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

Welcome to Bob's Discount Furniture 2026 Second Quarter Earnings Conference Call. [Operator Instruction] As a reminder, this conference call is being webcast live and recorded for replay. I will now turn the call over to Eddie Plank, Vice President of Investor Relations and Strategy.

Good morning, everyone, and thank you for joining us to discuss our second quarter 2026 financial results. On the call with me today are William Barton, President and Chief Executive Officer; and Carl Lukach, Executive Vice President and Chief Financial Officer. After Bill and Carl have made their formal remarks, we'll open the call to questions. As a reminder, 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 @ir.mybobs.com, along with a reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. I'll now turn the call over to Bill.

Thanks, Eddie. Good morning, and thank you for joining us today to discuss our second quarter earnings. As always, I'd like to start by thanking our exceptional teams across the company. Their focus and discipline helped us deliver a solid second quarter. Against a challenging macro backdrop and strong prior year comparisons, I'm very pleased with our performance in the second quarter and the way we executed across the business. Total net sales increased 9%, driven by new store expansion and comparable sales growth of 2.3%. We opened 4 new stores in Q2 as we continue to execute on our white space growth model. For the quarter, we generated an adjusted EBITDA margin of 9.8%. These results reflect the resilience of the Bob's business model and the operating rigor of our teams as we continue to navigate softer industry traffic. Expanding on comparable sales, our 2.3% comp increase in the quarter was driven primarily by higher average order value, reflecting continued mix shift from good into better and best categories, along with some incremental targeted pricing actions taken in Q2. We also saw improvement in conversion, which contributed positively to comp. Together, these factors more than offset lower traffic trends. While industry store traffic remains a headwind, we continue to perform well by leaning into our unique business model, which has proven effective across economic and business cycles. Importantly, store traffic does not fully capture customer demand as more customers engage with Bobs across digital and omnichannel touchpoints. As we like to say at Bob's, value is always in vogue. Customers continue to respond to Bob's value-without-compromise promise: quality, stylish furniture at everyday low prices, delivered through a friendly, nonintrusive shopping experience. That proposition, together with our operating discipline and differentiated approach, is helping us gain share. Encouragingly, demand trends have remained healthy through the early part of the third quarter, and our momentum continues to track in line with our long-term algorithm. Let me now spend a few minutes updating you on the underlying drivers of our second quarter performance. Starting with merchandising, our narrow and deep assortment, everyday low pricing, and strong in-stock position continue to resonate with customers. As you know, unlike many of our competitors, we don't rely on promotional activity at Bobs. Our everyday low price model is designed to maintain a 20% to 25% price advantage versus our competitors' listed prices. Even during more aggressive promotional periods, as we saw in the second quarter, we remain on average approximately 10% below their lowest advertised prices. We also continue to see healthy trade-up in our product mix from our good tier into our better tier, with particular strength in motion upholstery and dining, 2 core categories that have long resonated with our customers. This mix shift is a result of the deliberate and effective work our merchants have done over the last several quarters to strengthen our product architecture. By creating greater differentiation across tiers and introducing products with compelling feature and style upgrades, we've made it easier for customers to see the value in trading up. The mix benefits we're realizing today support average order value growth and help to mitigate cost pressures while also reinforcing our value proposition to the customer. Importantly, we're seeing broad-based customer adoption of these better-featured products, demonstrating that customers continue to recognize and respond to compelling value. Looking to the remainder of the year, we're executing our proven playbook to offset anticipated fuel and tariff pressures while protecting our value leadership. For example, as a retailer that doesn't sell third-party brands, we have significant flexibility across our sourcing network. Our merchants have been actively working across several areas, including sourcing, product development and assortment optimization, and we're beginning to see the benefit of those efforts. Through a combination of cost discipline, new product introductions and a continued focus on margin-enhancing product architecture, we remain well positioned to deliver compelling value for our customers while supporting the overall profitability of the business. Moving to our omnichannel capabilities. At Bobs, we continue to build out our omnichannel business. With 218 stores, a growing retail footprint and E-Commerce platform, Omnicart, and digital selling tools, we're making it easier for customers to shop with us and easier for our teams to convert demand efficiently, both in-store and online. Importantly, our Omnicart penetration continues to grow as customers increasingly use the platform to move seamlessly across channels. This is driving stronger store-to-digital synergies and supporting higher cross-channel conversion and AOV, and enhancing the overall experience for our customers. Omnichannel conversion was a positive comp driver in the second quarter and remains an important contributor to driving our performance on top of the double-digit comp growth we saw in Q2 last year. Within E-Commerce, sales increased nearly 25% year-over-year, with penetration increasing more than 200 basis points to 17.3% of total sales for the quarter. Our omnichannel capabilities are increasingly supporting conversion with more store-originated Omnicarts completed online. That said, as the lines between digital and physical retail continue to blur, we believe seamless integration matters most. Our goal is to meet customers wherever they choose to engage with Bobs and make the experience consistent, convenient, and easy to complete. To that end, we're also leveraging AI in new ways across the customer journey, including AI-enabled scheduling to improve manager and staff efficiency in our stores as well as to provide immediate opportunities for associate performance tracking and training. AI-powered product recommendations are another important part of that effort, helping customers discover relevant products faster, supporting higher quality engagement and ultimately improving conversion across the journey. Finally, from a marketing perspective, we're building stronger brand visibility and awareness through impactful storytelling and sharper customer targeting. On the targeting front, we continue to leverage our rapidly expanding file of first-party customer information combined with trusted third-party data to identify specific customers and prospects with a high likelihood to shop at Bobs. Once we've identified those profiles, we're using AI-driven insights to craft the right message to deliver to that specific target customer when they are most likely to engage. A competitive differentiator for Bobs is that our value proposition resonates across a wide range of income levels. It's always started with great furniture at an everyday low price. But today, we are seeing more customers recognize that value can also mean style, quality, and a better overall shopping experience. That's helping us build momentum with higher-income households, including those earning over $100,000 and $150,000, while staying true to the value promise that has made Bob successful. While these higher-income customers buy a slightly higher mix of better and best products, our good category still has the largest share of their baskets, underscoring the broad appeal of value across demographic segments. Our marketing efforts are focused on clearly communicating Bob's compelling value proposition. Customers are increasingly discerning in their purchase decisions, and it is more important than ever to showcase the value available across our assortment every day from opening price points like our $399 sofas and $599 dining sets with the differentiated features, style, and quality available in our better and best categories. Finally, as we approach our 35th anniversary, we plan to use our Labor Day campaign as an opportunity to reinforce how enduring Bob's values are and create excitement with both new and existing customers. Looking ahead, we remain focused on executing against our long-term growth algorithm, which is driven by 3 key objectives: growing our store base across new and existing markets, driving comparable sales, and expanding margins by leveraging our scale to improve efficiency. I'll give you a brief update on how we're executing against each of these objectives. When it comes to real estate and development, we have a saying at Bob's. We don't open units, we develop markets. Our new store performance validates the strength of that strategy. During the second quarter, we opened 4 stores, bringing year-to-date openings to 9. These openings included our first 2 stores in South Carolina, marking our entry into an attractive new market and our 27th state. We also opened 2 stores in the Charlotte area, increasing our North Carolina footprint to 8 locations with another store planned for the back half of the year. This expansion reflects our disciplined market development approach, establishing a presence in key markets and then building density through targeted infill opportunities. Across the portfolio, our new stores are performing at or ahead of expectations. We continue to see strong results from the 2025 cohort as those stores move beyond their first anniversaries and our newer openings are off to a solid start. Importantly, our new infill locations are performing particularly well, helping us capture market share and drive incremental profitability with lower marketing requirements and attractive cash-on-cash returns. Looking ahead, our development pipeline remains on track with a number of openings planned around Labor Day, including our entry into Tennessee with 4 new stores. As we did with our most recent Southeast expansion, we will leverage strong awareness-driving media, local messaging, and partnerships that feel native to Nashville and the broader Tennessee customer for these openings. The goal is not simply to open stores, but to enter each market with a smarter, more efficient media mix that builds brand affinity from day 1 and positions Bobs to capture share over time. On comparable store sales, while the operating environment remains dynamic, we are pleased with the healthy demand we're seeing across the business. Initiatives such as our good, better, best product architecture and OmniCard technology are helping us improve conversion, support average order value, and gain share despite a challenging traffic backdrop. We're also continuing to advance the operational initiatives that support our long-term growth. Our Midwest regional fulfillment center is now fully operational, and construction continues on our Georgia distribution center, which is expected to be completed in early 2027 to support our Southeast expansion. Separately, we successfully completed our transition to Synchrony as our primary financing partner. While it will take time to fully roll out, early reads are encouraging. Over time, we expect the partnership to support better approval rates, higher average order value, and a return of financing penetration towards historic levels of approximately 50%. As we look forward, we are staying close to the macro environment while continuing to manage the business with discipline and flexibility. Carl will discuss some of our cost mitigation strategies in more detail shortly, but I want to reiterate that Bobs has operated successfully through a range of market cycles, and that experience gives us confidence in our ability to navigate what comes next. At Bobs, our people and culture are central to who we are, how we operate, and how we win. They bring the Bobs way to life every day and are a critical driver of our long-term performance. The strength of that culture continues to translate to our results, and I'm especially proud that Furniture Today recently cited Bobs as the fastest-growing furniture retailer in the United States. Our priorities are clear: deliver double-digit unit growth, drive low single-digit comparable store sales and accelerate EBITDA growth over time. We are energized by the opportunity ahead and confident in the path we are on. With strong unit economics, a proven and portable store model, leading omnichannel capabilities, a differentiated merchandising strategy and an exceptional team, we believe Bobs is well positioned to continue expanding market share through disciplined execution of our playbook. With that, I'll turn the call over to Carl to review our financial results and outlook in more detail. Carl?

Thank you, Bill. As Bill discussed, we delivered a strong second quarter amid external headwinds and lapping strong performance last year. Our results demonstrated disciplined execution across the business and continued focus on managing the factors within our control. While we continue to closely monitor the consumer and cost environment, we remain confident in the resilience of our operating model and the strength of our financial position as we invest in our long-term growth objectives. Before we get into the numbers, I'd like to quickly comment on the tariff environment. In the second quarter, we recognized a total of $45.1 million in IEPA tariff refunds, of which $37.9 million was recorded to gross margin and $1.5 million was recorded in interest income. We view this event as one-time in nature and, as such, excluded the P&L impact within our adjusted results for comparability and simplicity purposes. The remaining $5.7 million was recorded within inventory on our balance sheet related to product not yet sold. From a balance sheet perspective, it's also worth noting that the majority of actual cash received fell into the third quarter. And as such, $3.2 million of the refund was included in second quarter cash and $41.9 million was recorded as a receivable. Moving to our results. Net revenue increased 8.8% to $619.6 million in 2Q, driven by comparable store sales growth and contributions from new store openings. We opened 4 new locations in the second quarter, bringing us to a total store count of 218 stores. Comparable sales increased 2.3% in Q2 on top of a 10.5% gain last year. Performance was driven by higher average order values across both our retail and E-Commerce channels and growth in conversion, which was partially offset by lower in-store traffic. Average order value continued to benefit from a mix shift into our better pricing tier. We were pleased to see that the targeted efforts we made in our good, better, best architecture continue to resonate with customers. As a reminder, the 10.5% comparable sales growth last year was predominantly driven by conversion related to the adoption of our Omnicart technology in both stores and online. Second quarter adjusted gross margin, which excludes the tariff refund benefit, decreased 100 basis points to 45.4%. This was in line with our expectations, as last year benefited from a more favorable ocean freight environment that normalized this year. This impact offset margin gains from favorable mix shifts into the better product category and higher protection plan margins and some moderate pricing actions. As we mentioned on our last call, we did incur some incremental fuel-related pressures in Q2 related to the delivery and linehaul costs, which we were largely able to offset within our delivery margins. SG&A as a percentage of net revenue was 37.9%, an increase of approximately 20 basis points compared to the prior year due to incremental marketing spend largely to support our Southeast expansion as well as higher payroll and occupancy expense associated with new stores. Overall, SG&A remains well controlled as we continue to drive efficiencies at existing stores. We are committed to disciplined cost management and optimizing efficiencies across the business. Adjusted EBITDA was $60.8 million, and adjusted EBITDA margin was 9.8% compared to 11% last year. The year-over-year decline in adjusted EBITDA margin was primarily due to the previously mentioned gross margin contraction. Adjusted net income was $27.8 million compared to $32.2 million in the second quarter of last year. In addition to the drivers of adjusted EBITDA, adjusted net income also reflects interest on outstanding borrowings under our revolving credit facility, which we paid down near quarter-end. Adjusted diluted EPS was $0.20 compared to $0.29 in the second quarter of fiscal '25. Moving on to some balance sheet and cash flow highlights. At the end of the second quarter, cash and cash equivalents were $32 million, and we maintained strong total liquidity of roughly $177 million. As mentioned earlier, we received $41.9 million in tariff refunds subsequent to fiscal quarter end, further strengthening our liquidity. Our balance sheet is healthy, debt-free, and provides the financial flexibility to invest in growth and navigate an evolving macroeconomic environment. Turning to inventory. Inventories increased approximately 9% compared to last year, primarily driven by strategic and seasonal inventory investments to support store growth and increases in comparable sales. We are comfortable with the level and composition of inventory heading into the back half. Year-to-date, total capital expenditures, net of tenant allowances, were approximately $47 million, largely the result of investments associated with new store openings and distribution centers to support growth. Now turning to our outlook. Thus far into the third quarter, we are pleased to see sales trends tracking in line with our long-term algorithm of low single-digit comparable sales growth. At the same time, we continue to monitor the cost environment and consumer behavior closely with a focus on disciplined execution and managing the factors within our control. Our experience navigating a range of market conditions gives us confidence in our ability to execute against our plan while remaining responsive to changes in the environment. Although the macro remains fluid, we expect incremental product cost pressures in the back half from fuel, ocean freight surcharges, and foam. As Bill noted, we have a mitigation playbook with several actions already underway, including vendor collaboration, targeted inventory purchases, supply chain efficiencies, and selective pricing adjustments. These actions have been incorporated into our outlook. Separately, the $5.7 million of tariff refunds recorded to inventory for product not yet sold represents another potential tool in our playbook should it be needed in the back half. As a reminder, our guidance assumes the continuation of the existing tariff structure, including the 25% upholstery tariff. Since quarter-end, the tariff landscape has evolved with Section 122 tariffs expiring and being replaced by Section 301 tariffs at rates generally ranging from 10% to 12.5%, depending on country of origin. While our outlook has contemplated a 10% rate, we view the incremental increase to 12.5% in Vietnam as manageable and expect to offset this through the mitigation actions we have successfully executed over the past several years. As a reminder, upholstery furniture remains subject to a 25% tariff that does not stack with Section 301 tariffs. As stated in our earnings release, we are reiterating our 2026 full-year guidance. We continue to expect net revenue of $2.6 billion to $2.625 billion, supported by comparable sales growth of 1.5% to 2.5%; adjusted net income between $121 million and $129 million and adjusted EBITDA between $255 million and $265 million. As a reminder, our guidance is in line with our long-term algorithm of low single-digit comparable store sales growth, 10% unit growth and 10% to 12% adjusted EBITDA growth. At the midpoint, our outlook implies an adjusted EBITDA margin of approximately 10% as we continue to expect a relatively flat gross margin rate year-over-year and slight operating expense deleverage to invest in our 2026 and 2027 greenfield store growth, including deeper expansion into the Southeast and the associated marketing expense. Our 2026 capital plan remains unchanged with expected net capital expenditures of approximately $110 million to $115 million. The bulk of that spend will support our store growth initiatives and related infrastructure investments, including most of the capital associated with our new distribution center in Georgia ahead of its planned opening in early 2027, and we are already making tremendous progress. With respect to new store openings, we continue to target 10% year-over-year growth this year, primarily in newer markets across the Southeast, complemented by select infill locations in existing markets. We expect pre-opening expense of approximately $26 million in 2026, slightly higher than our prior expectations of $23 million to $24 million, largely due to the accelerated timing of a handful of early 2027 openings in the Southeast. Finally, and to be helpful with modeling, we expect a full-year tax rate of approximately 27% and a full-year share count of approximately 135 million. Before I wrap up, I'd also like to thank our teams across the organization for their hard work and focus. Their efforts have been instrumental in delivering these results and positioning us for the opportunities ahead. We remain confident in the strength of the business, our financial foundation, and our ability to execute our strategy while creating long-term value for our shareholders. With that, I'll hand it back to Bill for closing remarks.

Thank you, Carl. Before we wrap up, I want to thank the entire Bobs team for their hard work and dedication. As our business continues to scale, our culture, the Bobs Way, remains a core differentiator and a meaningful driver of our success. Looking ahead, we're confident in our ability to deliver double-digit unit growth, low single-digit comp growth, and accelerating EBITDA profitability over time. First, we are focused. We delivered solid growth and profitability on top of a strong year, and demand has remained healthy early into the third quarter. Second, we have a sustainable growth engine. We're on track to open approximately 20 stores in 2026, representing 10% unit growth, and we continue to see a clear path to more than 500 stores by 2035. Finally, our model is proven. We successfully navigated multiple economic cycles by leaning into our core strengths, strong vendor partnerships, a compelling value proposition, and operational agility. In closing, we're well positioned. I'm excited about the opportunities ahead as we continue to unlock our potential. With that, we're happy to take questions. Operator?

[Operator Instructions] Our first question is from Peter Benedict with Baird.

First, I appreciate all the transparency around the tariff impacts; really very helpful. So well done there. I'm curious about how you're thinking about the second half from a refund standpoint. I think, Carl, you mentioned $5.7 million or so of maybe an option tool that you could deploy. Bill, you had mentioned protecting value leadership in some of your prepared remarks. So maybe give us a sense for how you're thinking about the back half, what to do with that tariff money. Is this something where you think investing in price is going to make a difference? Is it marketing? Just curious how you're thinking about the second half.

Happy to. So let me elaborate on a few of the points we made in the prepared remarks on the tariff refund. So first, the total refund was approximately $45 million. Of which $39 million was related to inventory already sold, and that was recognized on the P&L. That includes the associated interest income. And we view that as unique. It was one-time, and we fully excluded that amount from our adjusted financial metrics. As you pointed out, approximately $5.7 million relates to the inventory not yet sold, and this was recorded as a reduction to inventory on the balance sheet. So given our roughly 4x annual inventory turns, we do expect this inventory to be sold during the back half of the year, although that amount is not assumed to benefit us in the guide we provided. So as a reminder, our outlook assumes we successfully mitigate all cost pressures through actions within our playbook. And this benefit provides an additional tool within our cost mitigation playbook should we choose to utilize it, though we currently have no plans to do so. Then just as a reminder, we have applied for a modest amount of additional refunds, but it's too early to determine the outcome of that, and that amount is not as material.

And then I guess my follow-up question would just be on the in-store traffic trends. Obviously, you guys are doing a great job with conversion and average order value. Maybe can you talk a little bit more about the trends in traffic? Are they stable? Are they getting any better? Are they getting worse? Just any color around the traffic trends would be helpful.

Yes. Peter, this is Bill. Great question. Look, traffic continued to be a headwind in the second quarter, although our traffic trends outpaced the industry. So we're very pleased to be taking market share in that regard. We are seeing maybe a little bit of flattening out of that traffic decline that we've seen over the prior quarters. But it's certainly too early to call a bottom. I don't have a crystal ball on that, so I have no idea. But for sure, we're seeing some green shoots in a few markets where we're beginning to see a little bit of an upturn in traffic. But as regards the second quarter, it remains a headwind. Having said that, we know how to lean into our conversion and AOV. We also are very excited about the increased penetration of higher-income households among our customer base. That has been a trend for a number of quarters. It continued in the second quarter, where these higher-income households are, as I mentioned in my prepared remarks, loving the value they're finding at Bobs, and that traffic is turning out to be very beneficial to us.

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

Carl, I think you mentioned some select price increases to offset maybe some pressures as we're moving into the back half of the year. Can you remind us the way you're thinking about year-over-year prices? I think it was up 7% or something in the first quarter. What was price up in the second quarter? And how should we think about price increases in the back half?

Sure. I'll start. And Bill, you may want to jump in on how we think holistically about pricing. So we're still running around 7% on an LTM and year-to-date basis. We took only modest price increases in the second quarter and really in the first half. What we're seeing from a customer reception so far is exactly as we expect, which is that elasticity is unit elasticity, and that's in line with our expectations. As a reminder, and Bill will jump in on this, our pricing is surgical, and it's down to the local and regional level, and we're really encouraged by our ability to take those really sophisticated learnings and apply them when we take price at this level.

Yes, let me just punctuate what Carl said by saying that, as a reminder, for us, our commitment to value in every market we serve is an absolute. So as we think about managing our pricing in these volatile times, we want to make sure that our commitment to being 20% to 25% below our competitors' average listed price remains intact. And that's the way we viewed the first half. And again, this commitment to value, I think, is at the core. In fact, I know it's at the core of our success through these turbulent times. But we've maintained that commitment throughout the first half.

And then just my follow-up. On Synchrony, the benefit so far versus your expectations: is Synchrony tracking in line? And when do you think Synchrony could really kick in and drive the penetration up?

Yes, Robbie, that's a great question. Obviously, we're watching it closely. We're very excited about this partnership. We implemented it in the late spring in the second quarter, and it takes time to ramp up. In the early stages, we are seeing a move towards higher approval rates. And higher approval amounts, which certainly will benefit us. And it's going to take a little bit of time for consumers to transition from their prior Wells Fargo lines of credit over. But I think it's safe to say that we're very pleased with the early days. And that as it ramps up, as Carl mentioned in the remarks, we are relying on this, and we're eager and excited for this partnership to be foundational as we move back towards our historical financing penetration of 50%. But Carl, you may want to add some specifics to that.

The only thing I'd add is that we're still running at a low 40% financing mix, which gives us opportunity and runway to 50%. We have the correct partners with the correct architecture to provide our customers really a best-in-class experience with financing. We're looking for trends from a consumer perspective to want to take on some additional personal credit. So that's where we would see the opportunity go forward.

Our next question is from Simeon Gutman with Morgan Stanley.

I wanted to ask about traffic in a couple of ways. The first is: is there any contrast between mature and immature? Do you like what you're seeing in ramping markets and stores? And then thinking about this backdrop, is it mostly just macro, Bill, where the interest in the category is lower? Or are you seeing evidence even in your business where the consumer is starting their journey online and ending it online and not coming into a showroom? And does that get resolved with macro? Or is there some bigger push to E-Commerce you think that's happening under our eyes?

Yes. Simeon, thanks for those questions. Let me take the last one first around E-Commerce. So as we've reported, our e-commerce growth outpaced our store growth on total sales. But remember, we're an omnichannel player, so we're agnostic as to which channel they close in. Having said that, there's a clear trend we're seeing in the adoption of our omnichannel carts, and whether they close them online or in store, we're getting a lot of great feedback from the consumer that they love the easy, low-pressure environment. It's a self-directed journey, but we're definitely seeing higher penetration in E-Commerce. Let me just try to bifurcate between what I think might be macro and what might be a result of our intentional activities. So as you know, we've been investing a great deal in the last couple of years in making sure that our E-Commerce environment is congruent with our store environment and that the consumer can move easily between those 2 environments. And we're getting a lot of great feedback from consumers that they're recognizing that exact thing. So same product assortment online, same financing options, same delivery options, et cetera. So that penetration again went up in the second quarter. As far as the macro backdrop to E-Commerce, I think what we're seeing is relatively consistent, which is the typical furniture buyer may start their journey online. In fact, that's what we believe is the typical start to the journey with Bobs. They start online, they look at our website, they find things they like, they may buy online, and we're more than happy to support that, of course. But more often than not, they want to come into the stores and see and feel the product, right, sit on that sofa line that mattress. That continues to be the primary customer journey for us. And that's remained consistent. That hasn't really changed that much for us. What we're really excited about, of course, is the consumer who starts a cart in the store and closes it online, which really supports this idea of omnichannel. So from the E-Commerce macro perspective, I'd say it's consistent. Omnichannel continues to be the main focus for a furniture buyer, at least through our lens, and I think that played out in the second quarter. As far as your first question around traffic related to mature and immature markets, as I'm sure you know, and we've talked about this in the past, we have a market development playbook that focuses on a number of things, specifically around brand awareness. And so we, as you know, spend on average 2 years planning our entry into a market. And what we're seeing in relation to traffic in new markets, frankly, is very pleasing to us. It's meeting or exceeding our expectations in these new markets. And it's not accidental. We've leaned in heavily to brand development and marketing. We spend a lot of time doing focus groups. And so, as we've referenced, our Southeast expansion, we're very pleased with the stores that we've opened in the Southeast, and we're very optimistic about the new ones that we'll be opening the rest of this year.

And then my follow-up is how we should think about pricing, input costs, and then you have tariff refunds coming. So it sounds like there's more input costs that are going to come for suppliers. You didn't say it necessarily, but it feels like that should happen as a result of what's happened to crude. Is that right? And then how do your suppliers look at that? And then how do you put that all together with what you're getting from tariff refunds?

Yes. Let me start with this, and I know Carl wants to jump in as well. First off, our merchandising strategy is really a superpower for us, and it's a core strength as we think about how we mitigate tariffs, raw material costs, inputs, et cetera. As a reminder, we don't sell any third-party brands. Everything we sell is made for us. And we've been working with our vendor partners as their input costs have been going up to mitigate those costs with them. And in some cases, where we need to, we will source new goods, which include tariffs and new higher input costs, again, to protect our margins. So our merchants have been, as you might imagine, very busy over the last 1.5 years making sure that we source the goods that have the cost embedded in them that protect our margins and allow us to deliver those goods at the prices that are compelling. But we have a very open working relationship with our vendors. They've been super working with us, very transparent on their input cost increases. And where necessary, they've been passing through some minor cost increases, and we've been able to mitigate those with our tariff and price mitigation playbook. So it's a very dynamic environment. We're very pleased with what we've been able to do to date. And as we look forward, we feel confident that that tariff mitigation playbook will enable us to deal with whatever price increases come along. But we have a wonderful, transparent working relationship with our vendor partners. And I just want to call that out because that's at the core of how we're able to merchandise this so successfully. Carl, do you want to probably add some specifics to that? I'm sure.

What I'll add is on the timing of some of those input cost increases. So within the second quarter, we did incur higher fuel costs in our line haul and delivery, and we were able to fully offset this in the second quarter. They were generally related to real-time fuel prices, and they closely track market rates. And our ability to offset this was really driven by operational efficiencies. And particularly in delivery, we have leveraged AI planning to improve route economics like stops per truck, retail per stop. We've added furniture removal as a component of our delivery process. In addition, we've seen benefit from our regional fulfillment center, which is now running at capacity in the Midwest. So we feel confident in our playbook to use operating efficiencies to drive the input cost trends that we saw, and that was evident in the second quarter. In the back half, that's where we're going to begin to see the landed input costs related to ocean freight surcharges and raw material price increases. And again, as Bill mentioned, we have a tried and true playbook. Price is on that playbook, but it's the bottom of the rung. And as you pointed out, we do now have a tariff refund that is part of the playbook, but we have no specific intention to use that at this point. It's just part of the playbook.

Our next question is from Christopher Horvers with JPMorgan.

So the category overall seems to be particularly strong at the mid- to high-end consumer based on what others reported. And it seems like there's some pressure at the low end. So I was curious, thinking about your results and your commentary on better, best versus cautious consumer, it does seem like there's some low-end pressure. So as you think about that sort of goes in, goes out of like trade-in versus maybe some pressure at the low end, how do you assess that? Did you see pressure on traffic or trends in May when gas prices peaked? And do you think that pressure is being offset by Value City share gains? And maybe quantify how much of that Value City is maybe helping your overall same-store sales trends as well?

Yes, you bet. Chris, it's good to hear from you. This is Bill. Look, a couple of things related to the consumer demographics. We would say that the second quarter demographics are pretty consistent with what we've seen in recent quarters. As I mentioned, the penetration of the higher-income consumer continues to outperform. But we're very pleased with all the income levels that we're seeing thus far. And traffic has been very consistent. Our traffic has been down less than the industry, so we're picking up share there. So I wouldn't say that we've seen any movement overall in the traffic or the demos other than the higher-income consumer continuing to overpenetrate. I would also remind you that as we think about what these higher-end consumers are buying, they're purchasing across our good, better, best at relatively the same proportion as all of our income demos, slightly higher in better and best, but they're finding value in the opening and the good price points, which makes us very happy. I would also say this: while we're drawing in more of the higher-income households, we're not being passive about that. So we're reaching back out to them to reinforce repeat purchases and remind them of other opportunities at Bobs. We have a long history of understanding the purchase cycle. So our marketing team is being very pointed about welcoming them and bringing them into our fold and then encouraging repeat sales, which we're beginning to see. Specific to the Value City, again, we're very pleased with the performance of our stores that overlap with Value City. As a reminder, about 75 of our stores overlap with the Value City stores that have closed. That's 75 out of 218. So it's a minority for sure, but we're very pleased with the reception that we're seeing with those prior Value City customers. We also benefit from the Value City closure in other ways. For example, real estate. We have picked up a few of their stores. In fact, some of the Southeast stores that we'll be opening this year were prior Value City or American Signature. So we're benefiting from some of their excellent real estate. Then lastly, and in some ways, maybe most importantly, we are benefiting from the Talent acquisition. We've welcomed on board a number of Value City former employees, both at the store management and Lim ranks, and we're very excited to welcome them and to show them and teach them the Bob's way, and they've been performing quite well. So the Value City regions have been performing very, very well, as have our other regions. So we're pleased with the overall performance. While we don't disclose individual region performance, I would just say that our performance relative to the industry across all of our regions has been outperforming. So we're very excited about that. Let's see. I think I hit most of your points there. Carl, you'll probably want to fill in a few blanks, but it's a great question on the category overall. Let me just say this before I give it to Carl. The strength of our merchandising strategy and our everyday low prices- we've seen this performance across cycles for over 30 years now. And I would say it's performing pretty consistently with that as we see the macro backdrop today. Carl, go ahead.

I think you answered that, Bill.