Aug 27, 2026 earnings call — Tariff refunds reinvested and updated guidance
Company received approximately $55 million in tariff refunds and raised full-year adjusted EPS guidance to $11.77 to $11.97.
Revenue $3.0B (est $3.0B) · EPS $2.96 (est $2.19)
Key quotes
"We intend to fully reinvest these refunds into the business in the back half to deliver even sharper values to our customers."
"For full year 2026, we continue to expect 135 gross store openings or about 115 net new stores this year."
"Operating margin expanded 100 basis points, well above the high end of our guidance for 60 basis points of expansion."
Analyst Q&A 8
tariff refunds and margin drivers
Q (Matthew Boss · JPMorgan): Asked why the company chose to use tariff refunds to lower prices instead of boosting earnings. Also asked Kristin to explain the drivers of the second-quarter margin upside.
A: Management said they chose to reinvest refunds to give customers better value and because their refund amount was relatively small at $55 million due to prior category changes. They said this decision feels right for customers and that they can still hit earnings targets without flowing the refunds to earnings. Kristin said Q2 margin expansion came from merch margin up 70 basis points, 20 basis points of supply chain leverage, and 50 basis points of SG&A leverage.
"Number one, it feels like the right thing to do for our customers." — Michael O'Sullivan (CEO)
sales guidance and reinvestment plan
Q (Irwin Boruchow · Wells Fargo): Asked why the company did not give a more aggressive sales guide given the reinvestment of tariff refunds into sharper prices. Also asked Kristin to explain how the Q3 and Q4 margin guidance reflects those reinvestments.
A: Management said guidance is a balance of factors: they are optimistic because they will lap weather and tariff issues and expect the reinvestment to help sales, but they are cautious because gas prices are higher and other retailers may also reinvest, muting the impact. Kristin said the tariff refunds are being reinvested about 40% into Q3 and 60% into Q4, and that these reinvestments are the sole reason for the lower EBIT margin guide; excluding them, the underlying fall EBIT margin assumption of 10 to 30 basis points improvement is unchanged.
"Again, that reinvestment, approximately 40% into Q3 and 60% into Q4." — Kristin Wolfe (CFO)
consumer caution and inventory levels
Q (Lorraine Maikis · BofA): Asked whether recent mixed retail results make management more cautious on the consumer and what that means for demand the rest of the year. Also asked why comp store inventory was higher exiting the quarter and why they are comfortable with it.
A: Management said they are a bit more cautious on the consumer because of higher gas prices and generally weak comps across many retailers, though they still feel good about back-half guidance and potential upside while managing inventory conservatively. Kristin said comp store inventory was up 11% driven by higher home inventory versus last year's pullback, pulled-forward back-to-school receipts into late July, tax-free shopping shifts, and selective step-up in beauty and accessories; they are comfortable with the level given those drivers.
"I would say that despite that caution, we still feel good about our sales guidance for the back half, and we still feel good about potential upside." — Michael O'Sullivan (CEO)
quarter sales trend and Home update
Q (Brooke Roach · Goldman Sachs): Asked how sales trended within the quarter and the August month-to-date comp trend. Also asked for an update on the Home business and confidence for the back half.
A: Kristin said June trended like May, July moderated (the toughest compare but strongest on a two-year stack), and August quarter-to-date is within the 1% to 3% Q3 comp guidance range, with the biggest opportunity in September and October. Michael said the Home business has improved: in July Home outcompeted the chain and that trend continued into August, with strength in home furnishings, kitchen essentials and toys, and good on-order and reserve positions for gifting and holiday.
"In July, our Home business outcomped the chain, and that trend has continued into August." — Michael O'Sullivan (CEO)
new store openings and cannibalization
Q (Dana Telsey · Telsey Group): Asked for more color on the recent record new store openings and then asked about the cannibalization impact of new stores on comp growth.
A: Kristin said they opened 178 gross new stores in the last 12 months, resulting in 149 net new stores, about 13% growth; stores average about 27,000 gross square feet, are in productive strip centers, estimated to do over $7 million annually, and have payback of less than 2 years. On cannibalization, she said it is incorporated into site selection, historically about a 1% headwind to comp sales, but due to the recent high concentration of openings it's about a 1.5 point headwind in Q2 and should moderate as timing normalizes.
"Yes, over the last 12 months, we've opened 178 gross new stores." — Kristin Wolfe (CFO)
demographic trends and more refunds?
Q (Alexandra Straton · Morgan Stanley): Asked for updated trends by demographic segment. Also asked Kristin whether additional tariff refunds are expected in the back half.
A: Michael said stores in lower-income trade areas continue to outperform the chain and that Hispanic area stores performed in line with the chain. Kristin said they do not expect to receive any material additional tariff refunds beyond what they've already recognized, though small amounts may come as claims finalize, and the company had a smaller refund as a percent of sales because they pivoted away from heavily tariff-exposed categories last year.
"we do not expect to receive any material additional tariff refunds beyond what we've already recognized." — Kristin Wolfe (CFO)
marketing, proving price moves, and Savannah DC
Q (Adrienne Yih-Tennant · Barclays): Asked whether the company will use marketing to highlight the sharper values and what metrics will show those price investments create lasting loyalty. Also asked about supply chain leverage, the Savannah DC start-up, and how much productivity is in back-half guidance.
A: Michael said they have been working for 6 to 12 months to step up marketing and are testing programs to raise awareness and change perception, and that the main metric to show the tariff price moves work will be sales benefit. Kristin said supply chain leveraged 20 basis points in Q2 from DC productivity and cost savings, Savannah began receiving inbound product in April and has started supporting outbound flow, and while new DCs carry start-up costs, Savannah's scale and automation should drive capacity and productivity over time.
"if we see a benefit to sales, that will obviously be the main driver in terms of -- or the main indicator in terms of whether or not the customer is responding to sharper values." — Michael O'Sullivan (CEO)
weather risk and planning for outerwear
Q (Mark Altschwager · Baird): Asked how a potential super El Niño (warmer fall/winter) changes cold-weather receipts plans and whether that risk is in guidance. Also asked what stood out by region and category and whether comp was driven by transactions or basket.
A: Michael said weather is an important risk, so they planned down outerwear and planned up weather-neutral businesses to reduce exposure and will use localization tools to tailor regional mixes and chase upside if weather is cooler. Kristin said performance was broad-based with the Northeast and Midwest outperforming, the Southwest trailing, strongest categories were beauty and accessories, Home is starting to outperform, and the Q2 comp was driven primarily by higher basket size while transactions were relatively flat.
"When we developed our overall sales plan for the back half, we deliberately planned down our outerwear businesses and plan up our weather-neutral businesses." — Michael O'Sullivan (CEO)