Strategic Performance Drivers
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Earnings per share doubled year-over-year, supported by the fourth consecutive quarter of positive written and delivered comparable sales.
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Average ticket size rose 14% to over $3,800, primarily driven by the design business where tickets averaged over $8,800 and accounted for 36.5% of total sales.
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Management attributed sales strength to a resilient upper-end consumer and a 23.6% increase in custom special order business as customers prioritize personalization.
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Inventory levels were reduced to $100.5 million from $106.9 million in Q1, reflecting improved supply chain coordination and faster inventory turns despite rising sales.
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Marketing strategy shifted toward winning new customers who spend 50% more than repeat customers, utilizing connected TV and direct mail to showcase design capabilities.
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Operational efficiency is being enhanced through the expansion of AI applications across home delivery, customer chat, and designer-to-customer communications.
Outlook and Strategic Initiatives
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Management expects to end Q3 with inventory in the $95 million range, though this remains subject to a 5% variance based on product flow and sales volatility.
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The company plans to open six new stores in the second half of 2026, including entry into Pennsylvania, which will mark its 18th state of operation.
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Gross margin guidance for 2026 is maintained at 60.5% to 61.0%, with management planning to use tariff refunds to offset rising container rates and fuel costs.
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Strategic investments in store refreshes for mattress departments and design centers will continue, with approximately half of the fleet completed by year-end and the remainder in 2027.
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Management anticipates continued cost pressure from a 25% to 30% increase in container rates starting in mid-August due to higher bunker fuel rates.
Risk Factors and Structural Adjustments
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Section 301 tariffs on certain imports were set at 10% and 12.5% in July, while Section 232 tariffs on upholstered wood furniture remain at 25%.
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Diesel fuel prices remaining above $5 per gallon represent a persistent headwind for transportation, delivery, and product input costs through year-end.
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The company received $2.1 million in IEEPA tariff refunds during Q2, with $1.5 million recorded as a reduction to cost of goods sold.
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Variable SG&A guidance was adjusted upward to 18.7%–18.9% due to rising third-party credit costs and higher commission-based compensation.
Q&A Session Highlights
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Progression of delivered same-store sales during the quarter
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Management noted significant momentum throughout the period, with delivered sales growth accelerating from 4% in April to 11% in June.
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Written sales also remained strong, posting double-digit increases in every month of the quarter.
Sustainability and drivers of average ticket growth
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Growth is driven by a combination of pricing and a mid-single-digit increase in units per ticket.
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Management sees further upside as only high-teens percentage of customers currently use design services, with a long-term target of 25% or more.
Status and expectations for future indirect tariff refunds
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Directly sourced tariff refunds are largely complete, but negotiations for indirectly sourced refunds involving third-party vendors are ongoing.
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Management expects these additional refunds to total approximately $1 million to $1.5 million and hopes to receive them within the current calendar year.
