Earnings calls, loved by some CFOs and dreaded by others, allow finance leaders and their fellow executives to verbalize their organization’s progress. Each month, CFO.com compiles interesting insights shared by CFOs during these calls, including statements about their company, analysis of financial data and answers to analysts’ questions.
For September, we highlight perspectives from CFOs at Costco, CarMax, FedEx, Kroger, LoveSac, General Mills, Lands’ End and ZScaler.
1. Costco
Market cap: $392.63 billion
Date of call: Sept. 26
Costco CFO Gary Millerchip highlighted inflation’s impact on prices, how some items are deflationary and the company’s unavoidable vulnerability to macroeconomic trends.
“We’re still seeing [a very quiet impact] in terms of [inflation] on prices and on the business,” said Millerchip. “Food would have been slightly inflationary as well, but it’s remarkable actually how a small range now [exists] between the different categories, really nothing between positive 2% and negative 2%, and sort of all coming back out to even just very slightly inflationary. But nothing much there either that we’re seeing.”
“We are seeing more of a mixed view on commodities. Things like corn, flour and sugar are all deflationary, which is causing the bakery category as a whole to be deflationary. But then on things like butter, cocoa, eggs, as I mentioned earlier on the call, and cheese, we’re seeing more inflation. So, I don’t know that we’re seeing anything today that’s causing us to believe that where we are today is what the world looks like,” said Millerchip.
Millerchip continued: “Our goal, of course, is always to find ways to lower our costs and therefore hold prices down for our members. So I wouldn’t say that we’re seeing anything dramatically different from how our quarter looked for this quarter,” said Millerchip. “But of course, like everybody, we’re susceptible to shocks and changes that can happen in the market.”
2. CarMax
Market cap: $12.07 billion
Date of call: Sept. 26
While CarMax’s latest earnings call highlighted their achievement of strong gross profit per unit in both retail and wholesale while keeping margins steady despite a 1% year-over-year drop in total sales, CFO Enrique Mayor-Mora made a point to highlight the potential of the business’ endeavors into the auto lending market, an area where a nearly unprecedented amount of negative equity and rising repossession figures are currently bubbling.
“Even in this kind of environment, I mean, these are really profitable loans that Jon [Jon Daniels, senior vice president of CarMax auto finance operations] and the team can target and do an excellent job of targeting those loans in originations. So we’re really excited about the full credit spectrum. And yes, we’ll continue to test in the back half of the year,” said Mayor-Mora.
3. FedEx
Market cap: $65.37 billion
Date of call: Sept. 19
FedEx, now just days into operating in their post-U.S. Postal Service contract loss environment, had CFO John Dietrich provide a candid take on how the company is planning on responding to the loss of a significant portion of its business.
“Regarding our expected earnings cadence for the remainder of the fiscal year, the U.S. Postal Service contract termination headwind will begin in Q2 as expected. We plan to reduce our daytime flight hours by approximately 60% with the majority of that reduction taking place in October,” Dietrich said.
“We anticipate a negative effect in Q2 from the timing of Cyber Week, which shifts into Q3 this fiscal year. Overall, from an EPS perspective, we expect lower-than-normal seasonality in Q2 and better-than-normal seasonality in the fiscal second half,” Dietrich said. “Supporting this cadence are ramping Drive [initiative] savings that we are confident we will deliver in the quarters ahead. Turning to our updated full-year operating income bridge, which shows the year-over-year operating profit elements embedded in our full-year outlook.”
4. General Mills
Market cap: $41.46 billion
Date of call: Sept. 18
After recently announcing steps to remove artificial colors from all of its product offerings, General Mills’ recent action is one of many furthering an attempt to grow its market share among the growing competition and a more health-conscious consumer.
Despite focused improvements, CFO Kofi Bruce highlighted broader improvements across the company as an indicator of success and suggests a recovery or positive trend in customer service across multiple sectors of the business.
“We have seen improved customer service gradually across most of the portfolio. And our food service business, our pet business, in particular, have been aided by, I would say, bigger changes in the service levels. But in aggregate, service levels are moving close to where they were pre-pandemic, so it’s not any one particular category. It’s just a broad improvement for that,” said Bruce.
5. Kroger
Market cap: $40.50 billion
Date of call: Sept. 12
Todd Foley, interim CFO of Kroger, mentioned in the latest shrink figures surpassed his expectations. Like others in retail, convenience stores and grocery, efforts to ward off shrink implemented earlier this year are now being evaluated for their efficiency and success.
“It’s been a while since we’ve looked year over year on shrink and seen positive results, so that was really exciting to see,” said Foley. “As we called out, still a lot of work to do there on a go-forward basis, but — so it was a little bit better than our expectations which were to be up to some. And therefore, for the balance of the year, we do expect for the full-year margins to now be slightly favorable on a year-over-year basis.”
6. LoveSac
Market cap: $436.11 million
Date of call: Sept. 12
LoveSac CFO Keith Siegner’s explanation of the company’s strong balance sheet, which highlights no debt and deployable capital at the ready, is notable given the context of their consumer’s declining interest in using credit. While the company has no debt, LoveSac customers are seemingly in the same mindset, as the use of credit to purchase their products has decreased. According to Siegner, it’s largely due to rates and fees on loans deterring their customers.
“We’ve seen some interesting trends this year in the utilization of the LoveSac Credit Card program, basically the financing program that our customers use,” Siegner said. “We had told you in the very beginning of the calendar year, we’ve seen some decreases in the percentage of revenues run through the program with particular emphasis on the low-end consumer that then stabilized for several months.”
“But then, we had these changes which were industry-wide, nothing specific to LoveSac, related to program fees implemented by a lot of the banks on these types of programs,” Siegner. “This quarter, second quarter in aggregate, we did end up seeing several hundred basis points lower utilization of the credit card as a percentage of revenues than we did in the past. If rates start to come down and therefore implied interest fees start to come down, that will all help as well. So we’ll juggle this, but I did want you to know that post that implementation, we have seen a couple of hundred basis points decline in our utilization rate.”
7. Lands’ End
Market cap: $533.70 million
Date of call: Sept. 5
Bernard McCracken, CFO of Lands’ End, talked about the retailer’s proactive approach on the procurement and supply chain front, gross margin and inventory challenges and nearshoring their production processes.
“We have a 470-basis-point improvement in gross margin. We expect to continue to see those types of improvements through the back half of the year. They do account for any challenges in our freight and transportation,” said McCracken.
“Our transportation team has done a fantastic job of avoiding any of — and being proactive to any of the issues that we’ve seen, and we’ve been able to mitigate those costs and those delays up to this point. So they’ve done an excellent job. We expect our inventories to stay at historical lows. As Andrew has implemented, and he talked about in his comments, an initiative around speed, and we’ll be bringing in products more frequently and closer to our shores,” said McCracken.
8. Zscaler
Market cap: $25.93 billion
Date of call: Sept. 3
Zscaler CFO Remo Canessa highlighted the company’s strong growth in his latest earnings call and mentioned the evolution of the company’s sales processes, the demand for Zero Trust products and the company’s own innovation.
“And as we called out in the first half, contracted billings are expected to increase on a year-over-year basis, 7% in the second half, 23%. What I can say also is that from my perspective, being here at Zscaler for almost eight years, there’s a change in our sales organization,” said Canessa.
“The change is basically — it’s a more mature, very strong leadership — and also an organization that I feel is going to be able to sell deeper into accounts and really sell the value of Zscaler. So the put and take from my perspective is that strong demand for Zero Trust [systems]… The key thing with Zscaler also is that we’re [also] innovating,” said Canessa.
