Bob's Discount Furniture, Inc. (BOBS) Earnings Call Transcript & Summary

Thank you, and good afternoon, everyone. Welcome to Bob's Discount Furniture 2025 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being webcast live and recorded for replay. On the call today are Bill Barton, President and Chief Executive Officer; and Carl Lukach, Executive Vice President and Chief Financial Officer. Before we start, I'd like to remind everyone that the language on forward-looking statements included in the earnings release also applies to the comments made during the call. The release can be found on the website at ir.mybobs.com, along with reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Let me now turn the call over to Bill Barton.

Thank you, operator. Good afternoon, and thank you for joining us today for our fourth quarter and full fiscal year 2025 earnings call. It's a historic moment for the Bob's team to present our first earnings call as a public company following our successful IPO last month. At Bob's, we believe that everyone deserves a home they love. This core belief goes back to our founding and the important role we play in providing high-quality stylist furniture at everyday low prices. At the center of our flywheel and in everything we do is value without compromise. This promise is what has propelled us to become a coast-to-coast high-growth retailer with over 200 showrooms across 26 states. We are powered by the dedication and hard work of our nearly 6,000 team members who live our values of honesty, integrity, transparency and fun every day. The Bob's Way represents a culture that sets us apart. Our guest experience specialists present a welcoming low-pressure sales environment that differentiates the customer experience. Our team members build careers at Bob's, evidenced by an average store manager tenure of over 7 years, coupled with a strong track record of internal promotion. Our customer satisfaction ratings exceeding 90% are a testament to our compelling store and online experience, in addition to our curated assortment and differentiated value proposition. I want to thank each of our team members for getting Bob's to where we are today and for their continued commitment that will propel us into the future. Before I dive into what makes Bob's so unique, I want to briefly touch on highlights from our full year performance. 2025 was a strong year as we continue to gain market share and successfully navigated ongoing macro uncertainty. For the full year, total net sales increased 16.8%, driven by new store expansion and comparable sales growth of 7.7%. Adjusted EBITDA grew 24.1%. Our performance is reflective of both our structural advantages and continued strong execution, healthy new store economics and an enhanced omnichannel experience supported by investments and initiatives that are still in the early stages of yielding results. At Bob's, providing value to our customers is at the center of our flywheel, supported by distinct cost advantages as we scale. These strategic advantages are what makes Bob's so differentiated in the marketplace. Our first advantage is our merchandising strategy, which centers on a narrow and deep curated assortment supporting our everyday low-price model. We estimate that on average, our pricing is about 10% below our value-oriented furniture competitors' lowest promoted prices, which we believe equates to roughly 20% to 25% below their listed prices. Our curated assortment allows us to leverage our scale, coupled with deep vendor relationships to provide both quality and style and to maintain our price leadership. This strategy enables strong in-stock positions with 87% of our inventory available for delivery in as little as 3 days. Our second strategy advantage is our omnichannel capability, which is a key differentiator for Bob's. Furniture is inherently an omnichannel purchase, and we are uniquely positioned to meet customers wherever they are in the shopping journey, whether online or in-store. Our retail footprint spans coast-to-coast and offers significant whitespace opportunity supported by a proven and portable model highlighted by a warm and friendly shopping environment. Our stores feature free snacks and coffee available in our cafes and knowledgeable sales associates equipped with digital and AI-driven technology to enhance the selling experience. In addition, during 2023, we completed a digital transformation that optimized our website and enables customers to transact seamlessly wherever they prefer. In 2025, we began to see the financial benefit of a newly launched feature we call Omnicart, a digital cart that travels with the customer between stores and online. Today, if you find something you love in a Bob's store but are not ready to complete the purchase, an associate can create a digital cart and e-mail it to you. You can complete the transaction online, come back into the store or get on the phone with us. We are committed to executing a frictionless experience wherever the customer prefers to transact, including the same prices across channels, the same product and the same delivery experience. Our Omnicart penetration was a meaningful driver of 2025 sales performance, positively impacting conversion, and we expect to see continued contributions from this initiative over time. Our third strategic advantage is driving brand awareness through marketing leverage and compelling messaging. Our marketing strategy is proven and resonates with our customers. As we've scaled the business across more markets, we have increased national aided brand awareness to 45%, growing consistently each year and leaving room for continued expansion. As a point of reference, in our top 10 DMAs, our aided brand awareness averages approximately 70%. These 3 advantages of everyday low price, seamless omnichannel experience and growing brand awareness work together to attract a broad customer base. Our differentiated voice resonates broadly across multiple cohorts. We attract customers throughout all life stages and income levels, including higher income value-seeking households. In 2025, we saw a meaningful increase in new customers earning over $150,000, underscoring the broad appeal of our value proposition. We also see a strong balance across age cohorts, which makes sense given that consumers often purchase furniture at major life milestones, whether setting up their first home, growing a family or entering retirement and downsizing. Looking ahead, we are focused on 3 primary strategies to drive our long-term growth, growing our store base across new and existing markets, driving comparable sales and leveraging our scale and density to drive efficiency and margin expansion. Let me walk you through how we're executing on each of these priorities. First, store growth. We continue to execute on a disciplined expansion strategy built around our proven portable store model that delivers strong cash-on-cash returns and an average payback period of approximately 2 years. We ended 2025 with 209 stores, adding 20 new locations, which represented 11% growth. During 2025, we entered 2 new markets, including our first entry into the Southeast region in North Carolina. By the end of the fourth quarter, we opened 6 stores in North Carolina and performance to date has exceeded our expectations. We anticipate opening an additional 4 stores in North Carolina in 2026 as we continue to densify this important market for us, which is representative of how we grow. We do not just open stores, we develop markets. We spend time studying pricing and competition, conducting focus groups, evaluating cluster-based real estate opportunities and building a market-specific approach to driving brand awareness. As we look ahead, we will apply a similar playbook from our successful North Carolina openings as we enter new markets in 2026 and beyond. We have strong pipeline visibility with plans to open approximately 20 new stores in 2026, and we see clear and actionable path to more than 500 stores by 2035, representing almost 2.5x our current footprint. Turning next to our plans to drive comparable sales growth. We believe that 3 foundational elements drive sustainable comp store sales, driving qualified traffic, increasing conversion and growing average order value. Let's start with traffic. We think about driving traffic to our stores and our website through a comprehensive strategy that revolves around investing in and leveraging our robust customer data platform to broaden our customer reach. For example, our deep customer insights allow us to efficiently identify and segment customer cohorts that have a high propensity to purchase from Bob's and to provide targeted product recommendations to drive repeat purchases. In 2025, we saw outsized performance in higher income cohorts, and we see opportunity to continue driving incremental sales through additional consumer cohorts within age, household income and regional targeting. Our marketing approach is highly digital and tailored to the communities that we serve. By combining data-driven precision with creative community-focused messaging, we're not just driving traffic, we're building lasting customer relationships that fuel sustainable growth. Turning to conversion. We've made multiple investments in recent years in our in-store technology. Tools such as AI-driven workforce scheduling systems, manager check-in tools and real-time conversion dashboards support our associates so they can provide a consistently excellent Bob's experience for the customer, including selling with the support of the Omnicart that I mentioned earlier. Next, increasing average order value. As an everyday low-price leader, we don't drive comparable sales through price increases. Rather, AOV growth is supported by offering additional features and benefits to our merchandise that can drive average ticket and create a compelling proposition to trade into our better and best categories. In addition, we're excited about our store clustering initiatives where we are emphasizing specific assortments by region. We are piloting this initiative in some of our more urban store locations around New York City, where we emphasize products for smaller space living. This allows us to more efficiently align inventory with customer demand and showcase products that resonate in these markets while leveraging our existing supply chain and inventory planning capabilities. We are in the very early innings of this initiative, but we believe this could be a meaningful unlock for us. We also believe that offering our customers more constructive financing options could be a meaningful opportunity for us to drive higher average order value. Historically, our financing mix represented approximately 50% of overall purchases. But for 2025, it was 42%. We're in the process of transitioning to a new primary financing partner, and we believe we have an opportunity to increase that mix. Lastly, let me touch on how we plan to leverage our scale and expand margins. As we densify, we will continue to leverage distinct cost advantages across merchandising, supply chain, marketing and fixed costs. Our purchasing power with vendors, combined with our sophisticated supply chain network provides a foundation for margin expansion while consistently reinvesting value back into our customers. As discussed today and with many who we have met with through the IPO process, Bob's is a unique and differentiated model. While at face value, the business seems simple, executing at scale is complex and takes a strong team to deliver. I could not be more proud of our teams and the broad-based support that we have across the organization. Our internal employee survey positions Bob's within the top 5% of consumer retailing peer organizations. Looking ahead, despite ongoing macro uncertainty and near-term disruptions from winter storms, Bob's has a long history of navigating successfully in various market conditions, and I'm confident in our ability to continue to do so. I'm energized by the tremendous opportunity still in front of us. We will continue to gain market share through disciplined and prudent execution of our playbook. We have a clear and actionable path forward, supported by strong unit economics, a proven portable business model that works across diverse markets, best-in-class omnichannel capabilities that meet customers where they want to shop, a differentiated merchandising strategy that delivers innovation, value and quality and an exceptional team that executes with consistency and passion. With that, let me turn the call over to Carl to review our financial results and outlook in more detail. Carl?

Thank you, Bill. Echoing Bill's remarks, I am incredibly proud of what our team has accomplished to reach this milestone as a newly public company. We have been preparing for this moment with discipline and focus, and we now have the teams, systems and strategies in place to successfully lead Bob's into this next chapter of growth. We had a strong fiscal 2025, particularly during a volatile macroeconomic where we leveraged our investments in tools and capabilities to fuel top line growth and gain market share. For the year, we delivered 16.8% sales growth, supported by new store openings and comparable sales growth of 7.7%. This performance helped to drive 24.1% year-over-year growth in adjusted EBITDA and resulted in a healthy adjusted EBITDA margin of 10.2% despite navigating a volatile tariff environment. For the fourth quarter, net revenue increased 8.2% to $648.8 million, driven by new store openings and comparable sales growth. We opened 3 locations in the fourth quarter, and we ended the year with a total of 20 new stores and an ending store count of 209 locations. As Bill touched on, we entered 2 new markets in 2025, North Carolina and Vermont and are very pleased with the performance we have seen in these locations as well as more broadly across our new store cohorts. Adjusted comparable sales during the quarter increased 2.8%. This performance includes an estimated timing shift of deliveries between the third and fourth quarter last year that negatively impacted the fourth quarter comp by about 180 basis points due to a network disruption in 2024. Our comparable sales performance was primarily driven by growth in conversion and higher average order values in our retail channel as well as increased eCommerce traffic. For the year, our 7.7% comp was primarily driven by our multiyear investments to drive conversion. While we lapped the initial impact in the fourth quarter, these foundational improvements will continue to support performance over time. Fourth quarter gross margins increased 20 basis points to 45.7% compared to 45.5% in the prior year. The year-over-year increase in our gross margin rate was driven by more normalized freight costs compared to higher costs last year. This increase was partially offset by product mix shifts. During the fourth quarter, while we experienced higher costs associated with tariffs, we were able to largely offset the impact through vendor credits and targeted pricing actions. SG&A as a percentage of net revenue increased approximately 30 basis points compared to the prior year. If we adjust for the fourth quarter timing shift of deliveries last year, the SG&A rate would have been flat for the quarter. In total, net income grew over 6% to $41 million compared to $38.6 million last year, and adjusted EBITDA increased 4.9% to $76.5 million. Turning to the balance sheet. By the end of the fourth quarter, we held approximately $53 million of cash on hand and maintained total liquidity of nearly $178 million. Inventories increased approximately 15.3% compared to the prior year, primarily driven by store growth and increases in comparable sales. We are comfortable with the level and composition of inventory. Total capital expenditures for the year were approximately $83 million, driven by investments associated with new store growth. In February, we successfully completed our initial public offering, resulting in $302 million of net primary proceeds. These proceeds, together with cash on hand and other available liquidity, were used to prepay all of our $350 million term loan, resulting in a long-term debt-free balance sheet. Now turning to our outlook. As Bill mentioned, we had a strong start to the year with comparable sales growth in the first few weeks of the quarter running modestly ahead of our low single-digit algorithm. However, that was followed by significant snowfall and prolonged cold weather that materially impacted store traffic and sales across most of our footprint. We are no strangers to winter weather, yet this year was exceptional as winter storm Fern and the February blizzard struck on weekends, which typically generate more than double our weekday sales, resulting in 5x more operational hour losses than last year. Taken together, we estimate that weather represented an approximate 340 basis point headwind to comparable sales growth in January and February. Encouragingly, as we've moved into March, traffic has rebounded and our recent sales trends have benefited from a partial recapture of lost sales from the weather-impacted weeks. Therefore, we expect the first quarter to deliver comparable sales growth of approximately 1.0% to 1.5%. For the first quarter, we also expect EBITDA margins to be around 6% compared to 7% last year, driven by flow-through of the expected comparable sales performance as well as opportunistic marketing spend. As a reminder, the first quarter is typically our lowest EBITDA margin quarter, driven by lower sales volume. As we look to the remainder of the year, we continue to anticipate top line performance in line with our long-term algorithm. For the full year, we expect net revenue of $2.6 billion to $2.625 billion, supported by comparable sales growth of 1.5% to 2.5%. As I mentioned in March, we expect to realize a partial recovery from the lost weather-related sales, and the midpoint of our comparable sales growth range assumes no additional recovery beyond the first quarter and no additional benefits from the macro environment with respect to the housing market or consumer health. Turning to profitability. We expect adjusted net income between $121 million and $129 million and adjusted EBITDA between $255 million and $265 million. At the midpoint, our outlook implies an adjusted EBITDA margin of around 10%, driven by an expectation of relatively flat gross margin performance year-over-year and slight operating expense deleverage to invest in our 2026 greenfield store growth and the associated marketing expense. In addition, our outlook incorporates preopening costs of $23 million to $24 million, reflecting the potential strategic acceleration of a handful of store openings into early 2027 and a 53rd week impact, which we expect to contribute approximately $40 million in net revenue and $5 million in adjusted EBITDA. Turning to CapEx. We plan to spend approximately $110 million to $115 million of net capital expenditures focused on store growth and supporting infrastructure, including a new distribution center in Atlanta that is expected to open in 2027, with the majority of that associated capital to occur this year. We expect to open approximately 20 stores in 2026 or 10% store growth. Our 2026 cohort includes new greenfield markets in South Carolina and Tennessee, in addition to continuing our expansion in North Carolina, where we saw strong reception last year. Our pipeline also includes a handful of single-store market locations in the Midwest. As a reminder, greenfield and single-store market locations typically require investment in marketing and supply chain in the first year, which is fully factored into our expectations. In the first quarter of 2026, we opened a new regional fulfillment center in the Midwest to support continued expansion in this region. And finally, to be helpful with modeling, we expect a full year tax rate of around 27% and full year share count of approximately 137 million. We expect to generate positive free cash flow for the year with the first half of the year, including consistent borrowings under our revolver to support the full repayment of our long-term debt. We expect to incur net interest expense of approximately $8 million, of which $5 million is expected to be incurred in the first quarter compared to $7 million in full year 2025. This excludes the onetime impact of debt extinguishment costs. In closing, we continue to have high confidence in our ability to deliver on 2026 and our long-term financial targets and the execution of our significant whitespace potential. Our long-term financial model expects to drive approximately 9% revenue growth, supported by 10% unit growth and low single-digit comparable sales growth, yielding approximately 10% to 12% EBITDA growth. With our proven strategies, exceptional team and clear road map, we are well positioned to execute on our 2026 objectives and drive sustained value creation over time. With that, let me hand it back over to Bill for closing remarks.

In closing, Bob's is a brand that can win in all seasons. Despite ongoing macroeconomic uncertainty, we remain confident in our ability to continue to grow and take market share. We're energized by the tremendous whitespace in front of us and are encouraged with the performance of our new store program. We remain focused on executing our strategic initiatives while preserving the Bob's culture that differentiates us in the marketplace. At Bob's, our commitment to honesty, integrity, transparency and fun isn't just a philosophy, it's the Bob's Way, and it's a proven formula for sustained growth and shareholder value. When you build a business that puts people first, you don't just build loyalty, you outperform the industry. It's how we consistently deliver attractive returns and why we're positioned to capture the significant opportunity ahead. Looking forward, our ambition is clear. We're targeting 10%-plus unit growth annually with a path to 500-plus stores by 2035, which is more than double our footprint today. As we grow, we're committed to the Bob's Way in every market, while strengthening our advantages as a business through disciplined execution, best-in-class unit economics and operational excellence. What started as a better way to buy furniture is now a better way to build a business, and we're just getting started. I couldn't be more excited about what lies ahead as we continue to transform how America shops for furniture. Thank you to our incredible team, our loyal customers and now our shareholders who believe in the Bob's Way. With that, I would like to open the floor to questions. Operator?

[Operator Instructions] Our first question is from Christopher Horvers with JPMorgan.

My first question is, if you look at the first -- the fiscal year outlook, the high end of your sales and EBITDA dollar outlook is in line with where the Street had modeled you, but you've widened the low end, so $255 million in EBITDA at the low end. To what extent is that wider range simply due to something that changed in your first quarter outlook because of the storms versus a change in 2Q and going forward?

Sure, Chris. It's all in the first quarter and related to the weather-related impact. And just to level set on the weather, it was significant, prolonged, concentrated in the first quarter and 80% of our regions were impacted, including the West Coast. So the guide there, the midpoint of the guide really does assume that the first quarter impact flows through to the full year and the remaining of the quarters are in line with our long-term algorithm.

And then as you think about the nature of your category, it's very much a considered purchase. I'm not sure if you've seen in the past when you have weather events like this, obviously, with a very East Coast-oriented footprint, you do see weather impacts. Is it something where you typically recapture nearly 100% of that demand, i.e., this 1% to 1.5%, why wouldn't we carry over into the second quarter, considering if you're thinking about it getting so of a prior unless something changes, you would still shop for it just down the road? Or are you trying to take into account some of the macro uncertainty given what's going on geopolitically?

Yes. Chris, this is Bill. Look, so as you know, we've been around a long time. We've seen these kind of impacts before. In our experience and what we believe we're experiencing today, the weather impact, we will deliver all the sales that were made, and there's usually a partial amount of the demand that we don't recover. So it's not 100% recovery from the lost demand, but a high percentage of it. And we think we're seeing that now, and we believe that we'll see all that impact in the first quarter.

Chris, let me add to that. Just in terms of the rebound of traffic that we saw in March. Really, the demand this month includes that partial recapture. And as a result, we're running a bit higher than the algo in March so far. So really confident in the demand we're seeing. The directional guide for Q1, the 1% to 1.5%, that's really from a delivered perspective. So the demand is certainly there, and we have 2 weeks until the end of the quarter to deliver the demand that we have seen. So there's a couple of big delivery days coming up as we get to the end of the quarter. So that represents the range that we've provided.

And just to make sure I understand that the 340 basis points in January and February, if you're planning algo of about 2%, that would imply that you were down about 1 point in those 2 months, and therefore, the recapture would suggest that March is obviously running something in the, say, 3.5%, 4% range.

Yes. The March performance is running above the algo. And again, that's a result of this partial recapture that we're seeing right now.

Our next question is from Michael Lasser with UBS.

The market is probably going to look at this situation and say that was a very significant weather event. But to what degree is there a cushion in Bob's outlook for the second half of the year if some other exogenous variable were happen to materialize, especially as you get into a period where you're going to have tougher comparisons. So what factors would you point to, to say this was a one-off event, and we still feel highly confident in the outlook for the back half of the year?

Yes. Michael, this is Bill. Great question. So look, first off, on the weather event in the first quarter. So we are no stranger to weather events in the first quarter of the year. And we mentioned that this year, this has been an extreme outcome. Our planning would have anticipated a normal kind of weather event year, which we've seen in prior years. But this time, we saw 5x the amount of operating hour losses due to weather that we saw last year. So it was a pretty extreme event. But the planning it called for a normal weather event kind of Q1. Having said that, as we go forward into Q3 -- Q2 through Q4, I have a high confidence that our plans build in adequate visibility to the kind of events that we would expect in the normal course of business. Now having said that, there's a lot of things going on in the macro that we certainly can't anticipate, but I feel very confident watching the momentum that we've had in the first quarter, going into the second, third and fourth quarters that we'll be able to deliver against those.

And I'll jump in with two quick things. The first is the midpoint of the range we assumed really underscores all the comp driving initiatives that Bill mentioned in his remarks. The high end of the range would be any potential tailwinds that we would see, whether that's competitive dislocations, anything in housing the consumer and the low end would be any other headwinds that would be from the consumer end. So that's where we look at the range. But the midpoint really is our confidence in the execution of the plan we have today. And then the second point I'll mention, just in terms of the weather impact, we feel very confident that the impact we saw in Q1 was weather. We've done detailed analytics to look on a day-by-day basis to really analyze what the weather-impacted days compared to non-weather impacted days were. And that gives us confidence that Q1 was truly a weather dislocation.

Understood. To borrow my friend, Bill, just comment from now, there's a lot going on in the world. So can you give us a sense of what has changed in your profitability outlook for this year today versus since the beginning of the year? It sounds like you might have pushed a little bit more towards marketing for demand generation. Obviously, there's been a lot of moving pieces with respect to the tariffs. And now finally, some of these fuel-related headwinds that could impact things like delivery and freight costs. So how have you factored in all of those moving pieces into your outlook?

Yes. Michael, this is Bill again. Look, there's a lot of things going on, as you mentioned. And we've been around a long time. So we have essentially a playbook for every one of these types of events. On the oil price situation, it wasn't that long ago that we all had to deal with increased freight costs and fuel costs. And so we feel very good that we have a playbook in place. We're a large player. We've got great relationships with both our ocean freight and delivery partners. So we're feeling very confident on being able to deal with whatever fuel shocks come our way. We contract a long way out. And in fact, we're right now entering into our contract negotiations for next year with the ocean freight carriers. So we're feeling pretty good about that. Speaking to marketing, I think you asked a question about marketing. So in the first quarter, we took some opportunity to invest in some marketing opportunities specific to competitive dislocation where it made sense to get our name out there as well as take advantage of other opportunities that come up. We plan our marketing, obviously, ahead of time with our methodology that we've developed over many, many years. But at the same time, we're very agile. And when we see an opportunity in the market to lean in, we took advantage of that. We spent a very little amount on marketing post the weather event just to get some of that traffic back in, but most of it was to take advantage of new market opportunities that presented themselves in the first quarter.

And then, Michael, just to wrap up on what's included in the guide from a tariff perspective, it's really current landscape. So we're not baking in any potential benefit or refunds. We're not baking in any change in policy. So it's consistent with how we've operated last year. From a fuel perspective, the Q1 directional guide does include a little bit of surcharge related to current fuel prices. But for the remainder of the year, it assumes this normalizes beginning in Q2. The only thing that I'd add that did change a bit in profitability outlook from a pipeline perspective, we do from time to time, see opportunities to accelerate our store pipeline, and we are looking at potential acceleration of some of our 2027 locations that would go to the earlier part of '27 versus the midpoint. That would put some of the preopening expense and capital expense charges into 2026, and that's reflected now in the guide.

Our next question is from Simeon Gutman with Morgan Stanley.

First to start, just to paraphrase something that I think Carl said, you expect to comp positive in all quarters of the year and the benefit or the recapture from weather is imputed into your first quarter guide and you're making no assumption for that it rolls over to the second quarter, but is there still a possibility you still see some in the second quarter as well?

You're correct in your assumption that we are forecasting positive quarters for the rest of the year. The partial recapture assumed in the guide is really that it's complete by March. And that's what we've seen typically historically, as Bill was describing, when we've seen events like this before, we have a pretty good sense as to the duration and the level of partial recapture. So right now, the guide assumes that there's no further recapture into the second quarter or beyond.

Okay. And then a follow-up, you said it about every market effectively, including California, but maybe give another chance here, maybe you're being overly cautious about this. But were there any markets that didn't experience that double whammy weekend where sales are much higher? Are there any places where you can point to underlying trends where -- I understand you don't want to extrapolate for the rest of the country. I would assume things were more steady, but if there's any markets that you can speak to, would be a good opportunity.

It's really tricky. 80% is our estimate of the regions that were impacted. The way that we looked at sizing this was truly on a day-by-day basis, and comparing weather-impacted days versus non-weather-impacted days. If I was to point to any region specifically, it would be our recent new entry into the Southeast and sort of the continued momentum we're seeing there in some of our non-comp locations, specifically in North Carolina.

That's helpful. And just to close the loop on those locations, would you say there's been any sensitivity to like recent economic shocks? Or it's too early to say?

Yes. Well, so far, no. In fact, we've seen an increase in the customer cohorts across all income demos, Simeon. And encouragingly, the over $150,000 income demos have grown faster than the others. They've all grown this year, but the more affluent ones have grown faster. And their buying behavior shifted up from a focus on good to more of our better or mid-tier pricing, which is very encouraging. So all the behaviors we're seeing across the cohorts are very encouraging and absent the weather impact. But when you peel that away, we really like the underlying momentum across all the cohorts.

Our next question is from Oliver Wintermantel with Evercore ISI.

I had a question regarding also the comp guidance throughout the year. If we assume that we're staying in the low single digits for second, third and fourth quarter, as you mentioned, it looks like the 2-year comp would be -- would go to a double digit given the second quarter and third quarter were already double digits in 2025. If you could maybe just talk a little bit about the 2-year comp and how you're going to lap these double-digit comps in the second and third quarter? What's the driver? Is it conversion? Is it traffic? Some information there would be helpful.

Yes, Oli, thanks. Great question. Thank you for that. Yes. Look, I think as we discussed during the IPO roadshow, the big step-up in our comp performance last year was because of systemic initiatives that we've been working on for a couple of years that really created a step change up in performance in our stores that continued throughout the year and into this year. So we're operating at a whole another level. So comping on top of that feels pretty good to us. In fact, if you think about this first quarter and the guide that we've given, it's, in fact, a positive comp on top of a positive comp last year as well. So we have high confidence that all the initiatives put in place that were performing last year are continuing to and that we'll be able to have positive comps on top of those strong quarters that we experienced last year. Carl, do you want to add anything to that?

No. That's great.

Got it. And then just as a follow-up on the gross margin line, if you could maybe talk a little bit about the drivers in 2026 on your gross margins? And if you could, maybe the cadence throughout the year.

Sure. So the guide assumes a relatively consistent year-over-year gross margin. Implied in that is also some of the gross margin impact that we saw in Q1. Typically, with a sales impact, you would see flow-through that would be more concentrated in SG&A. In Q1, given the weather impact, we did see some gross margin headwind as it relates to some supply chain inefficiencies. So that's going to be reflected in the full year guide. But otherwise, it's consistent flat year-over-year in terms of the midpoint of the guidance range.

Our next question is from Robby Ohmes with Bank of America.

I wanted to follow up on just maybe looking at the 20% of stores not impacted by storms. And any color you can give on -- are you seeing a lot of benefits from tax refunds right now? Maybe a little more on the customer trade-up in those stores? Are you getting a lot more best versus good going? I know that you're entering this year with prices a little higher. Any response to that? And then maybe another would just be, it sounds like North Carolina is going well. Have you not seen any competitive response to you guys going in there?