further on our shipping activities, 2025 is a busy drydocking year for us. In the second quarter, we had 139 days related to vessels drydocking. In the second half of the year, we expect 143 and 135 days, respectively, for Q3 and Q4. These numbers should be noted since they impact our revenue-generating potential on top of the drydocking cost itself. For the third quarter, we are guiding on about $53,000 per day fixed for 90% of our available days. These are solid levels above our all-in cash breakeven of $24,800 per day. On the asset side, BWG was added to our own fleet in June after we declared a very lucrative purchase option earlier this year.

On financing, we finalized a $380 million term loan and revolving credit facility to finance the advanced gas fleet and secured a $215 million term loan facility for BW LPG India fleets. Our $250 million shareholder loan from BW Group was terminated earlier due to ample liquidity. But now that Q2 is over, the focus is on 2025, which has started off on a strong note. So let’s turn to the next slide, please. The current VLGC market is characterized by solid fundamentals with robust growth in export volumes from the U.S., supported by high domestic LPG production and ongoing terminal expansions. The Middle East volumes are also slightly up, backed by a reversal of the OPEC cuts.

The extraordinary factor is how inefficiencies in the LPG trade pattern have absorbed substantial shipping capacity in recent months. The first such inefficiency emerged after China imposed retaliatory tariffs on U.S.-sourced LPG, which led to a significant reshuffling of U.S. export volumes away from China and into other parts of Asia. The sudden shift of U.S. volumes toward India and Southeast Asia, combined with the redirection of Middle East volumes to China rather than India, absorbed considerable capacity from the VLGC fleet and pushed rates up. The short but intense Israel-Iran conflict also fueled spot rates for ships loading around that period in the Middle East.

Now trade patterns are slowly returning to pre-trade workflows, but the Panama Canal has once again become a bottleneck as growing traffic from container ships, ethane carriers, and other prioritized or high-paying segments strains capacity. The consequence has been more VLGCs routing around South Africa, which significantly impacts the tonne mile for the global VLGC fleets, making fewer ships available, which, in turn, is pushing rates up. In addition, the global fleet growth is at a low level, with 409 ships currently in service and only seven more to be delivered in 2025.

We keep an eye on the LPG FFA market, which is currently pricing the balance of 2025 at an equivalent of low $60,000 per day for the Middle East Japan benchmark leg. Next slide, please. This slide shows how the LPG market dynamics played out after the Chinese retaliatory tariffs were implemented. The U.S. LPG export volumes shifted from Chinese destinations to India, but also Japan took a big chunk of the rerouted cargoes. U.S. LPG exports to India were above 1 million tonnes in 2025 compared to less than 100,000 tonnes for the entire 2024.

Middle Eastern volumes also played a key role by replacing U.S. cargoes to China, thereby redirecting traditional cargo flows for India to longer haul destinations in China and absorbing more shipping capacity. Furthermore, China substituted U.S. LPG with cargoes from Canada and Australia, a trend that we see continues. All in all, the massive reshuffling of cargoes that took place was creating substantial inefficiencies in the LPG supply chain, which required more shipping capacity and moved rates up. The trade pattern is now pivoting towards the pre-liberation day structure in anticipation for a trade deal between the U.S. and China. But the Panama Canal has created new inefficiencies for the fleets. Next slide, please.

In 2023, 2024, we all spent significant time analyzing the Panama Canal dynamics. Now with the canal regaining relevance, it’s worth revisiting its key aspects driving our markets. The new Panama Canal locks have a daily capacity of around 10 ships in total combined for both directions. VLGCs have over the last years taken up between two to three of these 10 transit slots. As previously explained, VLGCs are not prioritized through the canal during periods of increased traffic. So when waiting times become excessive or auction fees for available slots are prohibitively high, the alternative is to route vessels around the Cape Of Good Hope.

And this rerouting increases sailing distances by up to 50% compared with the Panama Canal route to Northeast Asia and has an immediate and material impact on the VLGC market by raising demand for tonnage to offset the longer voyages. Monitoring developments in the Panama Canal will therefore be important in assessing the direction of the VLGC freight rates going forward. The increased demand for shipping capacity has pushed spot rates up to a level above $70,000 per day for loading in the U.S. Gulf. As you can see from the graphs on this page, shipping is currently capturing almost all the profit in moving cargoes from the U.S.

Gulf to the Far East, and there is very little room left for profit on the cargo price itself. Demand for vessels, driven by increased export volumes and the aforementioned inefficiencies, is growing faster than the capacity of the VLGC fleets. And the upcoming export terminal expansions will likely lend support to shipping share of the U.S. Far East arbitrage. In the LPG value chain, there is a daily arm wrestling going on between terminals, cargo owners, and the shipping market on capturing as much as possible of the price difference between the U.S. and the landed price in Asia.

For the time being, the supply-demand balance in the VLGC market is tight, and the bargaining power is in the shipping market’s favor. On that note, I’d like to remind you how this may impact the Q3 accounting result for Product Services since the change in the mark to market valuation of their shipping portfolio is not captured in the P&L, while forward cargo and paper positions are included. Looking ahead on this slide, the U.S. export volumes are forecasted to continue growing on the back of increased production of LPG.

The crude oil wells in the Permian Basin are more gaseous than we expected some years ago, and the gas production is forecasted to grow at least twice as much annually as the crude oil production, where lower growth figures are expected in the next five years’ periods. The growth in U.S. LPG exports is supported by several terminal expansions from now into 2028. And Energy Transfer has already started their LPG exports from their Nederland terminal expansion. Moving over to the Middle East. The export growth is forecasted to accelerate next year with Qatar leading the way as well as Abu Dhabi. In neighboring Saudi Arabia, the Jafura project is worth keeping an eye on.

Although it’s further out in time, the size of the LPG volumes made available for exports are potentially adding another 5 to 10 million tons of LPG to the growing volumes from the Middle East. On the fleet and newbuilding front, there is little new to report and the order book counts 111 additional vessels to the current fleet of 409 vessels where about 15% equal to 60 ships and thereabouts are older than 20 years. And then it’s over to you, Samantha.

Samantha Xu: Thank you, Kristian, and hello, everyone. Let’s dive into our shipping performance. The 2025 completed with the TCE of $37,300 per calendar day or $38,800 per available day, over 94% fleet utilization after deducting technical off hire and waiting time. The healthy result achieved in a volatile market was a strong testament to our commercial strategy, consistently taking on time charter and FFA for coverage in a strong market to provide support when spot markets are under pressure. In Q2, the time charter portfolio was 44% of the total shipping exposure, amount of which 32% is fixed rate time charter.

Looking ahead for Q3 2025, we have fixed 90% of the available fleet days at an average rate of about $53,000 per day. For the second half of 2025, we have secured 34% of our portfolio with fixed rate time charter and FFA hedge respectively at $45,200 and $51,700 per day. Our time charter out fleet is estimated to generate a profit of around $9 million over our time charter in fleet. On top of that, the balance of our fixed time charter out of portfolio is estimated to generate $74 million. On the product services side, the business posted a realized gain of $6 million for Q2.

The positive result reflected a disciplined approach and effective risk management in a volatile quarter. On the unrealized open positions, we reported a $12 million increase in mark to market on our cargo position, which was offset by a negative movement in paper position of $3 million. After accounting for other expenses, which mainly comprise general and administrative expenses, product services reported a net profit after tax of $6 million for Q2 and net asset value of $58 million as at the quarter end. As we mentioned in the previous quarters, the large mark to market valuation movement is due to the gradual phase in of our multiple year term contract, which reflects value adjustments in time of volatile market.

While the value is significant, it reflects the delta between the balance sheet dates, and we’ll continue to see fluctuations before the positions are realized. We also want to highlight that due to the nature of trading, its gain and loss are realized in different financial periods and cannot be extrapolated and predicted using its historical performance. Its unrealized position will fluctuate depending on the valuation at the end of the financial period, driving the accounting results up and down drastically. It’s important to remember that our trading model looks at creating value combining positions of cargoes, paper, and shipping positions.

As such, we would like to remind you that the reported net asset value does not include the unrealized physical shipping position of $10 million, which was based on our internal valuation. In light of the strong shipping market outlook, the open cargo contracts and hedging position may in turn experience negative mark to market valuation changes, and we’ll continue to see fluctuations before the positions are realized. In Q2, our average bar value at risk was $6 million, reflecting a well-balanced trading book of cargoes, shipping, and derivatives after including the increased term contract volume as mentioned. Going on to our financial highlights.

We reported a net profit after tax of $43 million, including a profit of $16 million from BW LPG India, a $6 million profit from product services. Profit attributable to equity holders of the company was $35 million for this quarter, which translates into an earnings per share of 23¢ and an annualized earning yield of 8% when compared against our share price at the June. We reported a net leverage ratio of 31% in Q2, a slight decrease from 33% reported end of last year. The decrease was due to lease liability reduction of $123 million from the purchase option exercised for BW Kisuku and BW Yushi, partly offset by the net drawdown of some banking facilities.

For Q2, the board declared a dividend of 22¢ per share, which translates to a 110% payout of our quarterly shipping profit. These are also supported by some of the retained dividends from product services in 2024. For the period end, our balance sheet reported a shareholders’ equity of $1.9 billion. The annualized return on equity and capital employed for Q2 were 98%, respectively. Our Q2 OpEx was $9,000 per day. For full year 2025, we estimate our own fleet’s operating cash breakeven per day to be $19,100 per day and total fleet’s operating cash breakeven, including time charter in vessels, to be $21,700 per day.

Please note, this is a reduction compared with the cash breakeven of 2024 of $22,800 per day, primarily due to meticulously managed financing, reduced time charter in vessels, and lower G&A per day. And this is also offset by increased OpEx. All in cash breakeven, including dry dock program, for the year is estimated to be $24,800. Next slide, please. On the liquidity side, at the end of Q2, we maintained a strong position of $7.8 billion, including $287 million in cash and $421 million in undrawn revolving credit facilities. Due to our meticulously managed financing plan, we are able to support our fleet growth and remain a robust and resilient financial position to weather the future.

Our repayment profile continues to be sustainable and healthy with major repayment only kicks in after February 19, 2029. On the product services side, trade finance utilization stood at a moderate level of $303 million or 38% of our available credit line, providing sufficient room for future trading needs. Okay. With that, I would like to conclude my update. Thank you for listening, and back to you, Aline.

Operator: Thank you, Samantha, and thank you, Kristian. We would now like to open the call for Q&A for questions. So please type your questions in the Q&A channel. You can also click the raise hand button to ask your questions verbally. Please note though that participants have been automatically muted, so please press unmute before speaking. We will start with the verbal questions first before then moving on to the chat. So please, if you want to ask a question, please raise your hand. I see first up Thomas Christiansen. Please unmute yourself.

Thomas Christiansen: Thank you. Can you hear me?

Operator: Yes.

Thomas Christiansen: That is really good. I have a question regarding the fleet growth. First of all, if you could that’s a factual question. Put some figures regarding the capacity of the VLGC fleet today and with the expected 111 vessels going forward. And then my next question is if that is a concern, this fleet growth to you? And if it is, how you will mitigate the impact? And if not, why it’s not a concern?

Kristian Sorensen: Thank you, Thomas. I can say I mean, it’s to go into detail of every vessel size. It’s probably going to take too long, but these ships are quite standardized, except that you have about is it 60 ships now of this fleet, which are Panamaxes, which can go both the old and the new canal lane with a capacity of 88,000 cubic meters. Otherwise, the VLGCs are relatively standard in their design. Some are 91,000, some are 93 and some are 88,000. Like I said, if you go back to the years before 2010, these ships are typically 82,000, maybe 84,000 cubes. So that’s kind of the way that the design has developed over the last ten years.

When it comes to the fleet growth in 2027, 2028, it’s something we’re absolutely not naive about. It should be viewed in the context of also more LPG volumes coming on stream, like mentioned, from the U.S. as well as the Middle East. I think the fleet growth is kind of the same picture we had going from 2022 into 2023, where the fleet growth was actually absorbed very well in the market because the inefficiencies and the volume expansion from the U.S. in particular absorbed the fleet capacity, which came on the water. But we are absolutely not naive about this.

And as previously mentioned, we also have a time charter portfolio, which is currently just above 30% of our capacity, which we are given provided the rates are found attractive, probably going to grow into towards 40%. So that’s the way we are protecting the downside as also mentioned in the beginning of our presentation.

Operator: Thomas, you had a follow-up question?

Thomas Christiansen: Oh, yes, I did. I mean, little bit in the same context. I mean, recently, Panama announced that it wouldn’t register the ships above fifteen years. I mean, you say on a global level, how does that impact the fleet of big gas carriers? And also, does would that impact the BW LPG’s business?

Kristian Sorensen: Sorry. I didn’t get that. That the Panama Canal has?

Thomas Christiansen: No. The Panama register, the flag register Panama, announced that it will not register ships above fifteen years going forward. How that how does that impact the global market and your market?

Kristian Sorensen: Well, then there will be fewer ships going through the Panama Canal, and I guess more ships have to sail around South Africa if to and from Asia and the U.S., if that is the case.

Thomas Christiansen: I think it’s more I think it’s more about, to register, to be to be to flag the Panama flag going forward that the

Samantha Xu: Hello?

Kristian Sorensen: Thomas, you disappeared.

Operator: Yeah. It looks like we lost him.

Kristian Sorensen: Thomas, are you with us?

Thomas Christiansen: Can you hear me now? Yes.

Kristian Sorensen: Yeah. We can.

Thomas Christiansen: Okay. Sorry. Yeah. It’s no. I think it’s more about it’s the register, the flag register, Panama’s flag register that one doesn’t want to allow, vessels above fifteen years to be registered, with Panama Flak going forward. So I guess that somehow will exclude some vessels from the global fleet of big gas carriers. So if you have a view on how that will impact the global fleet and your business too.

Kristian Sorensen: I think the I’m not sure about the restrictions on flagging ships in Panama. But if that is the case, I presume that there are all the registers where you can flag your ships. So it’s nothing which will have a commercial impact on our markets as far as I can see.

Thomas Christiansen: Alright. Thank you.

Operator: Thank Next up was Climent Molins. Please go ahead.

Climent Molins: Hi, good afternoon, and thank you for taking my questions. Over the years, you’ve generated significant shareholder value by exercising the purchase options at well below market prices on time charter team vessels with the Yuchi as the most recent example. Could you remind us whether you have purchase options on any of your remaining time charter in vessels?

Kristian Sorensen: We do have on one ship later in the decade, but there are no purchase options in the immediate future to say to phrase it that way. But we do have some towards the end of the decade.

Climent Molins: Okay, makes sense. Q3 guidance was a bit, let’s say, disappointing maybe relative to recent market trends, especially on the spot market. A portion of that is attributable to your time charter book. But could you please delve a bit into the numbers? Where a significant portion of days fixed before rates went up?

Kristian Sorensen: That’s something we will have to get back to you on for the next quarter because that’s that requires a bit of meticulous working to get that number correct. But you’re absolutely right that the time charter portfolio, which protected our downside in the second quarter is also affecting the number we’re guiding on for the third quarter. And also keep in mind that we do have dry dockings taking place throughout this year. And there is also a position and timing effect here, which is important to keep in mind because these voyages are usually three months voyages.

And to have ships in position for the uptick in the rates takes time to before you see ships are load ready and can actually benefit from the strength in the market. So I think we have to get back to you on the details on the split between spots and time charter like we typically do in our earnings presentation.

Climent Molins: Makes sense. Thank you for the color anyway. And final question from me. You had 139 dry docking days in Q2 followed by 143 and 135 in Q3 and Q4 respectively. How many vessels are expected to go through drydocking each quarter? And secondly, have you seen any congestion going into drydocks?

Kristian Sorensen: No congestions, but it’s another six, seven ships for the remainder of this year.

Climent Molins: Thank you. That’s all from me. I’ll turn it over.

Kristian Sorensen: Thank you.

Operator: Thank you, Climent. We have, John Dixon next.

John Dixon: Good morning, Kristian. Good morning, Samantha. I just have a real quick question for you related to the Panama Canal. We saw earlier this year like, just you can hear me. Right?

Samantha Xu: Yeah. I can hear you well, John.

John Dixon: Oh, okay. Earlier this year, President Trump here in the United States has really spent a lot of time with Panama trying to get the freight rates down for US flag vessels. Is that and US naval vessels, of course. Is that something that you see that’s impacting the congestion in the Panama Canal? And do you kind of expect to see that going forward?

Kristian Sorensen: Not really. The capacity is mainly being absorbed by container ships. We see more ethane carriers on the back of the increased exports of ethane from the U.S. And this is going to accelerate in coming years as well as other ship types. But we don’t so far see any impact from the, let’s say, naval ships or the U.S. flagships as you mentioned.

John Dixon: Okay. Thank you very much. That was my only question.

Operator: Thank you, John. Do we have any more questions that you would like to ask verbally before we move on to the chat? If not right now, we might just turn to the chat, maybe starting with Andreas first. SGA has come down from Q4 and also Q1. What is driving this? And is the current level a more realistic level going forward?

Kristian Sorensen: Samantha, I guess this one is for you. On the G and A side, what typically drives this up? I presume this is the G and A we are referring to. Right?

Samantha Xu: I assume the SGA refers to the G and A. Yeah. From this and the current level is more or less. Yeah. I think, Andreas, so GNA is not something that we can how to say how to say we can give you a good base for you to estimate because partly of that is the shipping’s journey and the other part is product services journey, which is a reflection of the realized profit as part of the incentive scheme. So that’s why it would you will see fluctuations of a G and A as a true up reflecting that the product services are realized profit as well.

Operator: Alright. Anders had another question related to spot rates being lower. So the question was, with the current market dynamics being favorably and comparing relative to peers reporting recently, what is the reason for the achieved spot rates for Q3 being relatively lower for BW LPG Limited?

Kristian Sorensen: Yeah, I think well, it’s not I guess, our peers have to answer for their numbers themselves. But at least for us, when we guide on the Q3 numbers, it’s including both spot and the time charter portfolio. So it’s not pure spot. And as mentioned also to Climent earlier is that the time charter portfolio is affecting this number compared to the pure spot rate that you see in the markets. And of course, have the positioning, the timing effects and the fact that we also have a relatively busy drydocking agenda and scheme this year, which will impact guiding and the results going forward.

Operator: Thank you. We move on to a question from Peter on VLACs. To what extent are the VLACs affecting the VLGC market? And when do you expect to start seeing some scrapping?

Kristian Sorensen: The VLACs are currently, you know, as they are being phased in, you know, these are basically going to trade as far as we can see as regular VLGCs because the ammonia trade for these kind of vessels hasn’t materialized yet and has probably not gone materialize before we are well into the 2030s as it looks now. So we regard them as part of the, let’s say, conventional VLGC fleet in our market outlooks. And then there was another question, which was whether we start seeing some scrapping. Scrapping is typically taking place when the markets are really, really low.

These ships, when they go out, let’s say, the conventional trade, they’re typically when they reach, at least 25 years, they end up in captive trade, floating storage operations. And technically, these ships can last, you know, until they are 40 years of age basically, because there is very little wear and tear compared to a dry cargo ship, for instance. So we I don’t anticipate to see any scrapping activity picking up before the markets are at a very different level than what we see today.

Operator: Thank you, Kristian. We have another question in the chat from Olaf on contract extension. Do you have any plans to extend the contracts for the vessels you’re currently chartering in?

Kristian Sorensen: This is something we will decide on as we get closer to the expiry of these various contracts. So we will inform the market more on how we extend or choose not to extend these contracts as we move into the third and the fourth quarter.

Operator: Thank you. Another question from Greg on ton mile upside. Regarding ton mile upside from U.S.-China trade tensions, you mentioned that voyage patterns are reverting. Can you quantify in general terms how much of the tonne mile upside is still here still there today? Is it mostly still there or mostly gone?

Kristian Sorensen: This is a very good question, Greg. What we do see is that U.S. cargo flows into China have kind of returned to a certain extent. But the surge in U.S. cargoes heading into India has come off. So I think it’s it’s a bit too early to see whether there is actually a new trade pattern established between the U.S. and India, for instance, or if this was just a one off. So it’s hard to kind of quantify this. But as mentioned, we saw more than 1 million tons heading from the U.S. into India in the second quarter against less than 100,000 tonnes for the entire 2024.

But the and also a side effect of this, which is quite interesting, which we probably underestimated was that India, which over the last years has absorbed basically 50% of all the LPG exports from the Middle East was suddenly receiving less cargoes from the Middle East because the Middle East sent more cargoes all the way to China. So we need a bit more time, I think, to quantify these ton mile effects and how it really impacted the market.

Operator: Thank you. We have a question from Axel Styrman on Ethene. Do you have any comments to the optionality on Ethene LPG exports from the U.S. Gulf in 2025 and in 2026. Which share of Ethene LPG do you expect to be shipped from the expansions where there is such optionality?

Kristian Sorensen: Thanks, Axel. So we understand that from the Netherlands terminal, for instance, they will start up with LPG and then phase in the ethane as we get into 2026. We assess kind of we have a fifty-fifty split on that one. Enterprise, they have two expansions where one of them will eventually be ethane only. So I think there is good reasons to believe that, you know, a substantial part of the terminal expansion for energy transfer as well as enterprise will be designated for ethane capacity.

Operator: We have another question in the chat from Chandan on Panama Canal congestion. So he would like to know what is driving the containership congestion increase in Panama Canal. What do you think?

Kristian Sorensen: I’m not sitting close enough to the container market to give a kind of a qualified reply on this, but I suspect that it has something to do with the ongoing trade war, negotiations between China and the U.S. But the container traffic in and around the canal is steadily growing simply because also there are more ships in general on the water fighting for this very limited capacity, which the Panama Canal has to offer.

Operator: And final question for now in the chat before we can open up again, verbally as well is from John on the spot rates level. How do you look at the current freight market for VLGCs? Are spot rates of $70,000 a day a sustainable level, or do you feel there are some downside risk in the near to medium term? And how do you look at the traffic in Panama Canal, especially for containers into the second half of 2025?

Kristian Sorensen: Good questions. I think there is always a downside risk when you are at $70,000 per day in the market. But we do see also today, for instance, that ships are being booked around that level. So it seems like the market is able to absorb it and that the rates are sustainable. But I wouldn’t say that there is not any downside risk to this rate level. But we believe that the Panama Canal is definitely playing a vital role in driving these rates further up or down. The fundamentals are solid. So it’s not like we have changed any views on the fundamentals of the market. But the wildcard is the Panama Canal.

And as mentioned, we see the containers are taking up substantial and increasing part of that capacity over the last couple of weeks. So it seems like the situation, even though it’s it’s rapidly changing from one week to the other, it seems like the Panama Canal congestion is going to be playing a role in the market in our market going forward. I think that seems to be the case.

Operator: Thank you, Kristian. There’s no more questions in the chat right now, but we have John Dixon who raised his hand again. So please, if you wanna go ahead, John.

John Dixon: Kristian, just real quick. Looking to the fourth quarter, Samantha said and you all showed that you’ve you’ve booked about 30% of your available days into the fourth quarter. Obviously, the way I’m looking at that is that if those freight rates stay higher leading into the fourth quarter, I’m assuming that is gonna be reflected. I mean, obviously, you still have a lot of available days left to book. Is that kind of the way you guys are looking at it? Or what’s your perspective leading into that fourth quarter?

Kristian Sorensen: I think, John, the way to look at this is that regardless of how the market is performing the spot market is performing, we have this 30 odd percent of all the fleet capacity locked in at $45,000 per day thereabout. And this will obviously have an impact on our time charter equivalent for an income for that quarter. But the remaining 70%, are exposed to the spot market. So that’s something we are happy to keep for time being at least, if that kind of answered your question.

John Dixon: It does, Kristian. Thank you. I and I appreciate it.

Operator: Thank you, John. Do we have any more questions? Either you wanna type it into the chat or raise your hand. We still have a couple of minutes left. Alright. If not, Kristian, you wanna provide a few closing remarks?

Kristian Sorensen: Then I think it’s time to round it off and say thanks to everyone listening in and for asking good questions. And we look forward to seeing you again in November. And in the meantime, we look forward to an exciting market development in the months to come. Thank you, everyone.

Operator: Thank you, Kristian. Thank you, Samantha. This will conclude our call. The call transcript and recording will be available on our website shortly. So thanks a lot for dialing in, and we wish you a very good rest of your day.

Image source: The Motley Fool.

Date

Monday, August 25, 2025 at 5 p.m. ET

Call participants

Chief Executive Officer — Fabien Haubert

Chief Financial Officer — Alicia Kelly

Operator

Need a quote from a Motley Fool analyst? Email [email protected]

Takeaways

Total revenue— driven by a 27% aggregate increase across four core verticals in the fiscal second quarter ended June 30, 2025.

Gross margin— Gross margin of 66.1% in the fiscal second quarter ended June 30, 2025, up 292 basis points from 63.2% a year ago, reflecting favorable product mix and cost optimizations.

Operating expenses— $5.4 million in operating expenses in the fiscal second quarter ended June 30, 2025, an 18% increase primarily attributable to one-time redomiciliation costs and strategic hires.

Operating margin— Operating margin of 10.1% in the fiscal second quarter ended June 30, 2025, expanding more than 200 basis points with operating income of $1 million, up 46%.

EBITDA— EBITDA was $1.1 million in the fiscal second quarter ended June 30, 2025, up from $846,000 a year ago, with EBITDA margin (non-GAAP) increasing by 161 basis points to 11.8%.

Net income— $1.2 million, or 5¢ per share, in the fiscal second quarter ended June 30, 2025, more than doubling from $493,000, or 2¢ per share, in the prior-year quarter (GAAP).

Cash and short-term deposits— $21.9 million, with no debt reported as of June 30, 2025.

EMEA revenue growth— 52% growth in the fiscal second quarter ended June 30, 2025, raising EMEA’s share of total revenue to 35%, up from 27% a year ago.

North America revenue growth— North America revenue increased 29% year over year in the fiscal second quarter ended June 30, 2025.

APAC region— APAC revenue decreased 47% in the fiscal second quarter ended June 30, 2025, due to a nonrecurring large contract recognized in the prior-year quarter.

LATAM performance— LATAM returned to growth in the fiscal second quarter ended June 30, 2025, with revenue up 26%.

Nonrecurring costs— One-time administration fees related to the company’s final legal redomiciliation to Canada.

Strategic investment— Expansion of the business development team and renewed focus on penetration in data center, utility, airport, and energy verticals.

Product innovation— Ongoing progress with multisensor technologies, targeting high-value solutions and reduced alarm rates.

Geographic revenue mix— North America at 53%, EMEA at 35%, APAC at 11%, and LATAM at 1% of total revenue in the fiscal second quarter ended June 30, 2025, compared to the prior-year quarter.

Summary

Management reported significant margin expansion in the fiscal second quarter ended June 30, 2025, reflecting a favorable sales mix and disciplined cost optimization. EMEA delivered notable growth, now comprising 35% of total revenue in 2025, attributed to both regional investments and vertical strength in energy and infrastructure.Senstar(SNT 2.98%) highlighted the impact of nonrecurring administrative expenses linked to the completed redomiciliation from Israel to Canada during the fiscal second quarter ended June 30, 2025. Strategic priorities include accelerated business development and innovation in multi-sensor technology as Senstar advances its competitive position. No financial leverage was present at quarter-end, providing flexibility for further investment or operational initiatives.

Fabien Haubert said, “Revenue for our four core verticals increased by 27% in aggregate year over year, leading to total consolidated revenue growth of 16.2% and robust expansion in both gross and EBITDA margins.”

Alicia Kelly stated, “the one-time administration fees were relating to consulting fees for concluding the final processes related to our Israeli entity. Now that we have completed the flip and we have redomiciled to Canada, there were a couple of outstanding activities that just needed to be closed up.”

Management identified broad-based adoption for security solutions in airports, data centers, and utility infrastructure, with broadening use cases beyond traditional perimeter defense.

Senstar is actively pursuing growth in noncritical infrastructure segments, including hospitals, educational institutions, and logistics facilities, leveraging technological differentiation.

Industry glossary

Perimeter Intrusion Detection Systems (PIDS): Integrated sensor systems designed to detect physical breaches along facility perimeters, leveraging technologies such as fence-mounted, buried, or free-standing sensors.

Multisensor: Security solutions combining several detection modalities (e.g., thermal, vibration, video analytics) for enhanced accuracy and reduced false alarm rates in perimeter monitoring.

Redomiciliation: The corporate process of changing a company’s home country or legal domicile to another jurisdiction.

Full Conference Call Transcript

Fabien will summarize key financial and business highlights followed by Alicia, who will review Senstar’s financial results for 2025. We will then open the call for a question and answer session. I would like to remind participants that all financial figures discussed today are in US dollars and all comparisons are on a year-over-year basis unless otherwise indicated. Before we start, I would like to point out that this conference call may contain projections or other forward-looking statements regarding future events or the company’s future performance. Statements are only predictions, and Senstar cannot guarantee that they will, in fact, occur. Senstar does not assume any obligation to update that information.

Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand, the competitive nature of the security systems industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, we have reconciled our non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements.

You can also refer to the company’s website at www.senstar.com for the most directly comparable financial measures and related reconciliations. And with that, I would now hand the call over to Fabien. Fabien, please go ahead.

Fabien Haubert: Thank you, Corbin. Thank you for joining us today to review Senstar Technologies’ second quarter 2025 financial results. We delivered strong second quarter results marked by the successful execution of our growth strategy and targeted investments to drive sales across our key verticals and geographies. Revenue for our four core verticals increased by 27% in aggregate year over year, which led to total consolidated revenue growth of 16.2% and robust expansion in both gross and EBITDA margins. Now moving on to a review of quarterly highlights. Revenue in the second quarter was driven by a well-balanced mix of products with notable vertical market strength from energy and corrections.

This result reflects the sustained customer demand and, when combined with our cost optimizations and focus on selling high-value-added solutions, drove a material gross margin expansion to 66.1% in the second quarter, comfortably above our targets. We are continuing to invest in technological innovation to protect our competitive positioning and fuel growth while diligently managing costs to deliver margin expansions and sustainable profitability. In the second quarter, operating expenses remained relatively stable as a percentage of revenue at 56% compared to 55% in the prior year quarter, despite an 18% increase in absolute terms. This operational leverage, combined with strong double-digit growth in revenue and gross profit, drove EBITDA to $1.1 million.

EBITDA margin expanded by 161 basis points to 11.8%. Net income increased significantly compared to the same period last year. In terms of the core geographic markets we served, Senstar’s global diversification continues to strengthen, with EMEA, North America, and LATAM delivering broad-based double-digit gains across our key verticals. In EMEA, the region is becoming a larger contributor to revenue and grew by 52% in the core second quarter while also gaining over 800 basis points in share of total sales. Our sustained investment in Europe over the previous years is coming to fruition, with the EMEA region now representing 35% of total revenue, up from 27% in the year-ago period.

The main verticals driving this record in the region include energy, particularly oil and gas, along with solar farms and electrical generation. In addition, there has been solid customer adoption in higher set value airport and data center infrastructure. In North America, which remains our largest market as a percentage of sales, revenue increased by 29% in the second quarter, mainly due to continued momentum in the correction and utilities verticals. North America delivered solid growth in the quarter despite moderate sales performance in Canada, declining slightly in the second quarter after a strong first quarter.

In the second quarter of this year, the Asia Pacific region faced a challenging year-over-year comparison against exceptionally strong growth of 135% in the prior year quarter, resulting in a 47% revenue decline versus the same quarter last year. The year-ago quarter included a large customer contract which did not repeat this quarter. Historically, APAC has been among the fastest-growing regions for Senstar, and we are continuing to experience strength from data centers, utility, and airport perimeter security solutions. In contrast, the LATAM region returned to growth in the second quarter with revenue increased by 26% compared to the year-ago period.

We attribute this turnaround to the successful execution of our strategy aimed at delivering industry-leading solutions to international markets, where security modernization is becoming an increasing priority. Looking at revenue contribution per vertical, our four key verticals grew 27% aggregate in the second quarter, driven primarily by strong performance in correction and energy. We are continuing to identify material growth across support growth opportunities, across renewable energy, data centers, and utilities, and Senstar is reinforcing its commitment to further penetrate those verticals and capture market share. In terms of product updates, technological innovation is the cornerstone of our strategy to strengthen our competitive positioning in the market.

We are continuing to make meaningful progress with multisensor, an important validation by our customers. Senstar is focused on delivering advanced and disruptive security solutions tailored to our targeted vertical markets. We aim to enhance security and operational efficiency by combining cutting-edge sensors with intelligence information management software. This strategy enables Senstar to grow its market share within core sectors while expanding its scope by offering differentiated, high-value solutions that sustain our growth margins of 60% and above. In addition, Senstar is actively working to broaden its addressable market by targeting the protection of critical points within noncritical infrastructure, such as hospitals, educational institutions, and logistic facilities.

Leveraging our unrivaled multisensor, we deliver unique performance by eliminating nuisance alarm rates, optimizing total cost of ownership, and significantly reducing installation and maintenance costs, unlocking opportunities in much larger market segments. Turning to other strategic initiatives, as discussed on the prior earnings conference call, we are pleased with the execution of our business development team following the addition of several key hires earlier this year. The team is now fully ramped and gaining traction with the core focus on driving growth through new customer acquisition and broader penetration within our core verticals.

Based on encouraging initial results, we plan to expand the team further to support the development of several large accounts and accelerate market share gain across high-potential sectors. In summary, our second quarter results demonstrate the resiliency of our business model, with continued momentum in both revenue growth and margin expansion. We remain focused on differentiating ourselves from the competition by investing in innovative security solutions for our international customer base. I want to express my gratitude to our employees for their strong execution of our strategy to grow our market share across key global verticals, to our valued customers for their continued partnerships, and to our shareholders for their ongoing support. Thank you for your attention.

I will now turn the call over to Alicia for a review of the financial results in more detail.

Alicia Kelly: Thank you, Fabien. Our revenue for 2025 was $9.7 million, representing a 16.2% increase compared to $8.3 million in 2024. The sales expansion was driven by holistic growth across our key geographic and vertical markets, with corrections, energy, and utilities serving as strong contributors. EMEA led the geographic regions with 52% year-over-year growth. New customer wins and increased cross-selling with existing customers drove the successful performance in the quarter, most notably in the energy, data center, and airport perimeter security verticals. The US followed with a 35% increase in revenue, fueled mainly by the continued demand in the corrections, energy, and utility industries, where customers are increasingly seeking innovative security solutions.

The LATAM region experienced an important inflection point in the quarter, with revenue increasing by 26%. As we have stated in the prior quarters, demand for security modernization in LATAM remains, and we continue to believe the region represents an important growth opportunity. The Asia Pacific region, on the other hand, experienced pressure in the quarter, with sales declining by 47%, primarily resulting from the phase-out of a customer contract that did not contribute revenue in the current quarter, in addition to the challenging year-ago growth comparison that Fabien discussed previously.

Similarly, revenue from Canada declined in the quarter due to normal quarterly fluctuations in the timing of contract awards, but we remain well-positioned to capture new projects through the remainder of this year. As mentioned in Q1, Canada was the strongest growing region with sales primarily generated by the corrections and energy sector segments. The geographical breakdown as a percentage of revenue for 2025 compared to the prior year quarter is as follows: North America, 53% versus 47%; EMEA, 35% versus 27%; APAC, 11% versus 23%; Latin America, even at 1%; and all other regions were immaterial for both periods. Second quarter gross margin was 66.1% compared to 63.2% in the year-ago quarter.

This 292 basis point margin improvement was primarily the result of strong expense controls, more favorable product mix, and component and design cost optimizations. Our operating expenses were $5.4 million, up 18% compared to $4.6 million in the prior year’s second quarter. The increase was primarily driven by one-time nonrecurring administrative costs associated with finalizing the corporate redomiciliation from Israel to Canada, as well as the addition of key personnel to keep our company headcount and targeted selling spend in core growth verticals and markets, with a positive offset from research and development investment optimization.

Strong revenue and a sizable increase in gross margin drove our operating income for the second quarter to $1 million, a 46% improvement compared to $700,000 in the prior year ago period. Operating margin expanded by over 200 basis points, reaching 10.1% in the quarter. The company’s EBITDA for the second quarter was $1.1 million compared to $846,000 in the second quarter of last year, with margins expanding by 161 basis points to 11.8% from 10.2% in the year-ago quarter. These gains underscore the operating leverage in Senstar’s operating model as we scale. Financial expense was $330,000 in the second quarter of this year compared to financial income of $103,000 in the second quarter of last year.

This is mainly a noncash accounting effect we regularly report due to adjustments in the valuation of our monetary assets and liabilities denominated in currencies other than the functional currency of our operating entities in the group, in accordance with GAAP. Net income attributable to Senstar Technologies shareholders in the second quarter was $1.2 million or 5¢ per share compared to a net income of $493,000 or 2¢ per share in the second quarter of last year. Added to Senstar’s operational contribution are the public platform expenses and amortization of intangible assets from historical acquisitions. The corporate expenses for the second quarter were approximately $865,000 compared to roughly $400,000 in the year-ago period.

Turning next to our balance sheet, cash and cash equivalents and short-term bank deposits as of June 30, 2025, were $21.9 million or 94¢ per share. This compares to $20.6 million or 88¢ per share as of December 31, 2024. The company had zero debt as of June 30, 2025. This concludes my remarks. Operator, we would like to open the call to questions now.

Operator: Thank you. We will now be conducting a question and answer session. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, while we poll for questions. Our first question is from Noam Nakash with IMA Value. Hi, guys.

Noam Nakash: Thanks for a great quarter. If you can elaborate about the one-time expense. What is the expense exactly, and if you can elaborate about the border control segment and biddings.

Fabien Haubert: Okay. If you agree, I am fine with starting with the border control before letting Alicia comment on the one-time expense. So border control is not one of our main target verticals, but clearly, as per the current situation where tension between countries is very high, yes, we are active in this sector. The main reason why we are not active in this vertical is that it is highly scalable because it depends basically on specific, I would say, on specific circumstances due to political, war, whatever scenarios. But, as far as we can contribute to make them safer, we are happy to technologically contribute to those, supporting our partners. I hope I answered your question.

So we cover this market without it being a fundamental of our verticals. Alicia?

Alicia Kelly: For the first part of your question, so the one-time administration fees were relating to consulting fees for concluding the final processes related to our Israeli entity. Now that we have completed the flip and we have redomiciled to Canada, there were a couple of outstanding activities that just needed to be closed up in order to finish with that legal entity.

Noam Nakash: Thank you very much.

Alicia Kelly: Thank you.

Operator: Thank you. There are no further questions at this time. Mr. Haubert, would you like to make your closing remarks?

Fabien Haubert: On behalf of Senstar Management, I would like to thank our investors for their interest and long-term support of our business. Have a great day.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

Image source: The Motley Fool.

Date

Thursday, Aug. 21, 2025 at 10 a.m. ET

Call participants

Chief Executive Officer — Jeffrey Sanfilippo

Chief Financial Officer — Frank Pellegrino

Chief Operating Officer — Jasper Sanfilippo

Need a quote from a Motley Fool analyst? Email [email protected]

Risks

Jeffrey Sanfilippo noted, “our financial performance falls short of our expectations,” while explicitly citing external uncertainties including “tariffs, inflation, unpredictable commodity costs, and broader macroeconomic challenges.”

CFO Pellegrino reported a 29.5% increase in inventory value for fiscal Q4 2025 (period ended June 15, 2025), driven by higher commodity acquisition costs and a rise in finished goods.

Pellegrino stated, “Gross profit margin decreased from 20.1% to 18.4% of net sales for fiscal 2025,” mainly due to higher commodity acquisition costs across nearly all major nuts and ongoing competitive pricing pressures.

CFO Pellegrino reported that interest expense increased to $3.6 million for fiscal 2025 from $2.5 million for fiscal 2024, due to higher average debt levels.

Takeaways

Net sales— $1.11 billion in net sales for fiscal 2025 (period ended June 15, 2025), up 3.8%, primarily driven by the Lakeville acquisition; excluding the Lakeville acquisition, net sales remained unchanged for fiscal 2025.

Annual dividend— Increased 5.9% to $0.90 per share for fiscal 2025. A special dividend of $0.60 per share was also declared, both payable Sept. 11, 2025.

Quarterly net income— $13.5 million, or $1.15 per diluted share, for fiscal Q4 2025, compared to $10 million, or $0.86 per diluted share, for fiscal Q4 2024.

Full-year net income— $58.9 million, or $5.03 per diluted share, for fiscal 2025 (GAAP), versus $60.2 million, or $5.15 per diluted share, for fiscal 2024 (GAAP).

Total operating expenses (quarter)— Decreased to 10.6% of net sales (down from 13.1%) in fiscal Q4 2025, reflecting reduced incentive compensation, freight, warehouse, and marketing costs.

Sales volume— Decreased 5.9% in fiscal Q4 2025; the consumer channel declined 11.5% (including a 10.7% drop in private brands) in fiscal Q4 2025, offset by an 8.7% increase in commercial ingredients and an 18.7% rise in contract manufacturing volumes.

Gross profit margin (quarter)— Fell to 18.1% from 18.5% in fiscal Q4 2024, due to higher commodity costs, despite improved manufacturing efficiency and lower spending.

Inventory value— Increased $58 million, or 29.5% year over year, in fiscal Q4 2025, reflecting higher commodity costs and a rise in finished goods for seasonal demand.

Weighted average cost per pound— Rose 30.4% year over year for raw nut and dried fruit inputs across nearly all major nut lines in fiscal Q4 2025.

Branded product volumes— Down 19.7% in fiscal Q4 2025, including a 42.9% drop in pork belly harvest sales due to lost distribution in a non-food sector channel.

Private label bars— Down 17% in fiscal Q4 2025 volumes, reflecting the lapping of prior-year gains from a competitor’s recall and lost retailer distribution, partially offset by new customer wins.

Gross profit margin (annual)— Decreased from 20.1% to 18.4% for fiscal 2025, mainly due to higher input costs and competitive pricing pressures.

Interest expense— Increased to $3.6 million for fiscal 2025, up from $2.5 million for fiscal 2024, due to higher average debt balances.

Dividend consistency— Management confirmed this marks the fourteenth consecutive year of capital returns through dividends as of fiscal 2025.

Strategic initiatives— Significant investments in manufacturing capabilities and infrastructure expansion announced during the year are aimed at portfolio growth; further details promised in future quarters.

Summary

John B. Sanfilippo & Son(JBSS 0.31%) delivered record annual net sales (GAAP) in fiscal 2025 (period ended June 15, 2025) but reported full-year GAAP net income modestly below the prior year due to declining margins driven by higher input costs and competitive pressures. Management highlighted pronounced swings in sales volume by distribution channel in fiscal Q4 2025, with notable declines in consumer (down 11.5%) and branded product lines (down 19.7%), offset by growth in commercial ingredients (up 8.7%) and contract manufacturing (up 18.7%). A substantial increase in inventory value and raw material costs in fiscal Q4 2025 was attributed to rising commodity prices and strategic preparations for seasonal demand. Management signaled confidence in future growth through expanded manufacturing capacity and continued portfolio innovation while warning of persistent external risks such as tariffs, cost inflation, and macroeconomic volatility.

Jeffrey Sanfilippo said, “Although our financial performance falls short of our expectations, we gained positive momentum as the year progressed, highlighted by year-over-year diluted EPS growth of 49.6% in Q3 fiscal 2025 and 33.7% in Q4 fiscal 2025, respectively.”

Commercial ingredient and contract manufacturing volumes increased in fiscal Q4 2025, while consumer-focused channels contracted, signaling a strategic mix shift underway.

Management is “actively pursuing additional opportunities to grow sales volume across all three of our distribution channels,” while maintaining “disciplined cost management and driving further operational efficiencies.”

Innovations in product development and optimized pricing initiatives are underway specifically to address evolving consumer behaviors in value-centric segments and private label demand.

Industry glossary

Price pack architecture: Strategy of developing various product sizes and price points to balance value perception and profitability across channels.

Circana: Syndicated market data provider (formerly IRI and The NPD Group) furnishing category and consumption metrics utilized for channel analysis in the call.

Full Conference Call Transcript

Jeffrey Sanfilippo: Thanks, Latanya. Good morning, everyone, and welcome to our fiscal 2025 fourth quarter earnings conference call. Thank you for joining us. On the call with me today is Frank Pellegrino, our CFO, and Jasper Sanfilippo, our COO. We may make some forward-looking statements today. Statements are based on our current expectations and may involve certain risks and uncertainties. Factors that could negatively impact results are explained in the various SEC filings that we have made, including forms 10-Ks and 10-Q. We encourage you to refer to the filings to learn more about these risks and uncertainties that are inherent in our business.

Before we begin today’s call, I want to take a moment to honor the life and legacy of Matt Valentine, former president from 1995 to 2006, and member of the JBSS board of directors who passed away this week. Matt played a pivotal role in shaping the success of our company, working closely alongside our former CEO, Jasper Sanfilippo Sr., during some of the company’s most formative years. He was more than a leader; he was a mentor, a trusted adviser, a steady presence for so many of us. My brother Jasper and I were fortunate to learn from him, and his impact continues to resonate throughout our organization. We are deeply grateful for Matt’s contributions.

Our thoughts and prayers are with the Valentine and Carroll families. Turning to our results, I am proud of how our team navigated a challenging and constantly evolving operating environment through fiscal 2025. We responded swiftly and decisively to address short-term financial impacts while remaining focused on executing our long-range plan in spite of a challenging macroeconomic and consumer environment. Although our financial performance falls short of our expectations, we gained positive momentum as the year progressed, highlighted by year-over-year diluted EPS growth of 49.6% and 33.7% in the third and fourth quarters, respectively, and enhanced spending discipline and increased efficiencies in our operations.

We also increased our net sales to a record $1.1 billion, surpassing the billion-dollar mark for two years in a row. We continue to make significant investments in our manufacturing and infrastructure, laying the foundation for future profitable growth. In addition, we recently increased our annual dividend by 5.9% to 90¢ per share and declared a special dividend of 60¢ per share. Both dividends will be paid on September 11, 2025. This marks the fourteenth consecutive year of returning capital through dividends to our shareholders. I want to sincerely thank all our employees for their dedication, resilience, and hard work this year. Their commitment drives our success and positions us for a strong future.

Navigating a dynamic market landscape, across recent CPG earnings calls, three key themes have consistently emerged, each reflecting the evolving challenges and opportunities facing our industry. We recognize the importance of addressing these shifts head-on. Now we’ll share how our teams are actively managing change, responding to uncertainty, and positioning the company for continued growth and resilience in today’s complex marketplace. First, navigating tariffs and rising costs. In an increasingly volatile global landscape, tariff-related cost pressures continue to challenge manufacturers across the industry. At JBSS, we proactively monitor trade developments, material costs, customer pricing, and demand fluctuations through close collaboration among our procurement, demand planning, finance, marketing, and sales teams.

While the environment remains complex, we’ve built a resilient framework to assess and manage our supply chain, helping us mitigate risk and maintain continuity. Our teams are responding with agility, leveraging sourcing flexibility, driving cost savings initiatives, and implementing selective price adjustments where appropriate. We remain transparent with our customers, providing regular updates, and offering tailored solutions such as reformulations, alternative ingredients, and optimized pack sizes to help manage costs without compromising value. Second, adapting to shifts in consumer behavior. In today’s environment, consumers remain highly value-conscious, making thoughtful decisions about their purchases. At JBSS, we stay closely attuned to these evolving behaviors through continuous monitoring of consumption trends across the nut, trail mix, and snack bar categories.

As inflationary pressure persists, our consumer insights play a critical role in shaping our innovation pipeline, ensuring that new offerings resonate with shoppers seeking both quality and value. Additionally, our advanced price elasticity models help us optimize price pack architecture and promotional strategies, allowing us to deliver compelling value while maintaining profitability. This is an important environment for private label programs. We are optimistic about expanding product portfolios with several of our transformational customers to meet shifting consumer needs. Third, driving growth through innovation and portfolio expansion. As evidenced by current market valuations, growth remains a top priority across the consumer packaged goods sector. In our company, we’re embracing this imperative with strategic investments designed to unlock new opportunities.

Earlier this year, we announced a significant investment and expansion in our manufacturing capabilities, an initiative that will enable us to broaden our product portfolio and better serve evolving consumer preferences. We’re energized by the potential these innovations hold and remain committed to transforming our business for long-term sustainable growth. We will share further details in the coming quarters as we ramp up for production. Looking ahead to fiscal 2026, we are focused on accelerating our volume growth by expanding on the success of our private brand bar portfolio, rebuilding our nut and trail business through price pack architecture, and innovation expanding our manufacturing capabilities.

We are confident we can continue to deliver strong operating results and create long-term value for our shareholders through the execution of our long-range plan. We are nuts about creating real food that brings joy, nourishes people, and protects the planet, and JBSS is executing on this mission. I’ll now turn the call over to Frank to discuss our financial performance.

Frank Pellegrino: Thank you, Jeffrey. Starting with the income statement, net sales for 2025 decreased slightly by 0.2% to $169.1 million compared to net sales of $269.6 million for 2024. The slight decline in net sales was due to a 5.9% decrease in sales volume or pounds sold to customers, which was largely offset by a 6% increase in the weighted average sales price per pound. The increase in the weighted average selling price primarily resulted from higher commodity acquisition costs for peanuts and all major tree nuts except for pecans. Sales volume declined for all major product types with the exception of peanuts, walnuts, and pecans.

Sales volume decreased 11.5% in the consumer distribution channel, primarily due to a 10.7% decrease in private brand sales volume. The private brand volume decrease was due to a 16.7% reduction in bar volume, mainly due to reduced sales to a mass merchandising retailer following an increase in bar sales from a national brand recall in 2024. Our strategic decision to reduce sales to a grocery retailer and lost distribution at another grocery retailer further contributed to the decline in bars volume. These decreases were partially offset by new bars distribution at two new customers.

Additionally, sales volume for other product types decreased 8.5%, mainly due to the discontinuation of peanut butter along with softer demand for snack, trail mix, mixed nuts, and almonds all at the same mass merchandising retailer driven by higher retail prices. However, decreases were partially mitigated by increased sales of walnuts and pecans at the same retailer. Sales volume decreased 19.7% for our branded products, primarily driven by a 42.9% reduction in pork belly harvest sales mainly due to lost distribution to a major customer in the non-food sector. Sales volume increased 8.7% in the commercial ingredients distribution channel, mainly driven by increased cinnabar volume to existing customers, which was first supplemented by an increase in peanut volumes.

Sales volume increased 18.7% in the contract manufacturing distribution channel, primarily due to increased granola volume processed in our Lakeville facility and snack nut sales to a new customer, and increased pan sales volume to a major customer also contributed to the overall increase. Gross profit decreased by $1.2 million or 2.4% to $48.8 million compared to the fourth quarter of last year, driven by higher commodity acquisition costs for nearly all tree nuts and peanuts. However, the impact was significantly offset by increased production volume, lower manufacturing spending, and improved manufacturing efficiency. Fourth quarter gross profit margin as a percentage of net sales decreased to 18.1% compared to 18.5% for 2024 due to the reasons previously mentioned.

Total operating expenses for the fourth quarter decreased $6.7 million compared to the prior year quarter, mainly due to lower incentive compensation expenses, along with reduced freight expense, lower third-party warehouse expenses, and lower marketing insight spending. These decreases were partially offset by a decrease in rent associated with our new facility in Humpy, Illinois. Total operating expenses for 2025 decreased to 10.6% of net sales from 13.1% for last year’s fourth quarter due to the reasons previously mentioned. Interest expense was $1.2 million for 2025 compared to $500,000 for 2024 due to higher average debt levels. Net income for 2025 was $13.5 million or $1.15 per diluted share compared to $10 million or $0.86 per diluted share for 2024.

Now taking a look at inventory, the total value of inventory on hand at the end of the current fourth quarter increased $58 million or 29.5% compared to the total value of inventories on hand at the end of the prior year’s comparable quarter. The increase was due to higher commodity acquisition costs across all major tree nuts as well as higher on-hand quantities of finished goods in preparation for anticipated seasonal demand. The weighted average cost per pound of raw nut and dried fruit increased 30.4% year over year, mainly due to higher commodity acquisition costs for almost all major tree nuts.

Moving on to year-to-date results, fiscal 2025 net sales increased 3.8% to $1.11 billion compared to fiscal 2024 net sales of $1.07 billion. Excluding the impact of the Lakeville acquisition, net sales remained relatively unchanged. Sales volume increased 3.4%, primarily due to the Lakeville acquisition. Excluding the impact of the Lakeville acquisition, sales volume decreased 1.7%, reflecting a 4% decrease in the consumer channel, which was partially offset by a 15.4% decrease in the contract manufacturing channel. Gross profit margin decreased from 20.1% to 18.4% of net sales.

The decrease is mainly attributable to increased commodity acquisition costs for substantially all major nuts, as well as competitive pricing pressures and strategic pricing decisions, which were offset by factors cited previously and improved profitability on bars due to manufacturing efficiencies. Total operating expenses for fiscal 2025 decreased by $10.2 million to $118.8 million compared to fiscal 2024. The decrease in total operating expenses was mainly driven by lower incentive, advertising, and consumer insight expenses. These decreases were partially offset by a one-time bargain purchase gain from the Lakewood acquisition, which did not repeat in the current fiscal year, as well as increases in wage and rent expenses attributable to our company warehouse.

Interest expense was $3.6 million for fiscal 2025, and $2.5 million for fiscal 2024. Net income for fiscal 2025 was $58.9 million or $5.03 per diluted share, compared to a net income of $60.2 million or $5.15 per diluted share for fiscal 2024. Please refer to our 10-K for additional details regarding our financial performance in fiscal 2025. Now I will turn the call back over to Jeffrey to provide additional comments.

Jeffrey Sanfilippo: Thanks, Frank, for the financial updates. Now let’s shift to consumption activity and category updates. I’ll share the category and brand results with you for the quarter. All the market information I’ll be referring to is Circana panel data, and for today, it is for the period ending June 15, 2025. When I refer to Q4, I’m referring to the thirteen weeks of the quarter, ending June 15, 2025. References to changes in volume are versus the corresponding period one year ago. For pricing commentary, we are using scan data from Circana, which includes food, drug, mass, Walmart, military, and other outlets, and we are referring to average price per pound.

We’re using the nut, trail mix, and bar syndicated views that category as defined by Circana. In the latest quarter, we continue to see modest growth in the broader snack aisle, as defined by Circana. Volume and dollars were up 13%, respectively. This is consistent with the performance we saw in Q3. In Q4, the snack, nut, and trail mix category was down 1% in pounds, which is consistent with Q3 performance. Dollars in Q4 were up 4%, versus 2% in Q3 as prices continued to rise. Prices rose 5% for snack nuts, with increases primarily in cashews, mixed nuts, and pistachios. Prices also rose 4% for trail mixes.

Fisher snack nut and trail mix performed worse than the category, with pound shipments down 17%. This was due primarily to declines in a major specialty retailer, as Frank mentioned, due to inventory changes and not repeating a promotion. Our Southern Style Nut brand pound shipment increased by 1%, driven primarily by growth in mass and e-commerce. Monkey Valley Harvest brand, which primarily plays in trail mix, was down 43% in pound shipments, driven by discontinuation at a national specialty retailer, despite strong performance in club, mass, and e-commerce. Money increases, including cocoa and some tree nuts, are resulting in higher prices for Orchard Valley Harvest.

We continue to focus on innovation and cost savings opportunities to mitigate this commodity pressure. Our private label consumer snack and trail shipments performed weaker than the category, with pound shipments down 8% versus last year, due to softness in mass as prices rise due to commodity pressures. We are actively working on cost mitigation solutions with our retail partners. Now let me turn to the recipe nut category. In Q4, the recipe nut category was down 1% in pounds and up 18% in dollars as prices for both walnuts and pecans continued to increase. This is an improvement in both volume and dollar performance, versus Q3.

Our Fisher recipe pound shipments were down 7% in Q4, with volume softness tied to increased cost of our commodities, and delayed shipments in e-commerce. Now let’s switch to the bar category. In Q4, the bars category continued to rebound as a major player continued to reenter the market after a major recall in 2023. The category grew 7% in pounds, and 8% in dollars. Private label was down 4% in pounds and 2% in dollars, as the previously mentioned national brand retook some of the share it lost to private label this past year. Our private label bar shipments were down 17% versus a year ago, as we lap significant growth from the national brand recall.

In closing, as we enter fiscal 2026, we have strong momentum and optimism as we continue to execute our strategic plan. We are actively pursuing additional opportunities to grow sales volume across all three of our distribution channels. We’re encouraged by early signs of success. At the same time, we remain focused on disciplined cost management and driving further operational efficiencies. That said, we recognize that significant external uncertainties remain, including tariffs, inflation, unpredictable commodity costs, and broader macroeconomic challenges. These factors will require us to stay agile and responsive as the year progresses. We’re committed to taking the necessary actions to deliver long-term sustainable growth, enhance our margins, and continue to create value for our customers, consumers, and shareholders.

And as I said earlier, while the company did not hit some of our financial performance goals in fiscal 2025, I am proud of what we did accomplish to transform our company. These achievements are a testament to the fortitude of our business model, the commitment of our people, and the mutual trust and depth of our customer and supplier partnerships. We are executing our growth strategies, implementing continuous improvement projects throughout the company to optimize our cost structure. We continue to invest in our brands, our capabilities, and our people to better service our customers and consumers and create value for our shareholders. We appreciate your participation in the call. Thank you for your interest in our company.

Natalia will now open the call to questions.

Operator: Thank you. As a reminder, to ask a question, please press 11 on your keypad and wait for your name to be announced. I would now like to hand the call back to Jeffrey for closing remarks.

Jeffrey Sanfilippo: We thank you for your participation in the call. We will be at next week’s investor conference in Chicago. We hope you will join us. Thank you.

Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.

July 21 (UPI) — Two U.S. stock indexes — Standard and Poor’s 500 and Nasdaq Composite 500 — ended trading Monday with record highs as companies release earnings this week, though investors brace for U.S. tariff increases.

The S&P 500 hit a high of 6,305.60 with a rise of 8.81 points, or 0.6%, above the record 6,297.36 set Thursday. The tech-heavy Nasdaq reached 20,974.18, a rise of 78.52, or 0.38%, after a record 20,895.66 on Friday.

The blue-chip Dow Jones Industrial Average ended the day with a loss of 19.12 points, or 0.04%, to reach 44,323.07 and off the record 45,073.63 on Dec. 4. The index’s high this year was 45,008.75 on Jan. 30, 10 days after Donald Trump took office for his second term.

DJIA was in the green during the day with the other indexes higher.

Morgan Stanely Chief U.S. Equity Strategist Mike Wilson forecasts the S&P will climb to 7,200 points by mid-2026 in a report by USA Today.

The Magniciant Seven technology stocks have not released data yet with sixt of them rising Thursday Apple (0.62%0, Alphabet (2.8%), Amazon (1.43%), Meta (1.23), Microsoft (0.002%).

Declining were Nvidia (0.6% and Tesla (0.35%).

Tesla, with a stock price of 329.49 is down 13.39% year to date. The stock slumped to 221.86 on April 8, but over five years Tesla is up 247.72%.

The 11 CNBC technology sectors ended trading within a small range — from Consumer Discretionary up 0.6% to energy down 0.96%.

Earnings reports have already been strong.

Verizon’s stock price climbed 5% after posting better-than-expected earnings and revenue, and finished with a rise of 4.04%. Of the 62 S&P companies that have reported, more than 85% beat expectations, according to FactSet data as reported by CNBC.

Earnings for the second quarter, which ended June 30, are tracking 5% over one year, according Bank of America.

“Rarely do you injure yourself falling out of a basement window,” Sam Stovall, chief investment strategist at CFRA Research, said to CNBC. “With expectations so low in earnings, I think that the end result will end up being better than anticipated. That is encouraging for the market, as well.”

Stoval said he believes the S&P could hit 6,600 before declining.

“A lot of the negativity has typically been shaken out of the market during these corrections, and now we’re seeing articles about maybe the economy is not as bad as we thought it was, consumer confidence is on the mend and we’re not seeing the inflation numbers be adversely affected by tariffs,” he said. “Maybe it’s just a matter of time before those things kick in, but at least for now, I think investors are saying, ‘You know what, the market is indicating that it wants to go higher.'”

Dan Greenhaus at Solus Alternative Asset Management was more cautious. He told Bloomberg News: “Given the better-than-expected inflation and economic data — not to mention corporate commentary which thus far has been pretty good — I’m not sure I’d put too much stock in the technicals right now.”

Stocks lately haven’t been volatile, especially compared with April. Before trading this week, the S&P went 17 sessions without a move of more than 1% in each direction.

Trump threatened tariffs on the April 2 “Liberation Day” of across-the-board tariffs on most U.S. trading partners and much higher for offenders.

Indexes then tumbled to lows this year and the bond market was battered. On April 8, the S&P was down 17.5% to 4,982.77, Nasdaq went into a bear market with a decline of 23.4% to 15,267.93 and DJIA off 15.4% 37,645.59.

Then a day later, Trump paused the reciprocal tariffs to July 9. Last week, Trump announced new figures on 25 countries, including 50% against Brazil, 35% against Canada, 30% against the 29 European Union nations, 30% on Mexico.

Deals have been reached with some nations, including Britain, China and Vietnam.

Looming is the Aug. 1 trade deadline for countries to begin paying higher tariffs. Commerce Secretary Howard Lutnick told CBS News‘ Face the Nation on Sunday it is a “hard deadline.”

“That’s gotten these countries to the table, and they are going to open their markets or they’re going to pay the tariff,” Lutnick said.

The U.S. economy has been in good shape as the U.S. unemployment fell to 4.1% in June. Consumer prices rose 2.7% over one year, up 2.4% from the previous month. Transportation services were up 3.4%, food at 3%, and uses and trucks as 2.8%, according to Trading Economies. Specifically, energy costs decline by a smaller margin than the previous month.

“I think you’re going to see inflation stay right where it is,” Lutnick said. “Americans can expect ‘shockingly low’ prices.

The federal fund rate remained at a target range of 4.25% to 3.5% after its the Federal Reserve’s June 17 and 18 meetings.

The Fed’s last rate change was a 25 basis point reduction on Dec. 18.

Trump has been pressuring Chairman Jerome Powell to lower the rates. But Powell is urging caution and said a reduction could spur inflation and slow economic growth.

The U.S. 10-year Treasury was down to 4.382%.

Gold COMEX for August traded at 3,410.30, a rise of $52, which is below the record 3,452.80 on June 13.

West Texas Intermediate Crude for August settled at $67.00, a decline of 34 cents. On May 5, it was $57.13, the lowest since January 2021. One ounce of gold had a high of $80.04 on Jan. 15.

The price of a gallon of unleaded gasoline was averaging $3.14 nationwide, down a penny from last week, according to AAA on Monday. One year ago it was $3.50.

Thanks to popular shows like “Squid Game,” plus price hikes and growing advertising revenues, Netflix on Thursday reported strong growth in the second quarter, beating analysts’ expectations.

The Los Gatos-based streamer’s revenue rose 16% to $11.1 billion, while the company’s net income increased 46% to $3.1 billion compared to a year earlier. Analysts polled by FactSet had expected about $11 billion in revenue and $3 billion in profit.

Wall Street analysts have long deemed Netflix the winner of the streaming wars. The company no longer gives quarterly updates on how many customers it has, last revealing it had more than 301 million subscribers in 2024. But there’s still pressure on Netflix to continue to show financial growth, as the company aims to attract more advertising dollars and subscribers around the world.

Many analysts believe that Netflix’s future sales boost will come from its advertising business, which began in November 2022. The streamer is expected to generate $2.07 billion in ad revenue this year in the United States, which is estimated to climb to nearly $3 billion in 2027, according to research firm Emarketer.

“They’re seeing some substantial revenue and they are also getting a lot of people to sign up or switch to the ad supported tier,” said Paul Verna, a principal analyst at Emarketer.

Netflix said it expects total revenue in to grow 17% in the third quarter. The company increased its full-year 2025 revenue forecast, estimating that it will generate $44.8 billion to $45.2 billion. That’s up from the range of $43.5 billion to $44.5 billion that it previously projected.

In May, Netflix said its cheaper plan with ads reaches more than 94 million monthly active users, indicating that its version with commercials is gaining traction as other services follow a similar strategy.

“We continue to make progress building our ads business and still expect to roughly double ads revenue in 2025,” Netflix said in its letter to shareholders.

Earlier this year Netflix raised prices on most of its subscription plans in the U.S. Its cheapest plan with ads went up $1 to $7.99 a month. Netflix said the response to its recent price adjustments has been “broadly in line with our expectations.”

Netflix continues to face competition from other streaming services globally and entertainment companies like YouTube and TikTok that also take up significant amount of watch time among consumers.

During the second quarter, Netflix released popular programs including Korean animated film “KPop Demon Hunters,” drama “Sirens” and the third season of “Squid Game.”

“Squid Game’s” third season, which premiered late last month, was the most watched series in 93 countries during its debut week and broke a record for the most views for a show in its first three days on Netflix, a boon for a streaming service that thrives on capturing the attention of audiences worldwide by releasing must-watch programs.

“These are positive initiatives and they’re the quality of the content that shows the uniqueness of it,” said Melissa Otto, head of research at S&P Global Visible Alpha, on shows like “Squid Game” Season 3. “These are all things that pull the users in and make them want to subscribe to Netflix or watch Netflix content.”

Netflix also has received critical acclaim for its programming, noting it has received 120 Primetime Emmy nominations for shows including the limited series drama “Adolescence” and comedy-drama series “Nobody Wants This.”

Netflix stock closed at $1,274.17 on Thursday, up about 2%.