Flowers Foods, Inc. (FLO) Earnings Call Transcript & Summary

Good morning, everyone. I'm J.T. Rieck, Executive Vice President of Finance and Investor Relations. Thanks for joining us as we discuss Flowers Foods' results for the first quarter of 2026. Just before we begin, please note that what we present today may contain forward-looking statements regarding how the company will perform. While we consider those statements reasonable, they carry risks and uncertainties that might make actual results come out materially different. Beyond what you'll hear in these remarks, the key factors affecting Flowers Foods' business are laid out in full in our SEC filings. Speaking today are Ryals McMullian, our Chairman and CEO, and Anthony Scaglione, our CFO. Ryals, over to you.

Thank you, J.T., and I appreciate all of you being with us today. During the first quarter, through disciplined cost management, the team performed well, offsetting softer top-line trends and steering through difficult market conditions to produce bottom-line results that exceeded what the market had anticipated. Reported sales growth reflected an added contribution from Simple Mills. On a comparable basis, sales were down 1.2% compared with the prior year. Although near-term conditions remain under pressure, we have confidence in our capacity to steer through the present environment, given the strength of our brand portfolio, our growing footprint in Better-For-You categories, our scaled supply chain and DSD network, and a balance sheet that we are actively reinforcing. The top-to-bottom examination of our brands, supply chain, and financial strategy that we told you about last quarter continues to gather pace. That work has sharpened where we focus, around a defined set of strategic priorities. These are: putting our strongest brands first, directing selective investment toward restarting growth, and shifting how capital is deployed to strengthen our balance sheet while giving us more room to chase future growth opportunities. One important sign of this progress is the return of Nature's Own, which now comes with fewer, simpler ingredients. This milestone represents a major accomplishment for our team and for our customers alike. With this relaunch, Nature's Own is now the biggest Non-GMO project verified loaf product on the market — a national first — and it strengthens our leadership position in the Better-For-You segment. In addition, we have pinpointed targeted initiatives that we are moving forward to generate efficiencies throughout our supply chain operations, while also taking steps to further shore up our balance sheet. All together, these efforts are putting the business in position to deliver consistent, sustainable growth along with better profitability over the long term. Let me now take you through how our brand categories performed during the quarter. One of our main strategic priorities is sharpening our focus on the portfolio of leading differentiated brands, so we can unlock growth opportunities in a category that is otherwise soft. That focus is generating encouraging results, especially in premium loaf, buns and rolls, breakfast cake, and snacks, and these are helping to offset continued softness in the traditional loaf category, where we underperformed in both dollars and units. Our market share in the traditional loaf segment during the quarter was affected by marketing investment alone, ongoing macroeconomic pressure on consumers, and an intensely promotional pricing environment. Elevated consumer costs, together with heightened promotional activity, have driven more trade-down behavior toward lower-priced offerings and value brands. Even though the category is still under pressure, we don't believe the present promotional climate can be sustained over the long run. In fact, in certain markets we're beginning to observe early indications of improvement, since pricing gaps have closed and our relative competitiveness has grown stronger. Importantly, we're taking action through a number of initiatives that we expect will bolster our competitive position and enhance performance as time goes on. First, we're enthusiastic about the Nature's Own relaunch, which is backed by a wide-ranging integrated marketing campaign crafted to reinforce the brand's distinctive value proposition and deepen engagement with consumers. The relaunch now includes half loaves too, and that aligns better with evolving consumer preferences for simpler recipes with fewer ingredients, plus freshness, smaller portions, and value. We additionally adjusted price points throughout the Wonder Bread lineup, which assists in narrowing pricing disparities in key sections of the category. Some near-term strain does remain, yet we believe these actions position us to enhance our trajectory over time. Allow me to provide a little more background on the Nature's Own relaunch. It marks the first significant relaunch for our flagship brand in more than ten years, and it represents the next phase in a lengthy record of innovation stretching back to its 1977 debut. Drawing on deep consumer research, the relaunch makes Nature's Own even stronger within the Better-For-You segment through simpler ingredients and Non-GMO project verified products. With these improvements, the brand lines up more closely with what today's consumers need, and we stand further apart from competitors. To back the relaunch, we announced this week a nationwide 360-degree marketing campaign featuring actor and former WWE star John Cena as the brand's Breaducator. That campaign shines a light on the brand's refreshed positioning around simpler ingredients, Non-GMO project verified products, and other Better-For-You attributes that connect more and more with health-conscious consumers. John connects with a wide audience and enjoys very positive favorability, so he serves as an extremely effective ambassador for conveying these benefits in a way that is compelling and easy to grasp, all while organically strengthening messages about strength, wellness, and healthier living. His many years of involvement with the Make-A-Wish Foundation also fit neatly with Flowers' values and with our own dedication to backing that organization, which adds even more authenticity and a sense of purpose to the partnership. This campaign was built to draw in consumers throughout the whole path to purchase and to spell out clearly the product's essential qualities at shelf. The initial reaction we are seeing from retail customers and DSD partners is encouraging. In our view, these initiatives will further cement Nature's Own's leading position within the category. Additionally, we continue to reinforce our standing within the category through top-tier brands across the Organic, Gluten-Free, and Keto segments. Within Organics, Dave's Killer Bread holds the #1 position and kept its market share, showing robust momentum in breakfast thanks to the recent introduction of DKB Mini Bagels. Canyon Bakehouse likewise preserved its share in the category and stays the top pick for shoppers seeking excellent taste alongside a gluten-free choice. Nature's Own Keto continues as the leading brand in this expanding segment and posted solid growth for the quarter, picking up 180 basis points of unit share along with 250 basis points of dollar share. With shoppers seeking ways to add keto or protein choices to what they eat, we've made a deliberate move to serve that demand through what we offer. Our thorough assessment confirms the chance we have in snacks. We're assembling our Better-For-You snacking platform with Simple Mills at its core, and Dave's Killer Bread stays a strategic priority. In the quarter, Simple Mills grew faster than we had anticipated, helped by wide-ranging momentum throughout the portfolio, sturdy underlying consumer demand, and a favorable early reaction to this year's innovation launches. Retail sales climbed 9%, driven by strength in cookies and crackers, which shows again how resilient and appealing the brand is. During the quarter, cookie sales increased by 43% and crackers were up 3%, and each outperformed its category while retaining the second-place position. That performance stemmed from a combination of broader distribution and improved velocity in both the food and mass channels. Notably, the innovation launches we've introduced recently are performing at or above our expectations, and this makes us more confident that Simple Mills' growth path can be sustained—and we expect it to speed up during the rest of 2026 as those new items gain traction. We're happy to say the momentum at Simple Mills is strong, and we believe firmly in the brand's opportunity for growth over the long term. Dave's Killer Bread organic snack bars continue to do well within the nutritional snack bar subcategory, driving higher units and dollars compared with a year ago while maintaining share. Beyond that, the boosted protein bars from DKB are connecting with shoppers seeking protein-rich choices and functional advantages. Within breakfast, we sustained our momentum through the quarter, posting unit share gains of 20 basis points and dollar share gains of 40 basis points.

This result builds on the impressive history of both Wonder and Dave's Killer Bread and strengthens our belief that we can keep gaining share as time goes on. In sandwich buns and rolls, Wonder saw a slight unit share decrease — roughly 30 basis points lower than a year ago. Strong results from Nature's Own and Dave's Killer Bread, though, mostly made up for that, since both posted unit and dollar share gains in the quarter. Keeping our bonds with customers and consumers strong is essential if our brands are to stay relevant. Purpose-driven partnerships focused on the community are one route we're taking. Supporting the U.S. military is something we're proud to do, and through our Deploy the Joy shopper campaign, we anticipate contributing over $3 million to the USO by year-end, counting from when the partnership began in 2018. That shows how firmly we're committed to the communities we serve, while also building deeper emotional ties with our brands. Now to our cake business, where results are improving thanks to last year's launch of our Wonder Cake products; with remarkably strong brand recognition, Wonder's cake line has kept reviving category performance. During the first quarter, cake category sales fell 1.4%, yet Flowers' cake sales rose 6%, powered by a 120 basis point increase in Wonder Cake unit share. On top of that, cake profitability has improved substantially year-to-date, thanks to disciplined pricing, mix shifting toward higher-margin branded items and continuing operational efficiencies in our bakeries. We stay optimistic about the power of our brands and the innovative products we're launching, but overall demand for the traditional loaf segment — roughly 38% of our branded portfolio — is still soft. Cost control is therefore a top priority. The team achieved measurable progress in the first quarter, lowering SG&A as a percentage of sales. Enterprise-wide cost actions drove that improvement, among them effective management of input costs, optimization of marketing expenses and solid overall expense management throughout corporate departments. As I've stressed, beyond our cost savings efforts, we keep investing in the business and in executing our portfolio strategy successfully. Raising the mix of higher-margin branded retail products is a vital driver of long-term growth and margin expansion. Our portfolio review confirmed the strength of our brand leadership and bolstered our confidence in our strategy for extending that leadership over time. At the same time, we acknowledge the ongoing challenges in the consumer environment and stay disciplined about how we prioritize and deploy investments. That leads me to capital allocation. As we mentioned on our prior call, evaluating our capital structure, balance sheet and financial flexibility through the lens of our growth agenda and long-term shareholder value creation was a key part of our comprehensive review. To carry out our strategy from a position of strength, we are resetting the dividend to an annual rate of $0.50 per share; this move lets us bring down leverage and interest expense, improve financial flexibility, and build capacity to invest behind our leading brands and capabilities so we can drive above-category growth. As we raise the available capital to reinvest in the business, we'll take a disciplined and balanced approach to capital allocation, prioritizing high-return investments while we keep returning capital to shareholders. Importantly, we stay committed to maintaining a sustainable dividend as a core component of our overall shareholder value proposition. Now, Anthony will cover the details of the quarter, and after that I'll close with comments on how we're thinking about our long-term strategy and our outlook for the current business environment. Anthony?

Thank you, Ryals. As Ryals mentioned before, the thorough assessment we’ve been conducting across our brands, operations, and financial strategy is bringing sharper focus to where and how we compete, the way we serve customers, and the way we deploy capital so as to maximize long-term potential. Although this process remains at an early stage, the progress we’re seeing gives us encouragement. During the last quarter, we chose to deprioritize 2 regional brands so we could concentrate on opportunities with higher value; our review continues as we actively assess and optimize the portfolio in support of long-term value creation. Regarding operations, we've restructured how DSD reports up, and we're continuing to examine additional ways to tighten P&L alignment across the company. At the same time, we're exploring specific applications of AI tools capable of sharpening decision-making, lifting productivity, and yielding richer, more actionable visibility into our performance. A further key piece of this comprehensive review is ensuring sufficient financial flexibility to adequately fund our most promising growth initiatives, while putting capital to work in a disciplined manner that builds long-term shareholder value. Along those lines, I'd like to offer more background on the dividend choice and how it backs our balance sheet goals and near-term capital priorities. To echo what Ryals mentioned, the dividend is being reset to a yearly rate of $0.50 per share. We anticipate that this will free up significant cash flow, which in the near term we intend to steer primarily toward lowering debt as we continue to safeguard our investment-grade standing. Net leverage at quarter end was 3.2x adjusted EBITDA. Getting leverage sustainably under 3x is our objective, and we see the dividend reset as a key lever for getting there. It's worth noting that this step isn't only about enhancing leverage metrics—it also creates added capacity to put money behind our strongest brands and growth initiatives, while bolstering our overall financial flexibility. Simultaneously, it enables us to offer shareholders an appealing current yield throughout this stretch of strategic transformation. Our framework for allocating capital remains grounded in several core priorities: reducing debt, putting money into our core brands, upgrading our supply chain, and backing the longer-term reshaping of our portfolio. Moving ahead, we will continue directing resources toward the brands and categories that hold the greatest potential for generating growth and share gains, while ensuring we meet consumer needs effectively across various price points and value tiers. Now let's move to our first quarter 2026 results. Net sales were up 1.1% compared with the prior year period. Price/mix improved 210 basis points, helped by pricing implemented at the end of last year. Volume was off 3.3%, mostly because of pressure in branded traditional loaf along with store-branded cake and loaf. Growth in snacking, branded keto and vending partly offset that softness. Looking more closely, branded retail sales gained 3.4%, helped by positive price/mix and the contribution from the Simple Mills acquisition, partly offset by lower volume. Elsewhere, net sales dropped 3.1% on lower volume in store branded retail sales, though better non-retail sales partly made up for it. Gross margin as a share of sales, excluding depreciation and amortization, was 49.4%, down 50 basis points versus last year. The decline came from less operating leverage due to softer volumes and increased third-party purchasing of Simple Mills-related products, partially offset by reduced ingredient costs that were also tied to Simple Mills. SG&A under GAAP represented 40.9% of sales, a 10 basis point decrease versus the same period last year. That small reduction reflected lower distributor fees from our move to an employee-based model in California and from the addition of Simple Mills, partly offset by higher personnel costs stemming from the California transition and by the impact of overall incentive compensation compared with the prior year. Increased legal settlements and restructuring implementation expenses also contributed, partially offset by acquisition costs incurred in the prior year. Adjusted SG&A came in at 39.3% of net sales, which is 20 basis points lower. That gain was driven by reduced marketing spend and smaller distributor fees relative to sales, reflecting the contribution of Simple Mills and its warehouse distribution model. We've also stayed disciplined about expenses, and cost control remains a major priority as we move through the remainder of the year. Quarterly GAAP diluted EPS was $0.20, a decline of $0.05 year over year. After excluding the comparability items laid out in our release, adjusted diluted EPS was $0.29 for the quarter compared with $0.35 a year earlier. I'll turn now to the balance sheet and cash flow. To reiterate what I said before, maintaining a solid balance sheet is our commitment as we keep operating through a tough macro backdrop. That financial strength is still a top priority, and we've lately taken action to bolster our balance sheet by arranging a new $400 million delayed draw facility aimed at funding the bonds maturing in October of 2026, which removes essentially all risk from that maturity. Turning to cash flow, operating activities brought in $108 million during the first quarter, which is $28 million lower than the same period a year ago. Capital expenditures came to $21 million for the quarter, a decrease of $5 million, while dividends paid totaled $54 million in the quarter. Having gone through our maintenance and growth plans, we anticipate capital expenditures for 2026 will land somewhere between $115 million and $125 million in total. Guidance for the remainder of 2026 is being reaffirmed. Disciplined execution stays our team's priority — managing the things we can manage and meeting our strategic and financial goals, while maintaining suitable caution in light of conditions outside the company. On the macro front, we keep a close eye on the way inflation is shaping consumer behavior, along with cost pressures throughout the business. That covers potential tariff-driven effects on import costs, and there we are collaborating with suppliers to reduce those increases. We're monitoring important input costs—diesel fuel, edible oils, and packaging resin—and we're taking active steps to counter some of that pressure via productivity and other cost management efforts. Even so, we're happy with the way our product portfolio continues to develop; it's increasingly positioned to provide value across a broad range of price points and consumer needs; we remain dedicated to investing behind our brands to enhance value and relevance, as demonstrated by the recent relaunch and reformulation of Nature's Own. On the whole, though we're encouraged by the progress of our comprehensive review, we remain cautious about the near-term top line outlook, citing category trends and continuing pressure on the consumer. We're also confident we can keep tight control over expenses and do what's necessary to keep advancing how we run the company, sharpen how we execute, and set the business up to perform better down the road. Thanks — I'll now hand things back to Ryals.

Thank you, Anthony. I want to offer some perspective on where we're headed strategically over the long term and how we're setting up the business to steer through the current environment and deliver sustainable value. One key takeaway from the thorough review we conducted is that we need to sharpen our focus even further — strengthening our core brands, boosting demand generation and supply chain capabilities that are necessary to outperform in the market, and staying disciplined about how and where we put capital to work. Our dedication to putting investment behind our strongest brands is already on display with the relaunch of Nature's Own. At the same time, we are transforming our breads, buns and rolls business by leaning further into Better-For-You segments that are expanding more quickly. We continue to extend our lead in specialty products—including holding the #1 keto bread brand position across the country—and we are widening our footprint and functional innovation with a nationwide rollout of protein breads and buns; these items align with shifting consumer tastes and act as key engines of future growth. To drive demand even more, we are enhancing our revenue growth management skills and leveraging the size and reach of our DSD and IDP networks, collaborating closely with our customers. Meanwhile, we stay committed to rigorous cost control and operational efficiency, enabling us to post steady results amid a demanding environment. To wrap up, tight discipline around how we deploy capital and manage costs is strengthening our financial flexibility and freeing us to put money into the opportunities with the greatest returns. In pursuit of productivity gains, we'll continue assessing and refining both our cost structure and how the organization is aligned, while factoring in today's category dynamics—especially in light of how quickly AI-enabled capabilities are advancing. Before finishing, I want to share some perspective on the environment we're operating in now. We're happy with how we executed throughout the P&L this quarter, yet top line trends are still under pressure, so we're meeting the near term with a suitable degree of caution; even so, we keep finding areas of resilience and growth inside our portfolio. Snacking and other nearby categories are still performing fairly well, and so are products that offer obvious points of difference. Those patterns back up our plan to shift toward segments growing faster while we keep supporting the core business. On the consumer side, a lot of what we flagged last quarter is still with us. Household budgets keep feeling the squeeze from inflation, which makes shoppers more price-conscious and pickier about what they buy; we're seeing constant trade-offs between price tiers and a move toward club stores and other outlets that emphasize value. Meanwhile, health and wellness trends keep molding demand. Buyers are leaning toward items with simpler ingredients and benefits they perceive as functional, while cutting back in some traditional center-store categories. That underscores how much we value innovation and renovation—like the work to transform Nature's Own with fewer, simpler ingredients, plus our ongoing push into Better-For-You products. So we're sticking with a balanced, disciplined plan. We're closely overseeing our pricing and promotional spending, keeping a sharp focus on return on investment, and refining where our marketing dollars go so the highest-impact opportunities come first. Meanwhile, we're holding costs firmly in check—commodities and overhead alike—to help counter top-line pressure. Looking ahead, we'll continue making progress on the comprehensive review. Although we expect conditions to stay difficult in the near term, we're confident in our capacity to steer through these dynamics. Our strategic priorities, together with disciplined cost management, put us in position to counter category pressures and generate sustainable, profitable growth over the long term. Last, I'd like to thank our team for their ongoing focus and execution. Their dedication matters greatly as we work through the current environment and lay a stronger foundation for growth down the road. Even with a difficult environment and weaker sales patterns this quarter, our team continued to execute, and the profit figures we posted exceeded what had been forecast. We accelerated the wide-ranging assessment of our brand lineup, supply chain and financial approach, and the headway being made on that front gives me considerable encouragement. We concentrated on our main brands—among them the national relaunch of Nature's Own—and continued to reinforce our standing in better-for-use segments. We additionally saw encouraging movement in premium bread and cake categories, which partly counterbalanced the ongoing weakness in the traditional loaf category, a area where our results fell short this quarter. We also started programs designed to generate efficiencies across the supply chain and to strengthen both our balance sheet and our financial flexibility. Combined, these steps are positioning us to achieve growth and profitability that are more consistent and more sustainable over the long term. Looking ahead, we will remain focused on executing the strategy and positioning the business to drive for shareholders. I also want to thank our team for their continued focus and commitment. With that, Marvin, we can open it up for questions.

To begin, what's your take on inflation now that commodities have shifted so much since the Iran conflict began? Could you walk us through your inflation outlook and how it has evolved since the start of the year? Also, any specifics you can offer about your hedging program and perhaps your internal inflation expectations for the rest of the year?

Certainly. I'll handle that one. First, keep in mind that our hedging program truly ramps up in cadence as the year unfolds. As a result, on the commodities within the program, we're essentially fully hedged for the remainder of the year. Looking ahead, then, we see pressure mainly from other commodities and from how the oil price has affected our distribution in resin, which has hit our packaging costs considerably — an area that wasn't a cost worry for us at the year's start. With that said, our teams are exploring ways to offset that increase, such as packaging configurations, alternatives, and other productivity measures. So on the whole, I'd say we're assuming a level of increase remains elevated, and that is factored into our outlook. If, however, they rise further, we'll likely consider additional productivity measures to offset that.

Specifically, when we consider productivity, are you referring to expenses that could be removed from SG&A? Does that mean cutting back on personal spend, or perhaps other efficiencies available within the gross margin line? Could you just walk us through how you see the offsets and where they would appear in the model?

I believe the majority will come from SG&A. And if we make progress on certain packaging items, as I mentioned, that would clearly represent productivity with respect to the cost going into COGS.

Great. And just as a follow-up to what Jim asked. Can you help us size or put dimensions around the diesel and packaging costs you're seeing now for the rest of '26 versus previously; and then also, if costs stay elevated, how should we think about how much carryover inflation we're accruing into '27 now versus before?

Yes; so our planning process hasn't begun yet. We're only just kicking that off for '27, so I can't give further color on that in isolation. Obviously, there are plenty of puts and takes when it comes to what we would address as we look into '27. For '26, as I said, the bulk of our core commodities with the highest potential impact are fully hedged. So we feel fairly good about the outlook regarding our position heading into the back half. But as I said, when it comes to oil, it really is a tale of 2 cities. There's oil's effect on the consumer, and that we'll have from a consumer sentiment standpoint, which we are clearly focused on delivering value at price points and making sure we meet consumer demand. On the input side, the main impact is on resin, which isn't a direct corollary to oil. It's a stream impact. And then that, as I mentioned earlier, we're exploring ways through productivity to drive some of that headwind out in the back half. And all of that is baked into our reaffirmation of guidance.

All right. All right, and while I've got you on the dividend reset, you're freeing up roughly $100 million in cash, which I believe could cut leverage by about 0.2 turns if it all went there. Is that the correct way to look at it? Or how should we think about the division between paying down debt versus the other reinvestment priorities for that extra cash?

I'd say you've got the split exactly right. I mean, obviously, reducing leverage comes first for us, and the aim is to get under 3x by the close of fiscal '27. So with the dividend reset, we see that as the main lever, while still putting money into the brands much like we did with the relaunch of our Nature's Owned this quarter.

Yes. And if I could add just 1 more thing about that relaunch, Ryals, it really does fit well with your overall strategy — where the consumer is concerned, simpler ingredients, and a big marketing push behind it. So what are your expectations? And over the next 2 to 3 quarters, what would success look like? In terms of velocity or household penetration, how are you thinking about the impact of this relaunch and how it might then help the organic growth trajectory at all?

Yes, sure. Good question. Well, first of all, I just want to say we're tremendously excited about this. This was a huge pivot that the team made — it took a lot of work to get this done, reformulating, taking out another 1/3 of the ingredients, essentially being the cleanest label traditional loaf bread at scale in the country and non-GMO verified. So it's a big deal for us. It took a lot of investment; and of course, as we said, we've got the 360-degree marketing campaign behind it, leveraging John Cena's < >. We just actually launched that yesterday. Some of you may have seen it; in terms of what success looks like, I mean, obviously, the traditional loaf category has been the soft spot for us. This is something we've discussed across several quarters now. On both the premium side and the value side, the remainder of the business is performing rather well. Traditional loaf, however, accounts for roughly 38% of our branded retail, which makes it a significant segment for us. So Steve, stabilizing that portion of the category is how I'd define success. At a minimum, steadying our volumes in traditional loaf will accomplish more for the business than any other lever available to us. There is a lag, of course. With a marketing campaign like this one, I don't really expect an immediate impact when you launch it. You need roughly half a year to pass before you're able to assess how well it worked. Still, in my view, the combination of more marketing investment—which means greater visibility—and the fact that Nature's 1 holds the category's top loyalty rate, ranks as the #1 brand, and has the #1 SKU, will capture consumer attention and draw shoppers back into that segment by offering value through the attribute sets that matter to them. That, to me, is what will ultimately deliver our success. To respond to your question directly, though, my definition of success is getting volumes in traditional loaf to stabilize.

The first item I wanted to raise: in your prepared remarks, you mentioned several times that there are consumer pressures and expectations that top-line headwinds will continue for a while. So I'm wondering whether you could help us see, inside this year's guidance, what assumptions you've built in for volume as opposed to pricing? And how should we think about the cadence over the course of the year?

That's a great question. We don't provide volume guidance, though our guidance reflects easier volume comparisons as the year goes on. We do anticipate somewhat higher costs in the back half tied to certain input costs that I referenced both in my prepared remarks and during the previous call—I mean, the last questions. Still, we expect to keep managing overhead and other costs well, which should help offset some of that risk, since those inputs aren't hedged. So I'd frame it this way: we aren't necessarily expecting a volume recovery, but comparisons do get easier as we move through the year.

Got it. Thanks for that. Then my other question is really about the promotional landscape. You mentioned several times during the prepared remarks that the promotional environment has gotten more intense and that you see it as unsustainable; and I believe you pointed to some better trends in certain markets where it has let up somewhat. I was hoping you could go a bit deeper on that and maybe help us understand what makes you confident that, that competitors will ease off on promotions, and how long should we expect this irrational environment to last?