Financial Data and Key Metrics Changes - For Q4 2025, net sales increased by 3.3% to $3.9 billion, with comparable store sales rising by 0.3% driven by modest growth in average ticket [10][12] - Diluted EPS for Q4 was $0.43, reflecting modest sales growth, elevated promotional activity, and continued investment in strategic initiatives [10][12] - For the full year 2025, net sales rose by 4.3% to $15.5 billion, with diluted EPS at $2.06 [12][13] - Gross margin for Q4 declined approximately 10 basis points year-over-year, while full-year gross margin expanded by 16 basis points [20][21] Business Line Data and Key Metrics Changes - Consumable, Usable, and Edible categories showed low- to mid-single-digit comparable growth, led by livestock, equine, and poultry supplies [11] - Big-ticket categories, excluding emergency response, experienced a decline in performance, contributing to high single-digit declines [11][12] - Digital business delivered high single-digit growth for the year, reflecting improvements in personalization and conversion [14] Market Data and Key Metrics Changes - Customer engagement remained healthy, with identified customer counts increasing by approximately 2% [11] - The South Atlantic region saw mid-single-digit declines, primarily due to the absence of storm activity compared to the previous year [10][11] Company Strategy and Development Direction - The company is focused on executing its "Life Out Here 2030" strategy, emphasizing new store growth, digital capabilities, and supply chain improvements [15][37] - Plans for 2026 include opening 100 new stores and expanding direct sales and final mile delivery capabilities [25][36] - The company aims to maintain a disciplined approach to capital allocation while investing in growth initiatives [26][37] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a shift in consumer spending, with essential categories remaining resilient while discretionary demand moderated [8][10] - The broader economic environment remains uncertain, with mixed signals regarding consumer sentiment and spending [17] - For 2026, the company expects total sales growth in the range of 4%-6% and comp sales growth of 1%-3% [22][23] Other Important Information - The company opened 99 new stores in 2025 and plans to continue this trend in 2026 [14][15] - The digital business is expected to scale further, with ongoing investments in AI to improve forecasting and inventory flow [14][36] Q&A Session Summary Question: Gross margin expectations for 2026 - Management expects gross margin expansion in 2026, particularly in the second half, but does not anticipate declines in the first half [42] Question: Trends in first quarter sales - Management indicated that the first quarter is tracking above plan, with optimism due to tax refunds and seasonal demand [44][47] Question: Discretionary spending weakness - Management believes the weakness in discretionary spending was transitory and specific to Q4, with expectations for improvement in 2026 [51][53] Question: Tariff costs and pricing management - Management anticipates similar tariff impacts in 2026 as in the second half of 2025, with effective pricing management to offset costs [56][57] Question: Conditions for restoring comp growth - Management remains committed to returning to a 3%-5% comp sales growth trajectory, supported by strategic investments and operational improvements [60][62] Question: Direct sales model profitability - The direct sales initiative is showing strong momentum, with plans to double the sales specialist count and target $50 million in sales for 2026 [64][66]

Financial Data and Key Metrics Changes - For Q4 2025, net sales increased by 3.3% to $3.9 billion, with comparable store sales rising by 0.3% driven by modest growth in average ticket [10][12] - Full year 2025 net sales grew by 4.3% to $15.5 billion, with diluted earnings per share at $2.06 [12][20] - Fourth quarter diluted EPS was $0.43, reflecting modest sales growth and elevated promotional activity [10][20] - Gross margin for Q4 declined approximately 10 basis points year-over-year, while full year gross margin expanded by 16 basis points [19][20] Business Line Data and Key Metrics Changes - Consumable, Usable, and Edible categories delivered low- to mid-single-digit comparable growth, led by livestock, equine, and poultry supplies [11][12] - Big-ticket categories, excluding emergency response, experienced a decline in performance, contributing to high single-digit declines [11][12] - Digital business showed high single-digit growth for the year, reflecting improvements in personalization and conversion [13] Market Data and Key Metrics Changes - Customer engagement remained healthy, with identified customer counts increasing approximately 2% [11] - The South Atlantic region saw mid-single-digit declines, primarily due to the absence of storm activity compared to the previous year [10][12] Company Strategy and Development Direction - The company is focused on executing its "Life Out Here 2030" strategy, emphasizing new store growth and enhancing customer service [12][14] - Plans for 2026 include opening 100 new stores and expanding distribution capabilities, including a new distribution center in Idaho [25][38] - The company aims to strengthen its core business while scaling new initiatives like direct sales and final mile delivery [35][38] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a shift in consumer spending, with essential categories remaining resilient while discretionary demand moderated [7][17] - The broader economic environment remains uncertain, with mixed signals regarding consumer sentiment and spending [17][24] - For 2026, the company expects total sales growth in the range of 4%-6% and comp sales growth of 1%-3% [22][24] Other Important Information - The company opened 99 new stores in 2025, with strong early productivity performance [13][14] - Membership in the Neighbors Club represents over 80% of sales, indicating strong customer loyalty [12] - The company is investing in AI to improve forecasting, inventory flow, and team member productivity [13] Q&A Session Summary Question: Expectations for gross margin in 2026 - Management expects gross margin expansion in the second half of 2026 but does not anticipate declines in the first half [42] Question: Trends in first quarter sales - Management indicated that the first quarter is tracking above plan, with optimism due to potential tax refunds and seasonal demand [44][48] Question: Discretionary spending weakness - Management believes the weakness in discretionary spending was transitory and specific to Q4, with expectations for improvement in 2026 [51][53] Question: Tariff costs and pricing management - Management anticipates similar tariff impacts in 2026 as seen in the second half of 2025, with effective cost management strategies in place [56][57] Question: Conditions for restoring comp growth - Management remains committed to achieving 3%-5% comp sales growth over time, supported by strategic investments and operational improvements [60][62] Question: Direct sales model profitability - Management is pleased with the performance of the direct sales model and plans to double the sales specialist count, targeting $50 million in sales for 2026 [65][67] Question: Inflation and commodity outlook - Management expects modest inflation in the 1%-2% range for 2026, with ongoing monitoring of commodity prices [71][74] Question: Garden center initiative updates - Management is committed to expanding garden centers and has seen strong performance in live goods, with plans for over 1,000 stores involved in this initiative [76][78] Question: Sale-leaseback benefits - Management indicated that sale-leaseback benefits will be flat year-over-year, with a focus on their new real estate model providing significant savings [79][81]

SUPPLEMENTAL FINANCIAL PRESENTATION January 29, 2026 Q4 2025 EARNINGS HIGHLIGHTS SAFE HARBOR The forward -looking statements included in this presentation are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including statements regarding market share gains, positive customer trends, new s ...

Financial Data and Key Metrics Changes - Total sales for Q1 2025 reached a record $3.47 billion, an increase of 2.1% year-over-year, while comparable store sales declined by 0.9% due to a decrease in average ticket size by 2.9% [17][18][36] - Diluted earnings per share were 34 cents, which was below expectations, primarily impacted by adverse weather conditions [18][36] - Operating income decreased by 5.3% to $249.1 million, and net income decreased by 9.5% to $179.4 million [36] Business Line Data and Key Metrics Changes - Strong transaction growth of 2.1% was noted, with unit growth in consumable, usable, and edible categories being particularly robust [11][32] - Categories that performed well included heating fuel, which increased over 20%, while spring seasonal categories saw declines, with lawn and garden down low double digits and riding lawnmowers down about 25% [29][31] - The company experienced a decline in average unit retail prices, primarily due to a negative product mix from fewer spring seasonal goods [32][33] Market Data and Key Metrics Changes - The Southern markets were significantly impacted by a delayed spring season, while Northern markets performed reasonably well despite lingering cold weather [26][27] - The delay in spring weather was estimated to have a headwind effect of about 250 basis points on sales [24] - The company noted that big ticket items represented less than 15% of total business, indicating resilience in other categories [62] Company Strategy and Development Direction - The company is focused on managing costs, investing with purpose, and maintaining customer engagement amid a volatile macroeconomic environment [10][12] - The updated fiscal year outlook reflects a cautious approach due to seasonal softness and ongoing tariff pressures [13][40] - The company is committed to its "Life Out Here" strategic growth drivers while being disciplined in capital investments [44][75] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty in the macro environment and its potential impact on consumer spending, but emphasized the underlying health of the business [19][20] - The company expects net sales growth between 4% and comparable store sales to range from flat to up 4% for the full year [40] - Management remains optimistic about the performance of core categories and anticipates a return to positive average unit retail by mid-year [73][114] Other Important Information - The company repurchased approximately 1.7 million shares and paid quarterly cash dividends totaling $122.4 million, marking the sixteenth consecutive year of dividend growth [37] - Merchandise inventories were $3.2 billion at the end of Q1, reflecting a modest 1.5% increase in average inventory per store [38] Q&A Session Summary Question: Clarification on the tariff environment for Q2 and the second half of the year - Management clarified that they are assuming current tariffs will be in place for Q2 and are monitoring the situation closely [89][90] Question: Expectations for big ticket pressure in Q2 and full year guidance - Management indicated a conservative approach for Q2, assuming no significant recovery in big ticket categories but expecting core categories to perform well [97][98] Question: Widespread vendor price increases and passing through costs - Management stated that they are not currently passing through price increases but are preparing for future discussions with vendors regarding cost management [104][106] Question: Clarification on guidance and embedded tariffs - Management explained that they are managing multiple scenarios regarding tariffs and their impact on guidance, focusing on maintaining market share [146][148]