加载中...
共找到 14,540 条相关资讯
From Micron (MU) earnings to the A.I. trade lifting the market, Sam Vadas and Tom White turn to these headlines.
Inflation cooled to 2.7%, supporting Fed easing, but shutdown-related data gaps mean the disinflation trend still lacks full confirmation. The Fed's hawkish cuts improve valuation support without encouraging excess speculation, creating supportive but disciplined liquidity conditions for 2026.
NB Private Wealth's Shannon Saccocia joins 'Closing Bell' to discuss how the equity market feels, the themes for next year and much more.
Dan Ives, Wedbush Securities, joins 'Closing Bell' to discuss why 2026 will be an inflection point for tech, what isn't known about the Microsoft story and much more.
Comprehensive cross-platform coverage of the U.S. market close on Bloomberg Television, Bloomberg Radio, and YouTube with Romaine Bostick, Katie Greifeld, Carol Massar and Tim Stenovec. -------- More on Bloomberg Television and Markets Like this video?
The November CPI likely understates true inflation due to technical distortions with the 43-day government shutdown affecting BLS data collection. Current VIX levels are well below historical averages, suggesting market complacency and underpricing of equity risk.
I rate the S&P 500 a Strong Buy, targeting 8000 by year-end 2026, driven by robust earnings growth. Gen AI integration, a dovish Fed pivot, and resilient consumer spending are expected to fuel higher valuations and sustained profit expansion for S&P 500.
Tony Pasquariello, Goldman Sachs head of hedge fund client coverage, joins 'Closing Bell' to discuss how investors should position their portfolio in 2026.
After shoppers focused on deals early on in the holiday season, search interest shows they're more interested in brands perceived as high quality as Christmas approaches. There's also been an increase in interest in gifting experiences and subscriptions as the holiday season goes on.
Annette Court: Good morning, everyone, and thank you for joining us and dialing into the call this morning. I'm Annette Court, Chair of the company, and I'm here with Andrew Harrison, Interim Group CEO, and Max Izzard, our Group CFO. This morning, I will start by giving some headlines for the group. Max will then present the financials for the year to the 31st of August and importantly, a financial review of our North America division. Andrew and Max will then update on our divisional performance, and Andrew will close with his priorities for the near term and a summary of our guidance for the group for the full year ending 31st of August 2026. It has been a very busy year. And while the past few months have been difficult, I'm clear that this is a great business, well positioned in attractive travel markets and with exciting future prospects. During the year, we completed a significant strategic reset, disposing of our High Street and Funky Pigeon businesses, establishing our position as a pure-play travel retailer and creating a platform for long-term growth. We have a clear leadership position in Travel Essentials. Our stores are located in attractive high footfall locations across the globe, and we have a fantastic team of passionate and customer-focused colleagues. Now that we have completed our strategic reset to a pure-play travel retailer, we have reviewed the broader travel portfolio with a sharp focus on profitable growth and an enhanced focus on return on capital. In North America, we are now in the process of exiting a number of unprofitable fashion and specialty stores. We are also undertaking a store review of our U.S. InMotion business and have put in place a more rigorous approach to any future store openings with any new InMotion stores only being considered as part of the strategically important tender package. In addition, we have reviewed our Rest of the World division. Here, we will focus investments on our core strategically-important markets, exiting subscale markets and using a less capital-intensive franchise model for future openings. So we are very clear on the actions we need to take to support enhanced profitable growth as we move forward. Following the recent Deloitte review, we have acted swiftly to put in place a clear remediation plan and we're making good progress. The plan is structured around three key business objectives: to strengthen governance and controls to protect value and restore trust, to embed aligned processes and ways of working across the group supported by new systems and to sustain this through cultural change, enhanced training and monitoring. We have a clear pathway forward, and we look forward to putting this behind us. In the near term, we continue with our active search for two nonexecutive directors to strengthen the Board, with one area of focus being North America retail experience. And between Andrew and Max, I'm confident that the group is in good hands and will be well managed as we continue the search for a new Chief Executive. I will now hand over to Max. Maxwell Leslie Izzard: Thank you, Annette, and good morning, everyone. Let me start with the financial headlines for the year ended 31st of August 2025. As usual, all the numbers I'm going to refer to today are pre-IFRS 16 and following the sale of our High Street division and Funky Pigeon business, all the results are on a continuing basis. IFRS 16 bridges can be found in the appendix. Total group revenue increased by 5% on last year to GBP 1.6 billion, and we saw like-for-like revenue growth across all divisions. As anticipated, following the review into our North America division, group headline trading profit decreased by 6% in the year to GBP 159 million. Headline profit before tax was GBP 108 million. And the group generated a headline EBITDA of GBP 187 million in the year, demonstrating the cash-generative nature of the trading business. Headline net debt at the end of the year was GBP 390 million, and I will come on to talk more about this later in the presentation. The Board has today proposed a final dividend of 6p per share, making it a full year dividend of 17.3p per share. This is in line with our stated dividend policy of 2.5x cover and reflects the continuing earnings profile of the group following the sale of our non-travel business. Turning now to the group revenue summary. Across all our divisions, we saw good momentum in the year with like-for-like revenue up 5%. And on a constant currency basis, total revenue was up 7%, reflecting good operational performance and continued growth in global passenger numbers. In the 13 weeks to the 31st of August, we saw group like-for-like revenue growth of 3%. By division, the U.K. saw like-for-like sales of 3% with reduced passenger numbers through the peak summer period and the reduced level of spend per passenger. In North America, we saw like-for-like sales at 1%. And within that number, we saw Traveler Essentials continuing to perform well at 8%, with InMotion down 7% and Resorts down 6%. Rest of the World delivered like-for-like revenue growth of 6%. And in the first 15 weeks of trading for full year '26, we have seen these sales trends continue. Group like-for-like have remained at 3% with the U.K. slowing slightly to 2%, largely reflecting a softening in Rail. North America revenue trends remained at 1% like-for-likes. And rest of the world has continued to perform well with growth of 6%. Now turning to the segmental analysis for the last financial year. Starting with the U.K. Revenue was up 5% on both a total and like-for-like basis, with a good performance across all three channels. Air was up 7% on a like-for-like basis, Hospitals were up 4% like-for-like and Rail was also up 4% like-for-like. In North America, total revenue was up 7% on a constant currency basis. The Air segment in North America was up 9% on a constant currency basis and 4% like-for-like. Within this, our Travel Essentials format, which accounts for over 50% of revenue in North America, was the key driver of performance with total revenue on a constant currency basis up 19% and up 7% on a like-for-like basis as we continue to increase our spend per passenger. InMotion like-for-like revenue was down 3% for the full year. And Resorts were down 4% like-for-like. This trend has continued in the first 15 weeks of trading with InMotion down 4% and Resorts down 7%. I will come on to talk more about our InMotion and Resorts business later in the presentation. The Rest of the World division delivered a good performance with total revenue up 12% on a constant currency basis, supported by new openings, and up 7% like-for-like. On the right of the screen, you can also see how we continue to actively transform the group with Air now accounting for more than 70% of total revenue. Following the sale of the U.K. High Street business, this also shows how the group is now more geographically diverse with the U.K. accounting for just over 50% of revenue, North America at 26% and the rest of the world at 20%. Turning now to a financial review of the North America division. In North America, we delivered headline trading profit of GBP 15 million. The bridge from the previous market expectation of GBP 55 million is here on the left side of the screen and includes a net reduction in supplier income of GBP 23 million, broadly in line with the value previously announced. This comprises a gross reduction of GBP 33 million, of which GBP 20 million is deferred to future financial years and GBP 13 million has not been delivered due to delays in signing supplier income contracts and the underdelivery of the commercial plan. Supplier income costs of GBP 3 million have also been incurred. This is offset by a GBP 13 million supplier income restatement benefit from prior years. Also, as previously announced, the expected cost savings related to the North America logistics and distribution network of GBP 5 million were not delivered. The adjusted margin for full year '25 before additional one-off inventory-related costs of GBP 12 million is 6.5%. The inventory-related items previously announced, net of restatements to the prior years, is GBP 12 million. This includes GBP 23 million of total costs identified with GBP 11 million restated to prior periods. The net inventory items for full year '25 primarily consist of an increase in the stock obsolescence provision of around GBP 5 million. The increase is driven by the aging profile of stock, a marginally worsened stock turn and a revised provision methodology, which has a more granular approach across all our product categories. There is a clear set of activities focused on narrowing product ranges and exiting aged stock for the year ahead. And secondly, an increase in the stock loss provision for the full year of around GBP 5 million. The shrinkage charge comprises known stock losses realized through stock counts and a shrinkage provision reflecting expected losses since the count to year-end. There is a focus on enhancing controls and stock management processes across the North America business also in the year ahead. In terms of prior year restatements, you can see on the right of the screen that supplier income adjustments on a net basis are GBP 13 million for full year '24 and GBP 5 million for full year '23. Approximately GBP 5 million of supplier income from these prior years will be recognized in full year '26 and beyond. Some of the inventory adjustments also relate to prior years. On a net basis, GBP 7 million recorded in full year '24 and GBP 4 million recorded in full year '23. The restated headline trading margins for the prior years are 8.5% for full year '24 and 10.5% for full year '23. In addition, over recent months, we have also reviewed the nature of one-off items included in the income statement to ensure we have a clear understanding of the normalized trading profit margin in North America. We identified a small number of one-off items, the most notable of which related to COVID rent relief benefits and COVID insurance claims received. After removing the net benefits, the normalized North America trading margin for the prior years of full year '24 and '23 is around 8%. And I will talk in more detail later about how the business will rebuild profitability in full year '26 and grow margin over time. Moving on to the group income statement. In the U.K., profit improved by 6.6% to GBP 130 million due to higher revenue, improved margins, tight cost control and given the group's overall performance, a remuneration cost reduction of GBP 3 million. As you have just heard, North America delivered a profit of GBP 15 million, and Rest of the World delivered a profit of GBP 14 million, in line with last year. Overall, then, group trading profit was GBP 159 million. Central costs are reduced year-on-year with remuneration benefits of around GBP 5 million. Tight control of this area will remain a key focus, with inflation headwinds and some group remediation-related costs expected in the year ahead. Financing costs of GBP 26 million include noncash accretion of GBP 9 million relating to the convertible bond. And this resulted in group headline profit before tax and non-underlying items of GBP 108 million. Turning now to non-underlying items. As you see on the screen, we have recognized a number of non-underlying items in the year. We have continued to invest in our multiyear IT transformation program, providing system stability, longevity and operational benefits. This program will continue for approximately 2 more years as we complete the replacement of our U.K. tilling software and the transformation of finance and supply chain systems. Costs in full year '26 are expected to be around GBP 8 million and approximately half of that in full year '27 before the program completes. We have also completed a number of operational efficiency programs to deliver cost savings and support our business performance. Across our head office and stores, we have been re-profiling our workforce and improving core processes to deliver in excess of GBP 9 million annualized benefits. The overall program will complete in full year '26 and we would expect the remaining cost for these items to be around GBP 5 million in the year. The supply chain transformation to consolidate our U.K. distribution centers is now complete. The cost of the North America review conducted to date is GBP 10 million. We expect further cost in full year '26 in the region of GBP 5 million. With regard to impairments and onerous contract charges, it largely comprises of GBP 25 million for North America and GBP 16 million for the Rest of the World, with GBP 7 million attributable to the U.K., largely related to supply chain transformation. Charges in the North America and Rest of the World operating segments have principally risen due to a lower trading outlook and profitability in certain individual stores across these regions, including our Resort stores in Las Vegas, and one particular group in the North America stores where we have seen significantly increased costs due to a new union agreement. Other non-underlying costs are expected to be around GBP 3 million to GBP 5 million in full year '26, largely related to the ongoing noncash amortization of acquired intangibles. Overall, the cash impact of non-underlying items in the year was GBP 38 million, and this includes some timing-related spend from previous periods. Turning now to the group free cash flow. There are three key points to note on the free cash flow for full year '25. First, we generated GBP 187 million of headline EBITDA in the year. Second, the underlying CapEx investment in the business was GBP 81 million and includes our new store opening program. Third, working capital was an inflow of GBP 4 million, with a one-off payables timing benefit linked to one of our large franchise partners, broadly offsetting an inventory increase relating to new store openings and the seasonality of the business. Turning now to headline net debt, which was GBP 390 million at the end of the year, comprising the convertible bond of GBP 320 million, drawdown on the RCF of GBP 141 million and cash of GBP 71 million, which gives the group a rolling 12-month to headline net debt-to-EBITDA leverage of 2.1x compared to 1.9x last year on a continuing business basis. In offset to the free cash flow, we had cash spend relating to non-underlying items of GBP 38 million. We had outflow of GBP 93 million for returns to shareholders, with GBP 43 million for the full year '24 final dividend, and full year '25 interim payment and GBP 50 million for the share buyback completed in the year. And we also had a GBP 75 million cash receipt in relation to the pension surplus following the buyout in September 2024. For our discontinued operations, we had a net outflow of GBP 25 million. This includes the cash receipts for the sale of our High Street and Funky Pigeon businesses, CapEx and trading outflows in the year before the sale and transaction-related costs. We expect headline net debt for full year '26 to be in the region of GBP 400 million. Let's now move on to capital allocation. We remain focused on maintaining an efficient balance sheet and are strengthening our disciplined approach to capital allocation. On the screen, you can see our three-pillar approach. In the near term, we aim to strengthen the balance sheet through tighter cash control and improved cash generation, diversify our debt structure and reduce our leverage position to below 2x. Secondly, investing to grow and protecting value. We will do this by investing in business development and new space growth with a clear focus on returns and protecting our business assets through store works and transformation projects. And finally, we deliver sustainable shareholder returns through our stated dividend policy of 2.5x cover for the continuing earning profile of the group following the sale of the non-travel business. As you have already heard, we have today announced that the Board is proposing a final dividend of 6p per share. And when we have surplus capital, we will look to return this to shareholders. Turning now to our refinancing. As recently announced, we have successfully completed a refinancing of the group's convertible bond, which matures in May 2026. The new financing includes GBP 200 million of USPP notes, which represent WH Smith's debut issue in the USPP market. In addition, we have GBP 120 million of 3-year bank term debt with two uncommitted 1-year extensions. To provide further financing surety for the group, we have put in place a GBP 200 million backstop facility, which runs until the USPP completes and the convertible bond is repaid. Based on the resulting new financial structure, the backstop facility and the delayed draw terms, we would expect the income statement interest charge to increase from 4.6% to 6.3% by the end of full year '27. Full year '26 interest costs expected to be in the region of GBP 33 million to GBP 35 million. Moving to our second pillar and capital allocation. In full year '25, we invested around GBP 81 million of capital into the business, which is a reduction versus the prior years, largely due to a lower number of new store openings and strong focuses on cost efficiency and building new stores, particularly in the North America division, where we are seeing tangible benefits from buying at scale and further embedding capability from our U.K. business. Looking forward, we have a clear framework and disciplined approach to our growth investments. On the right of the screen, you can see that we are prioritizing business opportunities based on their relative returns and ensuring that the group hurdles are met for each store opportunity. We still see North America as a good investment opportunity. This prioritization will lead to a more measured approach to growth, investing where we have a clear understanding of where we can deliver the greatest returns. And in our Rest of the World division, where we will focus on existing scale markets, we will talk more about this shortly. For the year ahead, we have a strong store pipeline, and we expect capital costs of around GBP 90 million in full year '26. This supports some of our largest and recent tender wins across both the U.K. and the U.S., including at Heathrow, JFK and Orlando airports. Our latest flagship stores at Heathrow will open in the spring of 2026. And while our stores at JFK and Orlando Airports won't open in the current financial year, there is a large capital outlay in developing these stores this year, ahead of them opening. These three large store development programs will account for approximately 30% of the total CapEx in full year '26. Going forward, post full year '26, we would expect CapEx to normalize back to around GBP 80 million. Moving on to store numbers and better quality space. And our priority here is to focus on improving the quality of our space to optimize profits. As a consequence of this strategy, we expect to broadly close as many stores as we open on an annual basis in the short term. During the year, we opened 78 new stores with 17 in the U.K.; 35 in North America, of which 33 were in air, demonstrating our clear focus on this channel and 26 in our Rest of the World division, of which 9 were franchised. At the same time, we closed 50 stores in the year, nearly all in line with our strategy to improve the quality of our estate, leaving us with net store openings of 28 for the year. Our current estimate for full year '26 is that we will close around 50 to 60 stores and open around 50 to 60 stores with particular reductions across our Resorts and InMotion channels in North America and stores in our Rest of World division. Moving on to capital returns on the next slide. We remain focused on strengthening our return on capital. The results of the North America business have reduced return on capital employed. And despite gains in the U.K. division, at a group level, we have seen a decline this year. Moving forward, we will drive additional capital return discipline, focusing on the strongest returns, we will rebuild our North America profitability and complete a strategic review of all of our underperforming stores. As we move forward, we would expect to deliver stronger returns on capital employed in the years ahead, and deliver a return on capital employed above 20% for the group and North America returns above our cost of capital. Moving on to the divisional priorities, where Andrew and I can share some more details on how we will start to do this. As we look ahead, we have a disciplined approach to our key priorities for each business division, underpinned by a focus on cost optimization, stronger return on capital and enhanced cash flow generation. Let me begin with our North America division, and our priorities are clear. First, we will focus on improving and investing in our core Travel Essentials business. When it comes to InMotion, we will now adopt a highly selective approach with future store openings and review of the existing store portfolio. We have also completed a strategic review of our Resorts business, where we will look to exit or reformat our unprofitable fashion and specialty stores. And alongside the remediation plan we have put in place, we're strengthening our operating model to enhance efficiency, agility and profitability across the division. The U.K., which is our largest division, continues to play a pivotal role in driving the group's performance and shaping our future growth. Here, we are focused on retaining category leadership in Travel Essentials. We will continue to expand our presence through targeted and profitable space growth, and we are actively scaling our Health & Beauty and food-to-go growth categories. In our Rest of the World division, we are sharpening our focus, and our growth strategy will be increasingly centered on a franchise model. We will limit directly-run stores to our core markets, and we will take a disciplined approach to exit subscale markets. So as we look ahead, we will be more disciplined and as a result, actively drive profits and cash returns. Let's take a closer look at our North America division. And it is important not to forget that this is the largest travel retail market in the world with significant investments and long-term structural growth trends. And we still see an opportunity here to capitalize on the growth opportunities given our small market share. And as you have heard, our priorities for this division are clear. Let's start with Travel Essentials. Our Travel Essentials business has consistently delivered a strong performance, growing 19% on a constant currency basis in full year '25, underpinned by customer demand and attractive double-digit margins. On the screen, you can see that in 2022, Travel Essentials represented 37% of the overall business. And over the past 3 years, we have grown it, and it now represents 55% of North America revenue. The Travel Essentials segment is most profitable and on a fully allocated basis, generates around 10% trading profit margin. As we scale our business and enhance our operations, we expect to grow margins further, which in turn will support the profitability of our North America business overall. Given our priority to deliver the strongest returns, we expect the proportion of Travel Essentials to increase to over 70% in the medium term. We have a strong store pipeline, which we have reviewed in light of the normalized margin levels, and we are confident that on aggregate, they meet our investment hurdle rates. We have also started the process of reviewing all our individual formats within the pipeline. Turning to the next slide. When it comes to InMotion, this brand remains highly regarded by landlords, particularly as part of tender packages where it adds value to the overall retail offering at airports. And its strong reputation gives us competitive advantage, securing attractive space within the key airports. Our InMotion portfolio is large with 123 stores. Overall, the estate is profitable, and some stores are in growth and driving a strong contribution. However, in total, this segment is in like-for-like decline. As we move forward, our approach to operating InMotion will be highly focused. First, we will limit new store openings with any new InMotion stores being considered only as part of strategically important tender packages. Where appropriate, we will also move the InMotion proposition into large marketplace stores, providing flexibility on space use over time. In parallel, we will undertake a review of the existing store portfolio. It is imperative that we improve the profitability and sales performance of this channel. As a result, our focus will include undertaking a deeper diagnostic for the estate to determine the factors that need to be in place for these stores to succeed. We expect to complete this in the first half of 2026. And once complete, we will be in a position to reshape the portfolio to improve profitability and allow us to better target where we can open new stores that pay back with strong returns. And we are focusing on our commercial proposition, reducing the number of product lines and improving availability and reducing working capital. Over time, we expect the number of InMotion stores to decline as we integrate more tech accessories into our Travel Essentials stores as well as the impact of landlord redevelopment. In the years ahead, we would expect the InMotion estate to contract by around 20% to 30% with store numbers reducing below 100 in the medium term. Despite store closures, we see an opportunity to increase the margin with our strongest margin stores retained, range optimization and strengthened operational performance. Turning to some examples of our Air business overall. Our strategy to grow in North America airports is delivering really good results. Over recent years, we've secured a mix of stand-alone stores and multi-store packages, combining our profitable Travel Essentials offer with complementary stores such as InMotion. In Kansas City, we opened an eight-store package in February 2023, including six Travel Essentials stores plus a larger format City Market and a localized Made in KC concept store. This tailored approach across the airport meets travelers' needs and drives performance, with like-for-like growth of around 6% and a current payback period tracking to around 3 years and a long-term contract in place. Our Eastern Market store in the middle of the screen opened in May 2025 and is a good example of where we have introduced a marketplace format, offering the convenience of everything under one roof, very similar to our one-stop shop strategy here in the U.K. And here, we have the flexibility to realign our category mix over the term of the lease to ensure we stay ahead of the changing trends. We expect a payback period here of less than 3 years and also with a long-term contract in place. And in Palm Springs, we have secured exclusive rights to all the retail locations in the airport. This was a significant strategic win and includes a five-store package with three Travel Essentials stores, an InMotion and a coffee shop. This localized offer is performing very well with like-for-like growth of around 9% and a current payback period of around 2 years, again, with a long-term contract in place. So as you can see, we have a clear ability to win in prime locations, adapt our formats and leverage our brands, and we are able to drive good growth with attractive returns. Turning to our resorts business in Las Vegas, and we have commenced the review evaluating the current store portfolio based on the performance and the market dynamics of each format to determine the most value-accretive path forward. There are four primary store formats that make up our resorts business. Firstly, hotel convenience, gift stores, of which we have around 20. These sell consumables and souvenirs. Second, Welcome to Las Vegas stores. We have just over 20 of these, and they primarily sell souvenirs, again, with some consumables. We see good contribution from our hotel convenience and Welcome to Las Vegas stores, where despite a decline in like-for-like revenue in the last year, we continue to benefit from attractive margins, and they each contribute cash. Third, fashion stores. These deliver around 25% of Resort sales and on a comparable basis have declined around 10% year-on-year. At an aggregated level, these stores are unprofitable and do not generate cash. And lastly, specialty stores. These sell categories such as confectionery and represent around 10% of Resort sales. Like-for-like revenue also declined 7% in full year '25, and they are marginally unprofitable. Following our review, we are now in the process of exiting a number of Resort fashion and specialty stores, particularly where the leases are short, and we are reviewing further formats and other controlled exit options where the arrangements run over the medium term. We are also reviewing where we can strengthen terms for our hotel convenience and Welcome to Las Vegas stores where traffic is in decline, and we will rationalize this estate, if required. While this will take some time, we have initiated the work and the margin and cash benefits along with growth benefits will already support our full year '26 plans. Turning to my final slide. Given this division has grown significantly over the past years, it has become complex with significant store, supplier and product range expansion. We are, therefore, focusing on refining the operating model with core business process improvements and the appropriate builds required. It is clear that this will be a multiyear piece of work, and our focus areas for the next 12 months will be on our people, our talent and investment into our end-to-end supply chain to improve the current processes and ways of working, both centrally and in stores. This will be combined with the rollout of two new regional distribution centers, one operated by GXO in New Jersey and a second in Las Vegas, operated directly as an extension of how we operate today. We will utilize these distribution centers to transform our distribution and transportation capabilities and stay ahead of the store growth. We also expect operational savings to deliver a benefit in the years ahead. So in bringing this all together in the year ahead, we are expecting total revenue growth in the region of 6% to 8%, driven largely by space. In terms of profitability, we expect to grow headline trading margin from 4% in full year '25 to around 7% or 8% in full year '26. This includes trading profit contribution in the region of GBP 5 million; the rebuild of profit, excluding the non-repeat inventory-related costs of around GBP 12 million; supplier income deferral gains of around GBP 5 million year-on-year, offset by operating model changes and remediation investment of around GBP 2 million. And as we look ahead, we will focus on the five key actions that will strengthen our business and deliver future margin gains, increasing the mix of Travel Essentials, deploying capital with discipline and investing where we see the highest returns and avoiding unnecessary expansion. Every decision will be guided by rigorous financial criteria, strengthening our operating model to improve efficiency, rationalizing the low-margin stores to sharpen our focus on profitable locations. And finally, exiting loss-making stores to ensure our portfolio is positioned for long-term success. I will now hand over to Andrew, who will take you through the rest of the presentation. Andrew Harrison: Thank you, Max, and good morning, everyone. As some of you know, I've had the opportunity to lead our U.K. division for the past 4.5 years as we've navigated a period of important progress and transformation. This morning, I want to take you through the performance of that division, share our outlook for the year ahead and highlight the priorities that we will continue to drive future growth. From there, we'll turn to our Rest of the World division. And before closing with our guidance for full year '26 and the near-term priorities that underpin our strategy. So let's take a look at our U.K. division. This has been another good year for our U.K. business. Revenue was up 5% to GBP 834 million and headline trading profit increased by 7% to GBP 130 million. These results underline the strength of our model and the resilience of our growth strategy. And our strategy remains clear: to develop ranges and formats that are relevant to the customer at each stage of their journey, enabling them to make best use of their time and put more products into their baskets to grow spend per passenger. In food-to-go, our Smith's Family Kitchen offer has gone from strength to strength with award-winning products and expanded meal deal proposition and an enhanced hot food and coffee range that is resonating strongly with customers. In Health & Beauty, we've seen strong growth, up 20% year-on-year and sixfold growth when compared to pre-COVID levels as we scale this category across our estate. These extended ranges have enabled us to continue to innovate through format development, ensuring our one-stop shop proposition is credible to customers and landlords alike and, in turn, enhance our space through this format. During the year, we've continued to optimize the estate and review our operating model, realizing substantial cost efficiencies in the face of sustained inflationary cost pressures. We'll continue with this discipline to manage continuing cost pressures. So overall, in the U.K., we've had a good year, our third consecutive year of strong revenue and profit growth, and we've cemented our status as the leading Travel Essentials operator across our core channels. Let's now take a closer look at our Air business. Total revenue in U.K. Air was up 6%, supported by good spend per passenger growth year-on-year in Travel Essentials. We've also seen strong average transaction value growth driven by category development in Health & Beauty and food-to-go. Today, WH Smith is the leading Travel Essentials operator across U.K. airports. In the last 18 months, we secured agreements with key airports to enhance our space, including at London Heathrow, Manchester and London Stansted, amongst others. Therefore, looking ahead, this will be a year of investment. We'll execute our largest-ever store development program, rolling out our one-stop shop strategy across six more U.K. airport terminals, including at Heathrow, laying the foundations for future growth and long-term success. However, with this comes some short-term disruption as we reformat our existing stores. These new formats will deliver greater convenience for customers, and they will be central to our future growth. And we know this model works. Birmingham Airport is a great example of our strategy in action. Following its refit to the one-stop shop format in 2023, it now has the highest turnover and is the best performing store in our U.K. Air estate. With a full Health & Beauty offer, including an in-store pharmacy and everything under one roof is driving ATV growth of around 20% and sales per square foot, up over 30%. This success gives us confidence as we scale the format further. On the screen, you can see some of the renders of the flagship stores we're implementing at Heathrow in the spring. This is everything we've done in Birmingham and more. We'll become the leading airside Health & Beauty operator across Terminals 3, 4 and 5 in Heathrow with full category ranges and in-store pharmacies. And we've really raised the bar with our design and proposition. These stores will be true global flagships of our one-stop shop format. So it's a big year for our Air channel as we build on the strong partnerships we have with our landlords and strengthen our foundations for future growth. Turning now to look at our Hospital channel. Hospitals is our second largest channel in the U.K., and it delivered another strong performance this year with revenue up 7% year-on-year. This growth reflects the strength of our multi-format approach and the partnerships that we've built. We opened seven new stores and have continued to grow with our partners M&S and Costa Coffee. At the same time, we developed our own Smith's Family Kitchen cafe proposition, which gives us a great opportunity for further growth across U.K. hospitals. Our offer for NHS landlords is now truly multi-format, and this flexibility allows us to meet diverse customer needs and maximize returns for NHS trusts. Looking ahead, hospitals remain a significant opportunity for WH Smith. We have a strong pipeline of new stores to open in full year '26, and we see further potential to expand our footprint and deepen our partnerships across the estate. Now let's look at Rail. Rail delivered another solid performance this year with total revenue up 4% year-on-year. We've made significant progress with our one-stop shop strategy, opening flagship stores at Kings Cross and Charing Cross stations in London. These formats bring together Travel Essentials, food-to-go and Health & Beauty under one roof, creating a seamless experience for passengers and driving higher spend per visit. Looking ahead, we see further opportunity to expand this model across the Rail estate. Our latest store opening at London Bridge station, pictured top right showcases what's possible as we move forward, combining our Smith's Family Kitchen coffee and breakfast offer with our food-to-go, Health & Beauty and Travel Essentials offer. We've also broadened our food and beverage on-the-go ranges as we continue to evolve our retail mix to maximize customer convenience. Turning now to outlook. As we move forward, we enter this year ahead from a position of strength. We continue to benefit from structural tailwinds, including passenger growth, and we see ongoing opportunities in Air and Hospitals and across our multi-format stores and brand partnerships. There are, however, also headwinds, including a tougher consumer outlook, sustained inflationary pressure of 4% to 5% across most major cost lines and regulatory changes affecting some of our core categories. Category development and innovation remains central to our strategy, driving spend per passenger and reinforcing our leadership in Travel Essentials, as does a continued focus on costs and margin. As you've heard, the year ahead will be a year of investment as we execute our largest-ever store development program and accelerate the rollout of our one-stop shop strategy. This is a transformational step that will strengthen our estate and position us for long-term growth. While this investment will create trading disruption in the short term, and we expect some margin dilution as a result of this disruption and the cost inflation I mentioned earlier, our focus remains on disciplined capital spend and cost optimization. These actions will ensure we deliver profitable growth and build the foundations for further accelerated returns. So in summary, for the U.K., we've delivered another strong year and taken decisive steps to position WH Smith for the future. Our strategy is clear. Our foundations are strong and the opportunities ahead are significant. So now let's take a look at our Rest of the World division. On the screen, you can see our priorities for the Rest of the World division as we move forward. It's been a strong year for revenue growth. Revenue was up 12%, largely driven by new store openings. Headline trading profit was broadly flat year-on-year, with operating investments in the new store openings and gross margin headwinds driven by location mix. Looking ahead, we remain focused on growing and building scale in our core strategically-important markets, particularly in Australia, Ireland and Spain, where we've established strong brand recognition and proven commercial success. We'll focus further investment where we already have scale and expertise, ensuring we deepen our presence and strengthen profitability in the markets we know best. In prime locations, we will also look to grow our key categories such as Health & Beauty and further develop our one-stop shop format. As part of this disciplined approach, in the near term, new directly-run stores will be opened only within our existing core markets, allowing us to leverage operational synergies, local market knowledge and established infrastructure. In addition, we'll continue to actively manage our store portfolio, which will result in exiting and reducing our exposure in subscale markets as contracts expire or through active portfolio management. And the outcome of this is clear. We plan to improve EBIT margins over the medium term and deliver stronger returns. As we look at our next phase of growth, we're sharpening our focus on a franchise-led model, an area in which we already have considerable experience. This approach will allow us to expand across high-potential markets where we see opportunity to extend our presence. By working in partnership with experienced local operators, we can leverage their local expertise alongside our space and promotional management to optimize performance. This shift will take time, but it offers clear -- several clear advantages. It is less capital intensive and will, therefore, drive stronger returns. It also provides the ability to grow without adding operational complexity. In terms of near-term profitability, we expect headline trading margin to remain broadly stable at 5% in full year '26. I'll now finish by summarizing the outlook for the group for the full year 2026. So let's turn to that now. We expect group revenue growth of mid-single digits, with the U.K. delivering 3% to 5% growth; North America, 6% to 8%; and the Rest of the World division, around 4% to 6%. On headline trading profit margin, we anticipate 14% to 15% margin in the U.K., 7% to 8% margin in North America, an approximately 5% margin in the rest of the world. This reflects the different dynamics in each market, a year of investment in the U.K., a focus on rebuilding profitability in North America and strengthening our foundations internationally. Central costs are expected to be in the region of GBP 30 million to GBP 32 million and finance costs are expected in the range of GBP 33 million to GBP 35 million, largely reflecting the refinancing of our convertible bond. Bringing this all together, we're guiding to group headline profit before tax and non-underlying items in the range of GBP 100 million to GBP 115 million for the year. So now to the final slide to close. It's been a year of change and challenge. Over the past year, we've executed a strategic reset, and we're now a pure-play global travel retailer, operating in attractive travel markets across the globe. Across each division, we set clear priorities to strengthen our leadership position in global travel retail, and we're focused on execution and taking action and we will exit unprofitable stores and markets where we need to. We're also focused on discipline, tight cost control, rigorous capital allocation and attractive returns on invested capital. This discipline will underpin everything that we do, and it's how we intend to rebuild confidence and create value. Thank you for your time today, and we'll now take your questions. Operator: [Operator Instructions] Our first question comes from Harry Gowers from JPMorgan. Harry Gowers: First question, maybe I could just ask sort of on the U.K. profit bridge from 2025 to 2026. And if you could give any detail maybe on the moving parts around sort of underlying growth, inflationary pressures and then the reinvestment or disruption costs that you envisage? And then the second question, just again on the U.K., you talked about a bit of a tougher consumer outlook. So how are you seeing that kind of manifest itself in the U.K. estate? Like are you seeing any pressure on spend across any of the formats or categories? And then -- and third question, just on North America. Clearly, the more normalized margin going forward is going to be 7% to 8% into next year. But what is the midterm margin potential of this business off the lower base? And is it all about the mix shift towards Travel Essentials and away from InMotion and Resorts? Or what other positive margin drivers should we be thinking about? Annette Court: I'll pass that to Max and then Andrew perhaps can comment on the consumer piece. Maxwell Leslie Izzard: Perfect. Thanks, Harry, for the question. So in terms of U.K. profit, in terms of the key moving parts, as you'd expect, we're expecting still to see some trading upside with the revenue growth that we've got coming through, probably in the region of around GBP 6 million to GBP 8 million and that being offset by some of the disruption headwinds with the big investment that we've got going into the U.K. business this year. And then the inflation headwinds, as we've called out in the RNS, around 4% to 5% is what we're seeing across the U.K. business. And we made great strides in the last year delivering operational efficiencies into the organization, and the annualization of those cost benefits coming through in full year '26 at GBP 9 million, but that's not going to be quite enough to offset all of the inflation headwinds that we're seeing coming down the line. So the overall guidance that we've given for the U.K. in terms of profitability at 14% to 15% trading profit margin takes all of that into account. So it will see us as we kind of sit here today at the midpoint, looking at a slight step-back in terms of margin. Over the medium term, we would expect to rebuild that as we get through this year's investment and the disruption that comes. So still feeling really positive about the U.K. overall, and I'll let Andrew maybe comment on the consumer side. Andrew Harrison: Thanks, Max. Yes, in terms of the outlook, I guess, we're sort of -- in travel, we're more insulated than most retailers when it comes to some of the customer sentiment and regulatory changes. I guess probably the one area of our business that we have seen a slight softening has been in Rail. But what I would say is, we're well versed, we deal with mix change and dealing with sort of different categories facing into certain headwinds. And it's something we deal with all the time. And I think our one-stop shop strategy gives us quite a good opportunity really to sort of play with mix and to shift into different categories. So that's kind of where we're seeing it at the moment. Annette Court: And North America? Maxwell Leslie Izzard: And in terms of North America, Harry, you're right, mix is going to play a big part of the North America profit journey as we step forward. So in the year that's just gone, we've got profit, trading profit margin of 4%. We're seeing that in terms of guidance for the year ahead, stepping up to 7% or 8%. As we look into the medium term, there's a number of different things, as we've started to outline today in the RNS and in the presentation, in terms of the mix change. So leaning into Travel Essentials continues to be really important for us, managing the InMotion business going forward in terms of the operational delivery that we have, but also thinking about the scale of that business with the margin sitting around the 5% mark in the future. And then the actions that we're taking on the Resorts business to remove any other loss-makers and/or the real low margin business that we have within fashion and specialty in particular. So we're not guiding specifically today on a medium-term kind of trading margin for North America, but we would certainly expect it to grow from this year, and we feel really positive that we'll be able to do that. I think as a first step, let's get this year, if you like, behind us in terms of North America, now start the delivery and the rebuild and then we can take it from there. Operator: Our next question comes from Richard Taylor from Barclays. Richard Taylor: I've got two questions, please. One is on CapEx and returns. You've been very clear you will be returns focused on your investments going forward. So I realize you're not going to chase contracts. But if there are good contracts out there in the U.S., do you have enough headroom in terms of investment capacity in terms of the sort of the debt-to-EBITDA you're happy to run with, albeit noting the paybacks are quite quick by the looks of it. And related to that, is your interest coupon it all affected by the sort of leverage you're running at? And so is there a level of debt-to-EBITDA you would ideally stay below? And does that have any knock-on effects for investment decisions? And secondly, I know you've talked about the profit bridge in the U.K. But can you give us some color on longer-term margin? It sounds like quite a few headwinds this year from specific items. So how should we think about that longer term versus I think, 15.6% you just reported. Annette Court: Richard, I'll pass that over to Max, please. Maxwell Leslie Izzard: Yes. Of course, yes. So in terms of CapEx for the year that's just gone just over GBP 80 million; in the year to come, we are putting a planning assumption of around GBP 90 million. Around half of that is going into our North America business in the year ahead. And we've got some really big and exciting opportunities. We've got, in particular, the preparation for opening of JFK and Orlando Airports in -- early in full year '27, but some of that expenditure coming through this year. Have we got specific room in terms of continued capital investment? This is a strong cash-generating business overall. We are investing back into the organization for our future growth. We are going to be very disciplined about the different areas of investment that we are making. And so making sure we're very clear about those returns. And specifically in North America, getting the right mix of Travel Essentials within any opportunity that we take. So I certainly, as I sit here today, I feel confident that we've got the headroom to be able to continue to invest with the growth that we've got still coming through. But we are going to be very disciplined and very measured in terms of the opportunities that we take for North America specifically. And I guess the interlink, therefore, with the cash outflow on CapEx into our net debt position, which is your question around, therefore, kind of financing and interest costs and where do we want to get the leverage to. As we've laid out today, bringing leverage back below 2x is our ambition for the year ahead. So that's pretty near term. And importantly, for us, we do have coupon-led kind of [ ledges ] as far as the leverage is concerned, so that does play into our overall cost of capital that we have in the business. We're not today putting out a kind of a more medium-term target. We've obviously got our 0.75 to 1.25 leverage range that still exists. But in the near term, focus on bringing it back below 2 is important for us overall and the strength of the balance sheet and the interest costs. And I'll hand over maybe to Andrew, on U.K. margins. Andrew Harrison: Well, I'll talk about the year of investment. And I think that all ties together. I think looking forward in terms of the U.K., it really is an opportunity for -- it's our biggest store development program ever. And what that allows us to do is to take the Birmingham example, which we talked about earlier in terms of having taken a store, which through one-stop shop and through the execution of that has gone from probably #12 in our batting order of top stores to #1 on the basis of the range, the format and the fact that we can get customers to shop and put more products into their baskets so they come into our stores. The opportunity that we're really facing into this year is to do that in another six airport terminals, but also Terminals 3, 4 and 5 in Heathrow. And what we've done in Birmingham 2 years ago, we've moved on again. So this is our latest generation. And so we're really quite excited about getting that platform into place, and then that allows us then to continue to grow in terms of the different ranges that we can offer and the spend per passenger. So that's how we think we'll see the margin grow in the future. Annette Court: Richard, does that Answer your question? Richard Taylor: Yes. Operator: Our next question comes from Jonathan Pritchard from Peel Hunt. Jonathan Pritchard: The customary three, if I may. Just a follow-up on Harry's question on Travel Essentials, margin in the States. Can you just give us another level of granularity? I understand the way that the mix in the States will be affected by more Travel Essentials in the mix. But how specifically will you widen that Travel Essentials margin? That's the first question. Secondly, we've got the sort of medium-term dream for the States. We've got the medium-term dream for the U.K. Just give us the long term -- medium, long-term Rest of the World dream from a margin perspective. I get 5% for next year, but where can that go? And then a lot of people have written a lot of words on this, but what's your opinion here? What's wrong with Las Vegas? Maybe there were some structural issues with the fashion and specialty stores, but it seems as though Vegas isn't quite the wonder city it once it was. So what's your view on that? Annette Court: Okay. Thank you, Jonathan. So I will hand over to Max initially. Maxwell Leslie Izzard: Sure. Thanks, Jonathan. So in terms of margin for Travel Essentials, and I guess really margin for North America overall, starting with that, as you say, getting the mix into Travel Essentials is important. But then in terms of building on the Travel Essentials margin, we've got a number of different actions and activities that we are undertaking there. So we've got the operational performance that we're very much focused on with Huw and the team in North America set to kind of drive the operational performance. There's the expansion of the ranges into Health & Beauty and also bringing in tech accessories as we look to kind of adopt some of the one-stop shop setup that we have been so successful with in the U.K. And importantly, and this is probably the key driver over the next 2, 3 years, is then the scaling of that part of the business and being able to leverage the fixed cost base that we've got to support Travel Essentials overall, not just in terms of the distribution centers that we got, but the core actual operations of that business. And again, I'll kind of turn back to a couple of the exciting opportunities that we've got with JFK and Orlando Airports. Those are big businesses set to grow our overall kind of revenue and profit base quite considerably in the coming years. And so being able to leverage that fixed cost base is going to really help to drive our overall margin for that business forward as well. In terms of the medium term for Rest of World, you're right, we haven't kind of put too much out there in terms of where the medium term for Rest of World is. We've previously spoken about Rest of World heading towards kind of high single-digit margins. And I think I'd probably be still comfortable with thinking about it in that way today. But we've got quite a lot of work to do in terms of our Rest of World business. We need to embed a lot of the existing formats that we've got within Rest of World and make sure that they are operating well. And where we are focused, as we've talked about today in terms of our core markets, growing the margin in that part of the business alongside what do we think we can do in terms of franchise. I think we'll move our margin forward, but it still feels as we sit here today, that, that's more medium term rather than near term. And in terms of Las Vegas, what's wrong with Las Vegas, I don't think there's anything wrong with Las Vegas and maybe turn to Andrew on this as well. What we have identified and we're really clear about is that there are parts of Las Vegas and the operations we got there are highly profitable and cash generative, and we're really happy with the performance of those stores and for those to be part of our portfolio, we have got headwinds, and we are seeing that the overall kind of Las Vegas environment has seen a cooling over recent years. But we've also identified, we've got parts of that Las Vegas business, as you say, structurally aren't working for us, and we need to act on those and do something quite different. But Andrew, anything else on Las Vegas? Andrew Harrison: No. I mean I think the stores you're referring to are the Welcome to Las Vegas stores and the hotel convenience stores. They're much more akin to our core Travel Essentials. There's much more of a synergy there than, say, a fashion store, for example. So what we're really talking about when you boil down our whole sort of approach, really, it's really about a real focus on Travel Essentials, and that applies equally to Las Vegas and certain categories. And it's about getting out of the things that aren't core to that. Annette Court: Absolutely. Does that answer your question, Jonathan? Jonathan Pritchard: Yes. Operator: Our next question comes from Fintan Ryan from Goodbody. Fintan Ryan: Just one question for me, please. And I think really following on from the last point around the U.S. margins. I appreciate there's a lot of things that have been revealed in the last few months. But if we were comparing to the 13% to 14% margin that maybe people had in their numbers from sort of June, July for North America versus the sort of 7% to 8% margin that you're talking to now for FY '26, can you sort of -- I appreciate you've given bridges in terms of supplier financing and inventories. But now that you've given the disclosure around the Resorts, InMotion and sort of Travel Essentials, can you sort of bridge that gap in terms of like what was previously in your numbers? InMotion, was a double-digit margin, now it's a 5% margin. And like Resorts was mid-teens, now it's under 10%. I guess just with that point as well, given you're taking a review of some of the InMotion estate and the Resorts part of the estate, is there a risk or a need to maybe review some of the contracts that you have in your sort of core Travel Essentials business and like potentially go back to landlords for rent reviews or other sort of things that might have now come out of the woodwork given the more forensic approach that you're taking to that region. Annette Court: I'll pass that to Max, please. Maxwell Leslie Izzard: So in terms of the U.S. margin overall, you're right, full year '23 and full year '24 margins before the restatement sitting around 13%, 14% and those after restatements coming down to kind of around 8% to 10%. And then with the normalized review that we've been doing, sitting around 8% overall. I think important to say that the impact of the supplier income review that we've done is across all categories. And so it has had an impact on each of the different parts of our business, whether it's consumables, in Travel Essentials or tech in terms of InMotion. Far less in terms of the Resorts and/or fashion stores specifically or specialty for that matter. And so it has given us further pause for thought in terms of InMotion and how we think about that business and i.e., the margin that we thought it was delivering is actually a little further behind than where we now know it to be in. So where stores might have been marginal before or low margin, it may well have moved them into a loss-making position. And so for us, overall, that is absolutely meaning that the review that we are now undertaking and the guidance that we've given on scaling back the InMotion business is the right thing for us to be doing. In terms of Travel Essentials and the consumable mix overall, there is, as I say, some impact in terms of those restatements, whether it be on kind of the inventory side or the supplier income side. But overall, still really confident with the margin in Travel Essentials at or around 10%, with the growth that I've already laid out. So I think in terms of the U.S. position overall, still strong. Is it giving us pause for thought on some travel essentials? And are we working with landlords? Absolutely. You would expect us to do that anyway as we continue to be focused on driving the right profitability for North America. Reviewing our pipeline actually is also a key part of that. And making sure -- I think, we've got around 70 stores in the pipeline now for North America with more than half of those to open this year. So pipeline review in aggregate actually is within our hurdle rates, even on the adjusted position, so we still feel really positive about that. But again, there will be elements within that, that we might want to take a look at and think about how do we maybe change the formats or maybe operate them slightly differently and/or engage with our landlords in a different way moving forward too. Operator: Our next question comes from Tim Barrett from Deutsche Numis. Timothy Barrett: I just wanted to start with a big picture question really in terms of the 4% to 5% cost inflation you're talking about in the U.K. It feels a bit higher than I might have guessed. What are the main contributors to that? And do you think you can pass much of it on through price in the year ahead? And I think just secondly, a procedural thing really, how long do you think the FCA investigation will take? And have you put anything in terms of any outcome of that in your net debt guidance? Annette Court: Okay. So I'll take the FCA question and then pass to Andrew. Tim, so yes, as you say, the FCA have now launched an investigation to the company. We were notified by them yesterday. So as you would expect, we will fully cooperate. We expect this would take quite some time, and there's really nothing further that we can say at this stage with regard to the costs associated. And obviously, we'll keep you updated as things progress. Andrew Harrison: Tim, I'll take the question on the big picture on cost. Yes, I mean, I think the cost inflation we're seeing across a wide range of areas, whether that's staff costs, whether that's cost prices and even landlord costs as well. So -- but we're used to this. It's something that we deal with all the time. We're a lean business, and we're very much focused on how we drive operational efficiencies and that kind of thing. In the last year, we drove GBP 10 million worth of efficiency through the business, and that was looking at our -- looking through our store lens, but also our support centers and our distribution centers, and we'll continue to do that. And of course, I guess there is the opportunity to reflect things in price, but we always look to try to deal with these kind of things through operational efficiencies and being agile in the way we operate our business as we always have done. Timothy Barrett: Okay. And sorry, just a boring follow-up, business rates. Is there much inflation there following the budget? How does that work actually in airports? Andrew Harrison: Yes. So I mean, airports are over half of our business. And those contracts in airports are concessions. So therefore, it's the airport that plays the business rates, not us. So we're not as exposed as many other businesses to business rates. And so from that perspective, alongside the other areas of cost, it's manageable. Operator: Our next question comes from Hai Huynh from UBS. Hai Huynh: I have a couple of questions, please. First of all, on the like-for-like. So in North America, so in current trading, it's around 1%. Could you walk me through how you're building up to the 6% to 8% total growth guidance in North America, given that you're also doing a portfolio review there, right, opening 35 to 40 stores, but closing 30 stores. So that's the first question. The second one is on the U.K. Also a similar kind of question where like-for-like is 2% year-to-date. How do you get to 3% to 5% growth given there will be trading disruptions from portfolio review as well? And actually, on that, on the U.K., are you also seeing a softening in terms of airports besides the U.K. rail softening? Annette Court: I'll pass the first one to Max and then to Andrew for the U.K. Maxwell Leslie Izzard: Hai, so the overall position for North America, as you say, with like-for-like is currently around 1%. Largely, the growth in North America from a revenue perspective will come from a net space gain. We do have closures in the year, and that includes some of the things that we are talking about here today in terms of Resorts and so on. but space still growing overall and contributing well this year in terms of Travel Essentials growth. So the position that we've outlined in terms of revenue of 6% or 8% for North America is on a net basis. So if we were to be in a position to accelerate some of the closures that we want to do, that's something we would probably need to come back and update you on, I expect, around the half year. But as we sit here today, 6% to 8%, largely driven by space with some like-for-like growth, not dissimilar to where we're currently tracking, 1% to 2%. Andrew Harrison: Hai, I'll take the softening question in Air a bit first, and I'll go to outlook. So softening in Air, basically, what we're seeing here is that we're continuing to grow spend per passenger. We're continuing to grow sales ahead of passengers. Really what we have seen in Air though is that it's just a return of passenger growth to more normalized levels. So for example, in the last quarter, passengers have been growing at 2%, if I go back a year, that would have been growing 7% year-on-year. And if we go back 2 years, that would have been growing 15% year-on-year. So you can see a return to normalized levels of passenger growth. And it's important to stress, this isn't normalized levels of passengers, it's normalized levels of passenger growth. We're still growing, but just at the longer-term rate. And within that, we're still growing spend per passenger. In terms of the outlook for the year, how we get there is a mixture of all of those things. Clearly, we've got -- we've got the spend per passenger and passenger that I just talked about. We've got that sort of relationship. We've got the new stores. And as I mentioned in the spring, we've got new flagship stores opening in Heathrow, which will clearly have a big effect for the second half of the year. And clearly, offsetting some of that, we've got the disruption. So broadly, that's how you bridge, and you get to the 3% to 5% outlook from where we are at the moment. Hai Huynh: Understood. And sorry, just to follow up with the last one in terms of -- so this year, it looks like elevated closures as you go to portfolio review and moving to franchise model in Rest of the World. But how do you see the medium-term store opening target going forward? Maxwell Leslie Izzard: For the group or... Andrew Harrison: The Rest of the World, I think, was the question. Annette Court: Was it for the group or for... Hai Huynh: As in just -- for the group overall, yes. Annette Court: Okay. Andrew Harrison: I'm happy to take that. So I think what we've outlined today, and I think it's about it's about driving profitable growth. And I think one of the words that Max uses internally is about being measured and being disciplined, and that's exactly what we do. What has made our business successful has been being really, really focused on the use of our space and being forensic about how we use our space. And that's what we -- that's the yardstick we're applying to all of our investment decisions. What that means is, therefore, we're targeting better and better -- more and better-quality space rather than trying to drive store openings as a number in its own right. So that's really the thing that's driving us and not being sort of hamstrung by trying to deliver perhaps a stores number that we've had out in the market. So I don't know if that -- does that answer all of your question, Hai? Is there anything else in there that I can help you with? Hai Huynh: That's it. Operator: Our next question comes from Nicholas Barker from BNP Paribas. Nicholas Barker: Just for a little bit of a clarification one. So you've explained how you can widen the North American Travel Essentials margin from around that 10%. Will that ever reach the kind of 14%, 15% margins seen in the U.K.? And if so, why not? And if so, how quickly could that happen? And then my second question would just be on the CEO recruitment process. How is that going? And is there any update there? Annette Court: If -- I'll take the CEO one and then we'll pass on to margin. So Nicolas, so as you said, we've got a process ongoing using an external search firm. I think it's important to say that, obviously, we're looking for somebody that's got retail experience, is an agent for change and has a strong track record, including turnaround capability. We're in the process of -- there's nothing further to update on other than to say that we are actively -- or I am actively working on this. Maxwell Leslie Izzard: Shall I take margin for North America? Annette Court: Yes, please. Maxwell Leslie Izzard: I think what we've put out today is a very clear margin position for the year ahead. I think I can be really confident to say that we will be building from here in North America and the Travel Essentials business will be the mix lean that enables us to do that. We're really confident still with the North America operation and the opportunity that we still see there in terms of our future growth. What we're not going to be kind of drawn on, if you like, today is where do we see the margin in the future. But we absolutely see that there's future margin build and future margin gain to be had. And so we're still excited about the market. We still believe in it. But you're not going to be drawn necessarily on the margin for the long term. Operator: This concludes our Q&A session. So I'll hand back over to Annette for closing remarks. Annette Court: Thank you. Thanks for dialing in, everyone. It's been good to talk to you this morning. I hope you'll see that we're taking affirmative actions and that we're moving forward with transparency. And as I said at the start of the presentation, I have every confidence in Andrew and Max to lead the group over the months ahead. So thank you, and happy Christmas. Maxwell Leslie Izzard: Thanks very much. Andrew Harrison: Thank you.
Annette Court: Good morning, everyone, and thank you for joining us and dialing into the call this morning. I'm Annette Court, Chair of the company, and I'm here with Andrew Harrison, Interim Group CEO, and Max Izzard, our Group CFO. This morning, I will start by giving some headlines for the group. Max will then present the financials for the year to the 31st of August and importantly, a financial review of our North America division. Andrew and Max will then update on our divisional performance, and Andrew will close with his priorities for the near term and a summary of our guidance for the group for the full year ending 31st of August 2026. It has been a very busy year. And while the past few months have been difficult, I'm clear that this is a great business, well positioned in attractive travel markets and with exciting future prospects. During the year, we completed a significant strategic reset, disposing of our High Street and Funky Pigeon businesses, establishing our position as a pure-play travel retailer and creating a platform for long-term growth. We have a clear leadership position in Travel Essentials. Our stores are located in attractive high footfall locations across the globe, and we have a fantastic team of passionate and customer-focused colleagues. Now that we have completed our strategic reset to a pure-play travel retailer, we have reviewed the broader travel portfolio with a sharp focus on profitable growth and an enhanced focus on return on capital. In North America, we are now in the process of exiting a number of unprofitable fashion and specialty stores. We are also undertaking a store review of our U.S. InMotion business and have put in place a more rigorous approach to any future store openings with any new InMotion stores only being considered as part of the strategically important tender package. In addition, we have reviewed our Rest of the World division. Here, we will focus investments on our core strategically-important markets, exiting subscale markets and using a less capital-intensive franchise model for future openings. So we are very clear on the actions we need to take to support enhanced profitable growth as we move forward. Following the recent Deloitte review, we have acted swiftly to put in place a clear remediation plan and we're making good progress. The plan is structured around three key business objectives: to strengthen governance and controls to protect value and restore trust, to embed aligned processes and ways of working across the group supported by new systems and to sustain this through cultural change, enhanced training and monitoring. We have a clear pathway forward, and we look forward to putting this behind us. In the near term, we continue with our active search for two nonexecutive directors to strengthen the Board, with one area of focus being North America retail experience. And between Andrew and Max, I'm confident that the group is in good hands and will be well managed as we continue the search for a new Chief Executive. I will now hand over to Max. Maxwell Leslie Izzard: Thank you, Annette, and good morning, everyone. Let me start with the financial headlines for the year ended 31st of August 2025. As usual, all the numbers I'm going to refer to today are pre-IFRS 16 and following the sale of our High Street division and Funky Pigeon business, all the results are on a continuing basis. IFRS 16 bridges can be found in the appendix. Total group revenue increased by 5% on last year to GBP 1.6 billion, and we saw like-for-like revenue growth across all divisions. As anticipated, following the review into our North America division, group headline trading profit decreased by 6% in the year to GBP 159 million. Headline profit before tax was GBP 108 million. And the group generated a headline EBITDA of GBP 187 million in the year, demonstrating the cash-generative nature of the trading business. Headline net debt at the end of the year was GBP 390 million, and I will come on to talk more about this later in the presentation. The Board has today proposed a final dividend of 6p per share, making it a full year dividend of 17.3p per share. This is in line with our stated dividend policy of 2.5x cover and reflects the continuing earnings profile of the group following the sale of our non-travel business. Turning now to the group revenue summary. Across all our divisions, we saw good momentum in the year with like-for-like revenue up 5%. And on a constant currency basis, total revenue was up 7%, reflecting good operational performance and continued growth in global passenger numbers. In the 13 weeks to the 31st of August, we saw group like-for-like revenue growth of 3%. By division, the U.K. saw like-for-like sales of 3% with reduced passenger numbers through the peak summer period and the reduced level of spend per passenger. In North America, we saw like-for-like sales at 1%. And within that number, we saw Traveler Essentials continuing to perform well at 8%, with InMotion down 7% and Resorts down 6%. Rest of the World delivered like-for-like revenue growth of 6%. And in the first 15 weeks of trading for full year '26, we have seen these sales trends continue. Group like-for-like have remained at 3% with the U.K. slowing slightly to 2%, largely reflecting a softening in Rail. North America revenue trends remained at 1% like-for-likes. And rest of the world has continued to perform well with growth of 6%. Now turning to the segmental analysis for the last financial year. Starting with the U.K. Revenue was up 5% on both a total and like-for-like basis, with a good performance across all three channels. Air was up 7% on a like-for-like basis, Hospitals were up 4% like-for-like and Rail was also up 4% like-for-like. In North America, total revenue was up 7% on a constant currency basis. The Air segment in North America was up 9% on a constant currency basis and 4% like-for-like. Within this, our Travel Essentials format, which accounts for over 50% of revenue in North America, was the key driver of performance with total revenue on a constant currency basis up 19% and up 7% on a like-for-like basis as we continue to increase our spend per passenger. InMotion like-for-like revenue was down 3% for the full year. And Resorts were down 4% like-for-like. This trend has continued in the first 15 weeks of trading with InMotion down 4% and Resorts down 7%. I will come on to talk more about our InMotion and Resorts business later in the presentation. The Rest of the World division delivered a good performance with total revenue up 12% on a constant currency basis, supported by new openings, and up 7% like-for-like. On the right of the screen, you can also see how we continue to actively transform the group with Air now accounting for more than 70% of total revenue. Following the sale of the U.K. High Street business, this also shows how the group is now more geographically diverse with the U.K. accounting for just over 50% of revenue, North America at 26% and the rest of the world at 20%. Turning now to a financial review of the North America division. In North America, we delivered headline trading profit of GBP 15 million. The bridge from the previous market expectation of GBP 55 million is here on the left side of the screen and includes a net reduction in supplier income of GBP 23 million, broadly in line with the value previously announced. This comprises a gross reduction of GBP 33 million, of which GBP 20 million is deferred to future financial years and GBP 13 million has not been delivered due to delays in signing supplier income contracts and the underdelivery of the commercial plan. Supplier income costs of GBP 3 million have also been incurred. This is offset by a GBP 13 million supplier income restatement benefit from prior years. Also, as previously announced, the expected cost savings related to the North America logistics and distribution network of GBP 5 million were not delivered. The adjusted margin for full year '25 before additional one-off inventory-related costs of GBP 12 million is 6.5%. The inventory-related items previously announced, net of restatements to the prior years, is GBP 12 million. This includes GBP 23 million of total costs identified with GBP 11 million restated to prior periods. The net inventory items for full year '25 primarily consist of an increase in the stock obsolescence provision of around GBP 5 million. The increase is driven by the aging profile of stock, a marginally worsened stock turn and a revised provision methodology, which has a more granular approach across all our product categories. There is a clear set of activities focused on narrowing product ranges and exiting aged stock for the year ahead. And secondly, an increase in the stock loss provision for the full year of around GBP 5 million. The shrinkage charge comprises known stock losses realized through stock counts and a shrinkage provision reflecting expected losses since the count to year-end. There is a focus on enhancing controls and stock management processes across the North America business also in the year ahead. In terms of prior year restatements, you can see on the right of the screen that supplier income adjustments on a net basis are GBP 13 million for full year '24 and GBP 5 million for full year '23. Approximately GBP 5 million of supplier income from these prior years will be recognized in full year '26 and beyond. Some of the inventory adjustments also relate to prior years. On a net basis, GBP 7 million recorded in full year '24 and GBP 4 million recorded in full year '23. The restated headline trading margins for the prior years are 8.5% for full year '24 and 10.5% for full year '23. In addition, over recent months, we have also reviewed the nature of one-off items included in the income statement to ensure we have a clear understanding of the normalized trading profit margin in North America. We identified a small number of one-off items, the most notable of which related to COVID rent relief benefits and COVID insurance claims received. After removing the net benefits, the normalized North America trading margin for the prior years of full year '24 and '23 is around 8%. And I will talk in more detail later about how the business will rebuild profitability in full year '26 and grow margin over time. Moving on to the group income statement. In the U.K., profit improved by 6.6% to GBP 130 million due to higher revenue, improved margins, tight cost control and given the group's overall performance, a remuneration cost reduction of GBP 3 million. As you have just heard, North America delivered a profit of GBP 15 million, and Rest of the World delivered a profit of GBP 14 million, in line with last year. Overall, then, group trading profit was GBP 159 million. Central costs are reduced year-on-year with remuneration benefits of around GBP 5 million. Tight control of this area will remain a key focus, with inflation headwinds and some group remediation-related costs expected in the year ahead. Financing costs of GBP 26 million include noncash accretion of GBP 9 million relating to the convertible bond. And this resulted in group headline profit before tax and non-underlying items of GBP 108 million. Turning now to non-underlying items. As you see on the screen, we have recognized a number of non-underlying items in the year. We have continued to invest in our multiyear IT transformation program, providing system stability, longevity and operational benefits. This program will continue for approximately 2 more years as we complete the replacement of our U.K. tilling software and the transformation of finance and supply chain systems. Costs in full year '26 are expected to be around GBP 8 million and approximately half of that in full year '27 before the program completes. We have also completed a number of operational efficiency programs to deliver cost savings and support our business performance. Across our head office and stores, we have been re-profiling our workforce and improving core processes to deliver in excess of GBP 9 million annualized benefits. The overall program will complete in full year '26 and we would expect the remaining cost for these items to be around GBP 5 million in the year. The supply chain transformation to consolidate our U.K. distribution centers is now complete. The cost of the North America review conducted to date is GBP 10 million. We expect further cost in full year '26 in the region of GBP 5 million. With regard to impairments and onerous contract charges, it largely comprises of GBP 25 million for North America and GBP 16 million for the Rest of the World, with GBP 7 million attributable to the U.K., largely related to supply chain transformation. Charges in the North America and Rest of the World operating segments have principally risen due to a lower trading outlook and profitability in certain individual stores across these regions, including our Resort stores in Las Vegas, and one particular group in the North America stores where we have seen significantly increased costs due to a new union agreement. Other non-underlying costs are expected to be around GBP 3 million to GBP 5 million in full year '26, largely related to the ongoing noncash amortization of acquired intangibles. Overall, the cash impact of non-underlying items in the year was GBP 38 million, and this includes some timing-related spend from previous periods. Turning now to the group free cash flow. There are three key points to note on the free cash flow for full year '25. First, we generated GBP 187 million of headline EBITDA in the year. Second, the underlying CapEx investment in the business was GBP 81 million and includes our new store opening program. Third, working capital was an inflow of GBP 4 million, with a one-off payables timing benefit linked to one of our large franchise partners, broadly offsetting an inventory increase relating to new store openings and the seasonality of the business. Turning now to headline net debt, which was GBP 390 million at the end of the year, comprising the convertible bond of GBP 320 million, drawdown on the RCF of GBP 141 million and cash of GBP 71 million, which gives the group a rolling 12-month to headline net debt-to-EBITDA leverage of 2.1x compared to 1.9x last year on a continuing business basis. In offset to the free cash flow, we had cash spend relating to non-underlying items of GBP 38 million. We had outflow of GBP 93 million for returns to shareholders, with GBP 43 million for the full year '24 final dividend, and full year '25 interim payment and GBP 50 million for the share buyback completed in the year. And we also had a GBP 75 million cash receipt in relation to the pension surplus following the buyout in September 2024. For our discontinued operations, we had a net outflow of GBP 25 million. This includes the cash receipts for the sale of our High Street and Funky Pigeon businesses, CapEx and trading outflows in the year before the sale and transaction-related costs. We expect headline net debt for full year '26 to be in the region of GBP 400 million. Let's now move on to capital allocation. We remain focused on maintaining an efficient balance sheet and are strengthening our disciplined approach to capital allocation. On the screen, you can see our three-pillar approach. In the near term, we aim to strengthen the balance sheet through tighter cash control and improved cash generation, diversify our debt structure and reduce our leverage position to below 2x. Secondly, investing to grow and protecting value. We will do this by investing in business development and new space growth with a clear focus on returns and protecting our business assets through store works and transformation projects. And finally, we deliver sustainable shareholder returns through our stated dividend policy of 2.5x cover for the continuing earning profile of the group following the sale of the non-travel business. As you have already heard, we have today announced that the Board is proposing a final dividend of 6p per share. And when we have surplus capital, we will look to return this to shareholders. Turning now to our refinancing. As recently announced, we have successfully completed a refinancing of the group's convertible bond, which matures in May 2026. The new financing includes GBP 200 million of USPP notes, which represent WH Smith's debut issue in the USPP market. In addition, we have GBP 120 million of 3-year bank term debt with two uncommitted 1-year extensions. To provide further financing surety for the group, we have put in place a GBP 200 million backstop facility, which runs until the USPP completes and the convertible bond is repaid. Based on the resulting new financial structure, the backstop facility and the delayed draw terms, we would expect the income statement interest charge to increase from 4.6% to 6.3% by the end of full year '27. Full year '26 interest costs expected to be in the region of GBP 33 million to GBP 35 million. Moving to our second pillar and capital allocation. In full year '25, we invested around GBP 81 million of capital into the business, which is a reduction versus the prior years, largely due to a lower number of new store openings and strong focuses on cost efficiency and building new stores, particularly in the North America division, where we are seeing tangible benefits from buying at scale and further embedding capability from our U.K. business. Looking forward, we have a clear framework and disciplined approach to our growth investments. On the right of the screen, you can see that we are prioritizing business opportunities based on their relative returns and ensuring that the group hurdles are met for each store opportunity. We still see North America as a good investment opportunity. This prioritization will lead to a more measured approach to growth, investing where we have a clear understanding of where we can deliver the greatest returns. And in our Rest of the World division, where we will focus on existing scale markets, we will talk more about this shortly. For the year ahead, we have a strong store pipeline, and we expect capital costs of around GBP 90 million in full year '26. This supports some of our largest and recent tender wins across both the U.K. and the U.S., including at Heathrow, JFK and Orlando airports. Our latest flagship stores at Heathrow will open in the spring of 2026. And while our stores at JFK and Orlando Airports won't open in the current financial year, there is a large capital outlay in developing these stores this year, ahead of them opening. These three large store development programs will account for approximately 30% of the total CapEx in full year '26. Going forward, post full year '26, we would expect CapEx to normalize back to around GBP 80 million. Moving on to store numbers and better quality space. And our priority here is to focus on improving the quality of our space to optimize profits. As a consequence of this strategy, we expect to broadly close as many stores as we open on an annual basis in the short term. During the year, we opened 78 new stores with 17 in the U.K.; 35 in North America, of which 33 were in air, demonstrating our clear focus on this channel and 26 in our Rest of the World division, of which 9 were franchised. At the same time, we closed 50 stores in the year, nearly all in line with our strategy to improve the quality of our estate, leaving us with net store openings of 28 for the year. Our current estimate for full year '26 is that we will close around 50 to 60 stores and open around 50 to 60 stores with particular reductions across our Resorts and InMotion channels in North America and stores in our Rest of World division. Moving on to capital returns on the next slide. We remain focused on strengthening our return on capital. The results of the North America business have reduced return on capital employed. And despite gains in the U.K. division, at a group level, we have seen a decline this year. Moving forward, we will drive additional capital return discipline, focusing on the strongest returns, we will rebuild our North America profitability and complete a strategic review of all of our underperforming stores. As we move forward, we would expect to deliver stronger returns on capital employed in the years ahead, and deliver a return on capital employed above 20% for the group and North America returns above our cost of capital. Moving on to the divisional priorities, where Andrew and I can share some more details on how we will start to do this. As we look ahead, we have a disciplined approach to our key priorities for each business division, underpinned by a focus on cost optimization, stronger return on capital and enhanced cash flow generation. Let me begin with our North America division, and our priorities are clear. First, we will focus on improving and investing in our core Travel Essentials business. When it comes to InMotion, we will now adopt a highly selective approach with future store openings and review of the existing store portfolio. We have also completed a strategic review of our Resorts business, where we will look to exit or reformat our unprofitable fashion and specialty stores. And alongside the remediation plan we have put in place, we're strengthening our operating model to enhance efficiency, agility and profitability across the division. The U.K., which is our largest division, continues to play a pivotal role in driving the group's performance and shaping our future growth. Here, we are focused on retaining category leadership in Travel Essentials. We will continue to expand our presence through targeted and profitable space growth, and we are actively scaling our Health & Beauty and food-to-go growth categories. In our Rest of the World division, we are sharpening our focus, and our growth strategy will be increasingly centered on a franchise model. We will limit directly-run stores to our core markets, and we will take a disciplined approach to exit subscale markets. So as we look ahead, we will be more disciplined and as a result, actively drive profits and cash returns. Let's take a closer look at our North America division. And it is important not to forget that this is the largest travel retail market in the world with significant investments and long-term structural growth trends. And we still see an opportunity here to capitalize on the growth opportunities given our small market share. And as you have heard, our priorities for this division are clear. Let's start with Travel Essentials. Our Travel Essentials business has consistently delivered a strong performance, growing 19% on a constant currency basis in full year '25, underpinned by customer demand and attractive double-digit margins. On the screen, you can see that in 2022, Travel Essentials represented 37% of the overall business. And over the past 3 years, we have grown it, and it now represents 55% of North America revenue. The Travel Essentials segment is most profitable and on a fully allocated basis, generates around 10% trading profit margin. As we scale our business and enhance our operations, we expect to grow margins further, which in turn will support the profitability of our North America business overall. Given our priority to deliver the strongest returns, we expect the proportion of Travel Essentials to increase to over 70% in the medium term. We have a strong store pipeline, which we have reviewed in light of the normalized margin levels, and we are confident that on aggregate, they meet our investment hurdle rates. We have also started the process of reviewing all our individual formats within the pipeline. Turning to the next slide. When it comes to InMotion, this brand remains highly regarded by landlords, particularly as part of tender packages where it adds value to the overall retail offering at airports. And its strong reputation gives us competitive advantage, securing attractive space within the key airports. Our InMotion portfolio is large with 123 stores. Overall, the estate is profitable, and some stores are in growth and driving a strong contribution. However, in total, this segment is in like-for-like decline. As we move forward, our approach to operating InMotion will be highly focused. First, we will limit new store openings with any new InMotion stores being considered only as part of strategically important tender packages. Where appropriate, we will also move the InMotion proposition into large marketplace stores, providing flexibility on space use over time. In parallel, we will undertake a review of the existing store portfolio. It is imperative that we improve the profitability and sales performance of this channel. As a result, our focus will include undertaking a deeper diagnostic for the estate to determine the factors that need to be in place for these stores to succeed. We expect to complete this in the first half of 2026. And once complete, we will be in a position to reshape the portfolio to improve profitability and allow us to better target where we can open new stores that pay back with strong returns. And we are focusing on our commercial proposition, reducing the number of product lines and improving availability and reducing working capital. Over time, we expect the number of InMotion stores to decline as we integrate more tech accessories into our Travel Essentials stores as well as the impact of landlord redevelopment. In the years ahead, we would expect the InMotion estate to contract by around 20% to 30% with store numbers reducing below 100 in the medium term. Despite store closures, we see an opportunity to increase the margin with our strongest margin stores retained, range optimization and strengthened operational performance. Turning to some examples of our Air business overall. Our strategy to grow in North America airports is delivering really good results. Over recent years, we've secured a mix of stand-alone stores and multi-store packages, combining our profitable Travel Essentials offer with complementary stores such as InMotion. In Kansas City, we opened an eight-store package in February 2023, including six Travel Essentials stores plus a larger format City Market and a localized Made in KC concept store. This tailored approach across the airport meets travelers' needs and drives performance, with like-for-like growth of around 6% and a current payback period tracking to around 3 years and a long-term contract in place. Our Eastern Market store in the middle of the screen opened in May 2025 and is a good example of where we have introduced a marketplace format, offering the convenience of everything under one roof, very similar to our one-stop shop strategy here in the U.K. And here, we have the flexibility to realign our category mix over the term of the lease to ensure we stay ahead of the changing trends. We expect a payback period here of less than 3 years and also with a long-term contract in place. And in Palm Springs, we have secured exclusive rights to all the retail locations in the airport. This was a significant strategic win and includes a five-store package with three Travel Essentials stores, an InMotion and a coffee shop. This localized offer is performing very well with like-for-like growth of around 9% and a current payback period of around 2 years, again, with a long-term contract in place. So as you can see, we have a clear ability to win in prime locations, adapt our formats and leverage our brands, and we are able to drive good growth with attractive returns. Turning to our resorts business in Las Vegas, and we have commenced the review evaluating the current store portfolio based on the performance and the market dynamics of each format to determine the most value-accretive path forward. There are four primary store formats that make up our resorts business. Firstly, hotel convenience, gift stores, of which we have around 20. These sell consumables and souvenirs. Second, Welcome to Las Vegas stores. We have just over 20 of these, and they primarily sell souvenirs, again, with some consumables. We see good contribution from our hotel convenience and Welcome to Las Vegas stores, where despite a decline in like-for-like revenue in the last year, we continue to benefit from attractive margins, and they each contribute cash. Third, fashion stores. These deliver around 25% of Resort sales and on a comparable basis have declined around 10% year-on-year. At an aggregated level, these stores are unprofitable and do not generate cash. And lastly, specialty stores. These sell categories such as confectionery and represent around 10% of Resort sales. Like-for-like revenue also declined 7% in full year '25, and they are marginally unprofitable. Following our review, we are now in the process of exiting a number of Resort fashion and specialty stores, particularly where the leases are short, and we are reviewing further formats and other controlled exit options where the arrangements run over the medium term. We are also reviewing where we can strengthen terms for our hotel convenience and Welcome to Las Vegas stores where traffic is in decline, and we will rationalize this estate, if required. While this will take some time, we have initiated the work and the margin and cash benefits along with growth benefits will already support our full year '26 plans. Turning to my final slide. Given this division has grown significantly over the past years, it has become complex with significant store, supplier and product range expansion. We are, therefore, focusing on refining the operating model with core business process improvements and the appropriate builds required. It is clear that this will be a multiyear piece of work, and our focus areas for the next 12 months will be on our people, our talent and investment into our end-to-end supply chain to improve the current processes and ways of working, both centrally and in stores. This will be combined with the rollout of two new regional distribution centers, one operated by GXO in New Jersey and a second in Las Vegas, operated directly as an extension of how we operate today. We will utilize these distribution centers to transform our distribution and transportation capabilities and stay ahead of the store growth. We also expect operational savings to deliver a benefit in the years ahead. So in bringing this all together in the year ahead, we are expecting total revenue growth in the region of 6% to 8%, driven largely by space. In terms of profitability, we expect to grow headline trading margin from 4% in full year '25 to around 7% or 8% in full year '26. This includes trading profit contribution in the region of GBP 5 million; the rebuild of profit, excluding the non-repeat inventory-related costs of around GBP 12 million; supplier income deferral gains of around GBP 5 million year-on-year, offset by operating model changes and remediation investment of around GBP 2 million. And as we look ahead, we will focus on the five key actions that will strengthen our business and deliver future margin gains, increasing the mix of Travel Essentials, deploying capital with discipline and investing where we see the highest returns and avoiding unnecessary expansion. Every decision will be guided by rigorous financial criteria, strengthening our operating model to improve efficiency, rationalizing the low-margin stores to sharpen our focus on profitable locations. And finally, exiting loss-making stores to ensure our portfolio is positioned for long-term success. I will now hand over to Andrew, who will take you through the rest of the presentation. Andrew Harrison: Thank you, Max, and good morning, everyone. As some of you know, I've had the opportunity to lead our U.K. division for the past 4.5 years as we've navigated a period of important progress and transformation. This morning, I want to take you through the performance of that division, share our outlook for the year ahead and highlight the priorities that we will continue to drive future growth. From there, we'll turn to our Rest of the World division. And before closing with our guidance for full year '26 and the near-term priorities that underpin our strategy. So let's take a look at our U.K. division. This has been another good year for our U.K. business. Revenue was up 5% to GBP 834 million and headline trading profit increased by 7% to GBP 130 million. These results underline the strength of our model and the resilience of our growth strategy. And our strategy remains clear: to develop ranges and formats that are relevant to the customer at each stage of their journey, enabling them to make best use of their time and put more products into their baskets to grow spend per passenger. In food-to-go, our Smith's Family Kitchen offer has gone from strength to strength with award-winning products and expanded meal deal proposition and an enhanced hot food and coffee range that is resonating strongly with customers. In Health & Beauty, we've seen strong growth, up 20% year-on-year and sixfold growth when compared to pre-COVID levels as we scale this category across our estate. These extended ranges have enabled us to continue to innovate through format development, ensuring our one-stop shop proposition is credible to customers and landlords alike and, in turn, enhance our space through this format. During the year, we've continued to optimize the estate and review our operating model, realizing substantial cost efficiencies in the face of sustained inflationary cost pressures. We'll continue with this discipline to manage continuing cost pressures. So overall, in the U.K., we've had a good year, our third consecutive year of strong revenue and profit growth, and we've cemented our status as the leading Travel Essentials operator across our core channels. Let's now take a closer look at our Air business. Total revenue in U.K. Air was up 6%, supported by good spend per passenger growth year-on-year in Travel Essentials. We've also seen strong average transaction value growth driven by category development in Health & Beauty and food-to-go. Today, WH Smith is the leading Travel Essentials operator across U.K. airports. In the last 18 months, we secured agreements with key airports to enhance our space, including at London Heathrow, Manchester and London Stansted, amongst others. Therefore, looking ahead, this will be a year of investment. We'll execute our largest-ever store development program, rolling out our one-stop shop strategy across six more U.K. airport terminals, including at Heathrow, laying the foundations for future growth and long-term success. However, with this comes some short-term disruption as we reformat our existing stores. These new formats will deliver greater convenience for customers, and they will be central to our future growth. And we know this model works. Birmingham Airport is a great example of our strategy in action. Following its refit to the one-stop shop format in 2023, it now has the highest turnover and is the best performing store in our U.K. Air estate. With a full Health & Beauty offer, including an in-store pharmacy and everything under one roof is driving ATV growth of around 20% and sales per square foot, up over 30%. This success gives us confidence as we scale the format further. On the screen, you can see some of the renders of the flagship stores we're implementing at Heathrow in the spring. This is everything we've done in Birmingham and more. We'll become the leading airside Health & Beauty operator across Terminals 3, 4 and 5 in Heathrow with full category ranges and in-store pharmacies. And we've really raised the bar with our design and proposition. These stores will be true global flagships of our one-stop shop format. So it's a big year for our Air channel as we build on the strong partnerships we have with our landlords and strengthen our foundations for future growth. Turning now to look at our Hospital channel. Hospitals is our second largest channel in the U.K., and it delivered another strong performance this year with revenue up 7% year-on-year. This growth reflects the strength of our multi-format approach and the partnerships that we've built. We opened seven new stores and have continued to grow with our partners M&S and Costa Coffee. At the same time, we developed our own Smith's Family Kitchen cafe proposition, which gives us a great opportunity for further growth across U.K. hospitals. Our offer for NHS landlords is now truly multi-format, and this flexibility allows us to meet diverse customer needs and maximize returns for NHS trusts. Looking ahead, hospitals remain a significant opportunity for WH Smith. We have a strong pipeline of new stores to open in full year '26, and we see further potential to expand our footprint and deepen our partnerships across the estate. Now let's look at Rail. Rail delivered another solid performance this year with total revenue up 4% year-on-year. We've made significant progress with our one-stop shop strategy, opening flagship stores at Kings Cross and Charing Cross stations in London. These formats bring together Travel Essentials, food-to-go and Health & Beauty under one roof, creating a seamless experience for passengers and driving higher spend per visit. Looking ahead, we see further opportunity to expand this model across the Rail estate. Our latest store opening at London Bridge station, pictured top right showcases what's possible as we move forward, combining our Smith's Family Kitchen coffee and breakfast offer with our food-to-go, Health & Beauty and Travel Essentials offer. We've also broadened our food and beverage on-the-go ranges as we continue to evolve our retail mix to maximize customer convenience. Turning now to outlook. As we move forward, we enter this year ahead from a position of strength. We continue to benefit from structural tailwinds, including passenger growth, and we see ongoing opportunities in Air and Hospitals and across our multi-format stores and brand partnerships. There are, however, also headwinds, including a tougher consumer outlook, sustained inflationary pressure of 4% to 5% across most major cost lines and regulatory changes affecting some of our core categories. Category development and innovation remains central to our strategy, driving spend per passenger and reinforcing our leadership in Travel Essentials, as does a continued focus on costs and margin. As you've heard, the year ahead will be a year of investment as we execute our largest-ever store development program and accelerate the rollout of our one-stop shop strategy. This is a transformational step that will strengthen our estate and position us for long-term growth. While this investment will create trading disruption in the short term, and we expect some margin dilution as a result of this disruption and the cost inflation I mentioned earlier, our focus remains on disciplined capital spend and cost optimization. These actions will ensure we deliver profitable growth and build the foundations for further accelerated returns. So in summary, for the U.K., we've delivered another strong year and taken decisive steps to position WH Smith for the future. Our strategy is clear. Our foundations are strong and the opportunities ahead are significant. So now let's take a look at our Rest of the World division. On the screen, you can see our priorities for the Rest of the World division as we move forward. It's been a strong year for revenue growth. Revenue was up 12%, largely driven by new store openings. Headline trading profit was broadly flat year-on-year, with operating investments in the new store openings and gross margin headwinds driven by location mix. Looking ahead, we remain focused on growing and building scale in our core strategically-important markets, particularly in Australia, Ireland and Spain, where we've established strong brand recognition and proven commercial success. We'll focus further investment where we already have scale and expertise, ensuring we deepen our presence and strengthen profitability in the markets we know best. In prime locations, we will also look to grow our key categories such as Health & Beauty and further develop our one-stop shop format. As part of this disciplined approach, in the near term, new directly-run stores will be opened only within our existing core markets, allowing us to leverage operational synergies, local market knowledge and established infrastructure. In addition, we'll continue to actively manage our store portfolio, which will result in exiting and reducing our exposure in subscale markets as contracts expire or through active portfolio management. And the outcome of this is clear. We plan to improve EBIT margins over the medium term and deliver stronger returns. As we look at our next phase of growth, we're sharpening our focus on a franchise-led model, an area in which we already have considerable experience. This approach will allow us to expand across high-potential markets where we see opportunity to extend our presence. By working in partnership with experienced local operators, we can leverage their local expertise alongside our space and promotional management to optimize performance. This shift will take time, but it offers clear -- several clear advantages. It is less capital intensive and will, therefore, drive stronger returns. It also provides the ability to grow without adding operational complexity. In terms of near-term profitability, we expect headline trading margin to remain broadly stable at 5% in full year '26. I'll now finish by summarizing the outlook for the group for the full year 2026. So let's turn to that now. We expect group revenue growth of mid-single digits, with the U.K. delivering 3% to 5% growth; North America, 6% to 8%; and the Rest of the World division, around 4% to 6%. On headline trading profit margin, we anticipate 14% to 15% margin in the U.K., 7% to 8% margin in North America, an approximately 5% margin in the rest of the world. This reflects the different dynamics in each market, a year of investment in the U.K., a focus on rebuilding profitability in North America and strengthening our foundations internationally. Central costs are expected to be in the region of GBP 30 million to GBP 32 million and finance costs are expected in the range of GBP 33 million to GBP 35 million, largely reflecting the refinancing of our convertible bond. Bringing this all together, we're guiding to group headline profit before tax and non-underlying items in the range of GBP 100 million to GBP 115 million for the year. So now to the final slide to close. It's been a year of change and challenge. Over the past year, we've executed a strategic reset, and we're now a pure-play global travel retailer, operating in attractive travel markets across the globe. Across each division, we set clear priorities to strengthen our leadership position in global travel retail, and we're focused on execution and taking action and we will exit unprofitable stores and markets where we need to. We're also focused on discipline, tight cost control, rigorous capital allocation and attractive returns on invested capital. This discipline will underpin everything that we do, and it's how we intend to rebuild confidence and create value. Thank you for your time today, and we'll now take your questions. Operator: [Operator Instructions] Our first question comes from Harry Gowers from JPMorgan. Harry Gowers: First question, maybe I could just ask sort of on the U.K. profit bridge from 2025 to 2026. And if you could give any detail maybe on the moving parts around sort of underlying growth, inflationary pressures and then the reinvestment or disruption costs that you envisage? And then the second question, just again on the U.K., you talked about a bit of a tougher consumer outlook. So how are you seeing that kind of manifest itself in the U.K. estate? Like are you seeing any pressure on spend across any of the formats or categories? And then -- and third question, just on North America. Clearly, the more normalized margin going forward is going to be 7% to 8% into next year. But what is the midterm margin potential of this business off the lower base? And is it all about the mix shift towards Travel Essentials and away from InMotion and Resorts? Or what other positive margin drivers should we be thinking about? Annette Court: I'll pass that to Max and then Andrew perhaps can comment on the consumer piece. Maxwell Leslie Izzard: Perfect. Thanks, Harry, for the question. So in terms of U.K. profit, in terms of the key moving parts, as you'd expect, we're expecting still to see some trading upside with the revenue growth that we've got coming through, probably in the region of around GBP 6 million to GBP 8 million and that being offset by some of the disruption headwinds with the big investment that we've got going into the U.K. business this year. And then the inflation headwinds, as we've called out in the RNS, around 4% to 5% is what we're seeing across the U.K. business. And we made great strides in the last year delivering operational efficiencies into the organization, and the annualization of those cost benefits coming through in full year '26 at GBP 9 million, but that's not going to be quite enough to offset all of the inflation headwinds that we're seeing coming down the line. So the overall guidance that we've given for the U.K. in terms of profitability at 14% to 15% trading profit margin takes all of that into account. So it will see us as we kind of sit here today at the midpoint, looking at a slight step-back in terms of margin. Over the medium term, we would expect to rebuild that as we get through this year's investment and the disruption that comes. So still feeling really positive about the U.K. overall, and I'll let Andrew maybe comment on the consumer side. Andrew Harrison: Thanks, Max. Yes, in terms of the outlook, I guess, we're sort of -- in travel, we're more insulated than most retailers when it comes to some of the customer sentiment and regulatory changes. I guess probably the one area of our business that we have seen a slight softening has been in Rail. But what I would say is, we're well versed, we deal with mix change and dealing with sort of different categories facing into certain headwinds. And it's something we deal with all the time. And I think our one-stop shop strategy gives us quite a good opportunity really to sort of play with mix and to shift into different categories. So that's kind of where we're seeing it at the moment. Annette Court: And North America? Maxwell Leslie Izzard: And in terms of North America, Harry, you're right, mix is going to play a big part of the North America profit journey as we step forward. So in the year that's just gone, we've got profit, trading profit margin of 4%. We're seeing that in terms of guidance for the year ahead, stepping up to 7% or 8%. As we look into the medium term, there's a number of different things, as we've started to outline today in the RNS and in the presentation, in terms of the mix change. So leaning into Travel Essentials continues to be really important for us, managing the InMotion business going forward in terms of the operational delivery that we have, but also thinking about the scale of that business with the margin sitting around the 5% mark in the future. And then the actions that we're taking on the Resorts business to remove any other loss-makers and/or the real low margin business that we have within fashion and specialty in particular. So we're not guiding specifically today on a medium-term kind of trading margin for North America, but we would certainly expect it to grow from this year, and we feel really positive that we'll be able to do that. I think as a first step, let's get this year, if you like, behind us in terms of North America, now start the delivery and the rebuild and then we can take it from there. Operator: Our next question comes from Richard Taylor from Barclays. Richard Taylor: I've got two questions, please. One is on CapEx and returns. You've been very clear you will be returns focused on your investments going forward. So I realize you're not going to chase contracts. But if there are good contracts out there in the U.S., do you have enough headroom in terms of investment capacity in terms of the sort of the debt-to-EBITDA you're happy to run with, albeit noting the paybacks are quite quick by the looks of it. And related to that, is your interest coupon it all affected by the sort of leverage you're running at? And so is there a level of debt-to-EBITDA you would ideally stay below? And does that have any knock-on effects for investment decisions? And secondly, I know you've talked about the profit bridge in the U.K. But can you give us some color on longer-term margin? It sounds like quite a few headwinds this year from specific items. So how should we think about that longer term versus I think, 15.6% you just reported. Annette Court: Richard, I'll pass that over to Max, please. Maxwell Leslie Izzard: Yes. Of course, yes. So in terms of CapEx for the year that's just gone just over GBP 80 million; in the year to come, we are putting a planning assumption of around GBP 90 million. Around half of that is going into our North America business in the year ahead. And we've got some really big and exciting opportunities. We've got, in particular, the preparation for opening of JFK and Orlando Airports in -- early in full year '27, but some of that expenditure coming through this year. Have we got specific room in terms of continued capital investment? This is a strong cash-generating business overall. We are investing back into the organization for our future growth. We are going to be very disciplined about the different areas of investment that we are making. And so making sure we're very clear about those returns. And specifically in North America, getting the right mix of Travel Essentials within any opportunity that we take. So I certainly, as I sit here today, I feel confident that we've got the headroom to be able to continue to invest with the growth that we've got still coming through. But we are going to be very disciplined and very measured in terms of the opportunities that we take for North America specifically. And I guess the interlink, therefore, with the cash outflow on CapEx into our net debt position, which is your question around, therefore, kind of financing and interest costs and where do we want to get the leverage to. As we've laid out today, bringing leverage back below 2x is our ambition for the year ahead. So that's pretty near term. And importantly, for us, we do have coupon-led kind of [ ledges ] as far as the leverage is concerned, so that does play into our overall cost of capital that we have in the business. We're not today putting out a kind of a more medium-term target. We've obviously got our 0.75 to 1.25 leverage range that still exists. But in the near term, focus on bringing it back below 2 is important for us overall and the strength of the balance sheet and the interest costs. And I'll hand over maybe to Andrew, on U.K. margins. Andrew Harrison: Well, I'll talk about the year of investment. And I think that all ties together. I think looking forward in terms of the U.K., it really is an opportunity for -- it's our biggest store development program ever. And what that allows us to do is to take the Birmingham example, which we talked about earlier in terms of having taken a store, which through one-stop shop and through the execution of that has gone from probably #12 in our batting order of top stores to #1 on the basis of the range, the format and the fact that we can get customers to shop and put more products into their baskets so they come into our stores. The opportunity that we're really facing into this year is to do that in another six airport terminals, but also Terminals 3, 4 and 5 in Heathrow. And what we've done in Birmingham 2 years ago, we've moved on again. So this is our latest generation. And so we're really quite excited about getting that platform into place, and then that allows us then to continue to grow in terms of the different ranges that we can offer and the spend per passenger. So that's how we think we'll see the margin grow in the future. Annette Court: Richard, does that Answer your question? Richard Taylor: Yes. Operator: Our next question comes from Jonathan Pritchard from Peel Hunt. Jonathan Pritchard: The customary three, if I may. Just a follow-up on Harry's question on Travel Essentials, margin in the States. Can you just give us another level of granularity? I understand the way that the mix in the States will be affected by more Travel Essentials in the mix. But how specifically will you widen that Travel Essentials margin? That's the first question. Secondly, we've got the sort of medium-term dream for the States. We've got the medium-term dream for the U.K. Just give us the long term -- medium, long-term Rest of the World dream from a margin perspective. I get 5% for next year, but where can that go? And then a lot of people have written a lot of words on this, but what's your opinion here? What's wrong with Las Vegas? Maybe there were some structural issues with the fashion and specialty stores, but it seems as though Vegas isn't quite the wonder city it once it was. So what's your view on that? Annette Court: Okay. Thank you, Jonathan. So I will hand over to Max initially. Maxwell Leslie Izzard: Sure. Thanks, Jonathan. So in terms of margin for Travel Essentials, and I guess really margin for North America overall, starting with that, as you say, getting the mix into Travel Essentials is important. But then in terms of building on the Travel Essentials margin, we've got a number of different actions and activities that we are undertaking there. So we've got the operational performance that we're very much focused on with Huw and the team in North America set to kind of drive the operational performance. There's the expansion of the ranges into Health & Beauty and also bringing in tech accessories as we look to kind of adopt some of the one-stop shop setup that we have been so successful with in the U.K. And importantly, and this is probably the key driver over the next 2, 3 years, is then the scaling of that part of the business and being able to leverage the fixed cost base that we've got to support Travel Essentials overall, not just in terms of the distribution centers that we got, but the core actual operations of that business. And again, I'll kind of turn back to a couple of the exciting opportunities that we've got with JFK and Orlando Airports. Those are big businesses set to grow our overall kind of revenue and profit base quite considerably in the coming years. And so being able to leverage that fixed cost base is going to really help to drive our overall margin for that business forward as well. In terms of the medium term for Rest of World, you're right, we haven't kind of put too much out there in terms of where the medium term for Rest of World is. We've previously spoken about Rest of World heading towards kind of high single-digit margins. And I think I'd probably be still comfortable with thinking about it in that way today. But we've got quite a lot of work to do in terms of our Rest of World business. We need to embed a lot of the existing formats that we've got within Rest of World and make sure that they are operating well. And where we are focused, as we've talked about today in terms of our core markets, growing the margin in that part of the business alongside what do we think we can do in terms of franchise. I think we'll move our margin forward, but it still feels as we sit here today, that, that's more medium term rather than near term. And in terms of Las Vegas, what's wrong with Las Vegas, I don't think there's anything wrong with Las Vegas and maybe turn to Andrew on this as well. What we have identified and we're really clear about is that there are parts of Las Vegas and the operations we got there are highly profitable and cash generative, and we're really happy with the performance of those stores and for those to be part of our portfolio, we have got headwinds, and we are seeing that the overall kind of Las Vegas environment has seen a cooling over recent years. But we've also identified, we've got parts of that Las Vegas business, as you say, structurally aren't working for us, and we need to act on those and do something quite different. But Andrew, anything else on Las Vegas? Andrew Harrison: No. I mean I think the stores you're referring to are the Welcome to Las Vegas stores and the hotel convenience stores. They're much more akin to our core Travel Essentials. There's much more of a synergy there than, say, a fashion store, for example. So what we're really talking about when you boil down our whole sort of approach, really, it's really about a real focus on Travel Essentials, and that applies equally to Las Vegas and certain categories. And it's about getting out of the things that aren't core to that. Annette Court: Absolutely. Does that answer your question, Jonathan? Jonathan Pritchard: Yes. Operator: Our next question comes from Fintan Ryan from Goodbody. Fintan Ryan: Just one question for me, please. And I think really following on from the last point around the U.S. margins. I appreciate there's a lot of things that have been revealed in the last few months. But if we were comparing to the 13% to 14% margin that maybe people had in their numbers from sort of June, July for North America versus the sort of 7% to 8% margin that you're talking to now for FY '26, can you sort of -- I appreciate you've given bridges in terms of supplier financing and inventories. But now that you've given the disclosure around the Resorts, InMotion and sort of Travel Essentials, can you sort of bridge that gap in terms of like what was previously in your numbers? InMotion, was a double-digit margin, now it's a 5% margin. And like Resorts was mid-teens, now it's under 10%. I guess just with that point as well, given you're taking a review of some of the InMotion estate and the Resorts part of the estate, is there a risk or a need to maybe review some of the contracts that you have in your sort of core Travel Essentials business and like potentially go back to landlords for rent reviews or other sort of things that might have now come out of the woodwork given the more forensic approach that you're taking to that region. Annette Court: I'll pass that to Max, please. Maxwell Leslie Izzard: So in terms of the U.S. margin overall, you're right, full year '23 and full year '24 margins before the restatement sitting around 13%, 14% and those after restatements coming down to kind of around 8% to 10%. And then with the normalized review that we've been doing, sitting around 8% overall. I think important to say that the impact of the supplier income review that we've done is across all categories. And so it has had an impact on each of the different parts of our business, whether it's consumables, in Travel Essentials or tech in terms of InMotion. Far less in terms of the Resorts and/or fashion stores specifically or specialty for that matter. And so it has given us further pause for thought in terms of InMotion and how we think about that business and i.e., the margin that we thought it was delivering is actually a little further behind than where we now know it to be in. So where stores might have been marginal before or low margin, it may well have moved them into a loss-making position. And so for us, overall, that is absolutely meaning that the review that we are now undertaking and the guidance that we've given on scaling back the InMotion business is the right thing for us to be doing. In terms of Travel Essentials and the consumable mix overall, there is, as I say, some impact in terms of those restatements, whether it be on kind of the inventory side or the supplier income side. But overall, still really confident with the margin in Travel Essentials at or around 10%, with the growth that I've already laid out. So I think in terms of the U.S. position overall, still strong. Is it giving us pause for thought on some travel essentials? And are we working with landlords? Absolutely. You would expect us to do that anyway as we continue to be focused on driving the right profitability for North America. Reviewing our pipeline actually is also a key part of that. And making sure -- I think, we've got around 70 stores in the pipeline now for North America with more than half of those to open this year. So pipeline review in aggregate actually is within our hurdle rates, even on the adjusted position, so we still feel really positive about that. But again, there will be elements within that, that we might want to take a look at and think about how do we maybe change the formats or maybe operate them slightly differently and/or engage with our landlords in a different way moving forward too. Operator: Our next question comes from Tim Barrett from Deutsche Numis. Timothy Barrett: I just wanted to start with a big picture question really in terms of the 4% to 5% cost inflation you're talking about in the U.K. It feels a bit higher than I might have guessed. What are the main contributors to that? And do you think you can pass much of it on through price in the year ahead? And I think just secondly, a procedural thing really, how long do you think the FCA investigation will take? And have you put anything in terms of any outcome of that in your net debt guidance? Annette Court: Okay. So I'll take the FCA question and then pass to Andrew. Tim, so yes, as you say, the FCA have now launched an investigation to the company. We were notified by them yesterday. So as you would expect, we will fully cooperate. We expect this would take quite some time, and there's really nothing further that we can say at this stage with regard to the costs associated. And obviously, we'll keep you updated as things progress. Andrew Harrison: Tim, I'll take the question on the big picture on cost. Yes, I mean, I think the cost inflation we're seeing across a wide range of areas, whether that's staff costs, whether that's cost prices and even landlord costs as well. So -- but we're used to this. It's something that we deal with all the time. We're a lean business, and we're very much focused on how we drive operational efficiencies and that kind of thing. In the last year, we drove GBP 10 million worth of efficiency through the business, and that was looking at our -- looking through our store lens, but also our support centers and our distribution centers, and we'll continue to do that. And of course, I guess there is the opportunity to reflect things in price, but we always look to try to deal with these kind of things through operational efficiencies and being agile in the way we operate our business as we always have done. Timothy Barrett: Okay. And sorry, just a boring follow-up, business rates. Is there much inflation there following the budget? How does that work actually in airports? Andrew Harrison: Yes. So I mean, airports are over half of our business. And those contracts in airports are concessions. So therefore, it's the airport that plays the business rates, not us. So we're not as exposed as many other businesses to business rates. And so from that perspective, alongside the other areas of cost, it's manageable. Operator: Our next question comes from Hai Huynh from UBS. Hai Huynh: I have a couple of questions, please. First of all, on the like-for-like. So in North America, so in current trading, it's around 1%. Could you walk me through how you're building up to the 6% to 8% total growth guidance in North America, given that you're also doing a portfolio review there, right, opening 35 to 40 stores, but closing 30 stores. So that's the first question. The second one is on the U.K. Also a similar kind of question where like-for-like is 2% year-to-date. How do you get to 3% to 5% growth given there will be trading disruptions from portfolio review as well? And actually, on that, on the U.K., are you also seeing a softening in terms of airports besides the U.K. rail softening? Annette Court: I'll pass the first one to Max and then to Andrew for the U.K. Maxwell Leslie Izzard: Hai, so the overall position for North America, as you say, with like-for-like is currently around 1%. Largely, the growth in North America from a revenue perspective will come from a net space gain. We do have closures in the year, and that includes some of the things that we are talking about here today in terms of Resorts and so on. but space still growing overall and contributing well this year in terms of Travel Essentials growth. So the position that we've outlined in terms of revenue of 6% or 8% for North America is on a net basis. So if we were to be in a position to accelerate some of the closures that we want to do, that's something we would probably need to come back and update you on, I expect, around the half year. But as we sit here today, 6% to 8%, largely driven by space with some like-for-like growth, not dissimilar to where we're currently tracking, 1% to 2%. Andrew Harrison: Hai, I'll take the softening question in Air a bit first, and I'll go to outlook. So softening in Air, basically, what we're seeing here is that we're continuing to grow spend per passenger. We're continuing to grow sales ahead of passengers. Really what we have seen in Air though is that it's just a return of passenger growth to more normalized levels. So for example, in the last quarter, passengers have been growing at 2%, if I go back a year, that would have been growing 7% year-on-year. And if we go back 2 years, that would have been growing 15% year-on-year. So you can see a return to normalized levels of passenger growth. And it's important to stress, this isn't normalized levels of passengers, it's normalized levels of passenger growth. We're still growing, but just at the longer-term rate. And within that, we're still growing spend per passenger. In terms of the outlook for the year, how we get there is a mixture of all of those things. Clearly, we've got -- we've got the spend per passenger and passenger that I just talked about. We've got that sort of relationship. We've got the new stores. And as I mentioned in the spring, we've got new flagship stores opening in Heathrow, which will clearly have a big effect for the second half of the year. And clearly, offsetting some of that, we've got the disruption. So broadly, that's how you bridge, and you get to the 3% to 5% outlook from where we are at the moment. Hai Huynh: Understood. And sorry, just to follow up with the last one in terms of -- so this year, it looks like elevated closures as you go to portfolio review and moving to franchise model in Rest of the World. But how do you see the medium-term store opening target going forward? Maxwell Leslie Izzard: For the group or... Andrew Harrison: The Rest of the World, I think, was the question. Annette Court: Was it for the group or for... Hai Huynh: As in just -- for the group overall, yes. Annette Court: Okay. Andrew Harrison: I'm happy to take that. So I think what we've outlined today, and I think it's about it's about driving profitable growth. And I think one of the words that Max uses internally is about being measured and being disciplined, and that's exactly what we do. What has made our business successful has been being really, really focused on the use of our space and being forensic about how we use our space. And that's what we -- that's the yardstick we're applying to all of our investment decisions. What that means is, therefore, we're targeting better and better -- more and better-quality space rather than trying to drive store openings as a number in its own right. So that's really the thing that's driving us and not being sort of hamstrung by trying to deliver perhaps a stores number that we've had out in the market. So I don't know if that -- does that answer all of your question, Hai? Is there anything else in there that I can help you with? Hai Huynh: That's it. Operator: Our next question comes from Nicholas Barker from BNP Paribas. Nicholas Barker: Just for a little bit of a clarification one. So you've explained how you can widen the North American Travel Essentials margin from around that 10%. Will that ever reach the kind of 14%, 15% margins seen in the U.K.? And if so, why not? And if so, how quickly could that happen? And then my second question would just be on the CEO recruitment process. How is that going? And is there any update there? Annette Court: If -- I'll take the CEO one and then we'll pass on to margin. So Nicolas, so as you said, we've got a process ongoing using an external search firm. I think it's important to say that, obviously, we're looking for somebody that's got retail experience, is an agent for change and has a strong track record, including turnaround capability. We're in the process of -- there's nothing further to update on other than to say that we are actively -- or I am actively working on this. Maxwell Leslie Izzard: Shall I take margin for North America? Annette Court: Yes, please. Maxwell Leslie Izzard: I think what we've put out today is a very clear margin position for the year ahead. I think I can be really confident to say that we will be building from here in North America and the Travel Essentials business will be the mix lean that enables us to do that. We're really confident still with the North America operation and the opportunity that we still see there in terms of our future growth. What we're not going to be kind of drawn on, if you like, today is where do we see the margin in the future. But we absolutely see that there's future margin build and future margin gain to be had. And so we're still excited about the market. We still believe in it. But you're not going to be drawn necessarily on the margin for the long term. Operator: This concludes our Q&A session. So I'll hand back over to Annette for closing remarks. Annette Court: Thank you. Thanks for dialing in, everyone. It's been good to talk to you this morning. I hope you'll see that we're taking affirmative actions and that we're moving forward with transparency. And as I said at the start of the presentation, I have every confidence in Andrew and Max to lead the group over the months ahead. So thank you, and happy Christmas. Maxwell Leslie Izzard: Thanks very much. Andrew Harrison: Thank you.
Operator: Please stand by. Good day. And welcome to the Lamb Weston Holdings, Inc. Second Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead. Debbie Hancock: Good morning, and thank you for joining us for Lamb Weston Holdings, Inc. Second Quarter Fiscal 2026 Earnings Call. I am Debbie Hancock, Lamb Weston Holdings, Inc.'s Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com. Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release in the appendix to our presentation. Joining me today are Mike Smith, our President and CEO, and Bernadette Madarieta, our Chief Financial Officer. Let me now turn the call over to Mike. Mike Smith: Thank you, Debbie. Good morning, and thank you for joining us today. Our global teams are embracing and executing our focus to win strategy, strengthening customer partnerships, and driving cost savings. I want to thank the team for their ongoing dedication and solid execution. As I reflect on the first half of the fiscal year, we are building momentum in the business and addressing areas of opportunity. Business turnarounds are not linear, but we are pleased with the progress we are making. Specifically, we are seeing top-line strength as we focus on customer relationships, which has led to share gains. Volume growth was up 8% in the second quarter and 7% for the first half of the year. To keep up with customer demand and ensure we maintain high customer fill rates, we are reopening previously curtailed capacity in North America. North America, the largest segment of our business, is in a solid position. As we partner with customers and deliver on consumer insights, the team is leaning into Lamb Weston Holdings, Inc.'s history of quality, innovation, and value, which has resulted in several new item launches. Our cost savings plan is well on its way, and we expect to deliver our target for the year. But equally as important, we are building a culture of continuous improvement within the organization that will unlock future opportunity and strengthen us competitively. And we are reducing volatility with customer contracting and raw procurement strategies. Managing our capital efficiently, we are delivering strong free cash flow, and our capital spending is down. In addition, we repurchased $40 million of shares during the second quarter. And finally, in line with our longstanding commitment to returning cash to shareholders, and in keeping with our annual dividend increase since becoming a public company, the board approved a 3% increase to the quarterly dividend. Five months after unveiling our Focus to Win plan, we are making solid progress. We are winning with customers as we focus on the principles that made Lamb Weston Holdings, Inc. the industry gold standard: category-leading innovation, exceptional products, and customer-centric partnerships. There is meaningful opportunity ahead of us. Strengthening customer partnerships is the cornerstone of our strategy, and where we have spent much of our time the last several months. We continue to drive momentum in retention and wins. I, along with our teams, are meeting with our global customers during what remains a dynamic consumer environment globally. Our goal is to drive true partnership, in-service joint business planning, menu innovation, and importantly, how we can grow together. We have line of sight to volume growth for the balance of the year. We ended the second quarter with more than 90% of our open contracted volume negotiations concluded, including all material contracts. By the end of calendar 2025, we will have completed negotiations on the vast majority of our large chain contracts, supporting our customers with price and trade. We have gained share, including with new and growing customers. Bernadette will speak in more detail about restaurant traffic trends, but our customer success has allowed us to increase volume this year despite soft traffic. To maintain our high service levels and customer fill rate standards, we restarted North American lines that were previously curtailed. This production began late in the second quarter and includes additional production lines to what we discussed during our first quarter call. With the capacity being reintroduced into our market and our network, capacity utilization rates in our North America facilities are returning to more optimal levels versus the very high utilization rates we recently experienced. We are benefiting from our global footprint. While North America accounts for approximately 90% or more of our profitability, the international markets are estimated to represent 75% of the global industry volume growth through 2030. This is an attractive opportunity that we are well-positioned to capitalize on. Our global manufacturing footprint and supply chain network enable us to partner with existing new customers around the world, capturing volume in fast-growing markets, such as Asia and Latin America. Our global footprint enables us to partner with the largest customers around the world, tap into faster-growing markets, and leverage global manufacturing supply chain to diversify supply and risk. In the near term, as we discussed during our first quarter call, the international environment remains competitive. In Europe, a strong potato crop has coincided with softer restaurant traffic and lower export demand due to localization of recently added production in other regional markets. Our European business is also more open and less contracted, which contributes to pricing pressure. And while there has been some recent consolidation in the market, it is too early to assess its impact. In Latin America, where there are few established players, we are building a strong foundation for long-term growth. Our new facility in Argentina is already producing and qualifying product for key customers. The region's market is running quickly, and as we scale, we expect to capture meaningful share and strengthen our position as a preferred supplier. We are actively working to rebalance supply and demand within our network, better leveraging underutilized assets and ensuring we have the right assets globally in the right places to serve customers in our priority markets and channels. Shifting to our achieving executional excellence, our cost savings initiatives are on track. As part of these efforts, we are building a truly global supply chain with the customer at the center of everything we do. Manufacturing and the centers of excellence are working as one, delivering improvements in run rates, safety, becoming better aligned on how we measure ourselves and how our customers measure us. In addition, we are investing in tools that will help improve our demand and supply planning as we optimize our supply chain. Innovation is another core pillar of our focus to win strategy. Internationally, we have launched our new Snap Prize, which is our crispy fast fry. An innovation that allows for crispy and fast oven preparation. Our testing of this product is ongoing, and we have had early success expanding with airline customers. This innovative product opens additional market opportunities to sell hot, crispy, and delicious fries where we could not in the past. Finally, a quick update on the crop, which is consistent with the update we provided with first quarter earnings and demonstrates the focus we have on planning our North America raw needs. We have completed the harvest, and we are processing from storage across our growing regions in both North America and Europe. Overall, yields were above average, and quality was average in both North America and Europe. I will now turn the call over to Bernadette to review the quarter and our outlook. Bernadette Madarieta: Thank you, Mike, and good morning, everyone. I am starting on slide 11. Second quarter net sales increased 1%, including a $24 million benefit from foreign currency translation. On a constant currency basis, net sales were essentially flat versus last year. Volume rose 8%, driven by customer wins, share gains, and strong retention, especially in North America and Asia. This growth came despite softer restaurant traffic, which speaks to the strength of our customer partnerships and execution. In the US, QSR traffic was flat over the trailing three-month period of August, September, and October. Within that, QSR chicken grew, while QSR burger traffic was down 3%, improving slightly in October. French fry volume in North America food service was up slightly over the same three-month period, reflecting continued demand resilience. Internationally, restaurant traffic in most markets declined, including the UK, our largest international market, which was down about 3%. Even so, our teams delivered growth in this environment, which is a testament to their focus and execution. Price mix declined 8% at a constant currency, primarily due to the carryover and current year impact of price and trade to support customers as well as mix shifts towards lower margin sales. To summarize, we delivered strong growth and held net sales essentially flat in a tough traffic environment, positioning us well as we move into the second half. Looking at our segments, North America net sales were essentially flat compared with the prior year. Volume increased 8%, supported by recent customer contract wins and share gains. Price mix declined 8%, reflecting the carryover and current year impact of price and trade to support our customers and unfavorable mix. In our international segment, net sales increased 4%, including a favorable foreign currency impact of $23 million. At constant currency rates, net sales declined 1%. Volume grew 7%, while price mix at constant currency declined 8%, primarily due to pricing actions in key international markets to support customers and unfavorable mix. Asia, including China, once again led our volume growth in the quarter, and volume also grew with multinational chain customers. In Europe, a strong crop and soft restaurant traffic has pressured pricing as incremental industry capacity in local regional markets has reduced exports. We have taken steps to support our customers with price and trade, and expect these actions will continue through fiscal 2026. At the same time, we are actively working to rebalance supply and demand, ensuring we have the right assets in the right places to serve our customers in our priority markets. In Latin America, we continue to ramp up production at our new facility in Argentina. As we mentioned last quarter, it will take time to reach target utilization levels as we qualify lines and bring on new customers. During this ramp-up, fixed costs will be spread over lower production volumes, resulting in higher cost per pound for the remainder of the year. While reaching optimal production will take time, we see this as a significant opportunity to drive volume growth and margin expansion over the coming years. Let's now turn to profitability, where we continue to see the benefits of our cost savings initiatives and disciplined execution even as we navigate mix and pricing headwinds. On slide 12, as expected, adjusted EBITDA declined $9 million compared to last year, to $286 million. Adjusted gross profit was in line with expectations, down $16 million year over year, primarily due to unfavorable price mix. This was partially offset by higher sales volume, benefits from our cost savings initiatives, and lower total manufacturing cost per pound. Our cost-saving efforts are not only reducing costs but also improving processes and efficiencies across our operations, positioning us well for the future. Input costs outside of raw potato prices increased in the quarter, driven by tariffs, labor, fuel, power and water, and transportation rates. While agreements in principle for palm oil tariff exemptions from Indonesia and Malaysia are in place, they have not yet been finalized, so we continue to forecast these expenses. Adjusted SG&A expenses declined $8 million versus the prior year quarter, reflecting benefits from our cost savings initiatives partially offset by compensation and benefit accruals. Adjusted equity method investment earnings was $3 million, a decline of $8 million as a result of lower production volume and an unfavorable mix of sales at our joint venture in Minnesota. Overall, while we faced headwinds from price mix and input cost inflation outside of potatoes, we delivered solid volume growth and meaningful cost savings. Turning to segment EBITDA performance on Slide 13. Adjusted EBITDA in our North America segment increased 7% or $19 million versus the prior year quarter to $288 million. This growth reflects strong execution, including higher sales volume and lower manufacturing cost per pound, driven by raw potato deflation and benefits from our cost savings initiatives. These improvements were partially offset by price and trade to support our customers. In our International segment, adjusted EBITDA declined $21 million to $27 million. This reflects price and trade to support our customers, as well as higher manufacturing costs per pound. These costs include start-up expenses associated with ramping up our new Latin America production facility in Argentina, and increased factory burden and other costs in Latin America and Europe as we work to rebalance supply and demand and manage inventories. Importantly, these costs were partially offset by the benefit of our cost savings initiatives and higher sales volumes. Moving to liquidity and cash flows on slide 14. Our liquidity and cash position remain strong. We ended the quarter with approximately $1.43 billion of liquidity, including approximately $1.35 billion available under our revolving credit facility and $83 million of cash and cash equivalents. Our net debt was $3.6 billion, and our adjusted EBITDA to net debt leverage ratio was 3.1 times on a trailing twelve-month basis, consistent with our commitment to maintaining a solid balance sheet. In 2026, we generated $530 million of cash from operations, up $101 million versus last year, driven by favorable working capital changes, primarily lower inventories in North America and higher earnings. Free cash flow was strong at $375 million. Capital expenditures were $106 million in the first half, down $331 million from last year as we completed major growth investments in facility expansions. Looking ahead, we expect fiscal 2026 capital expenditures to come in below the $500 million target, reflecting disciplined investment and a continued focus on sustaining performance. Turning to Slide 15. We remain committed to returning cash to our shareholders. During the first half of the year, we returned over $150 million, including $103 million in cash dividends and $50 million of stock repurchases. This includes approximately $40 million in stock in the second quarter. We have $38 million remaining under our current repurchase authorization, and year to date, we have repurchased sufficient shares to offset the expected equity plan dilution. In addition, today, we announced an increase in our quarterly dividend to $0.38 per share. Our capital allocation priorities remain clear. We are investing in the business and its capabilities, focusing on areas that differentiate Lamb Weston Holdings, Inc. and support the execution of our strategy. At the same time, we aim to maintain a strong balance sheet and opportunistically return capital to shareholders with dividends and share repurchases. Let's now turn to the outlook on slide 16. We are reaffirming our fiscal 2026 outlook, which includes the contribution of a fifty-third week in the fourth quarter. For the balance of the year, we expect continued volume growth and strong sales momentum. And we are on track towards delivering the high end of our sales guidance range. North America remains solid with second-half volumes expected to grow at or above first-half rates, supported by strong demand and a vast majority of our contract negotiations being complete. International volumes in the second half are expected to be flat year over year as we lap prior year customer wins. As anticipated, price mix will remain unfavorable at constant currency in the second half but to a lesser extent than the first half. In North America, year-over-year price declines are expected to ease compared to what we saw in the first half, while the shift towards lower margin restaurant customers and private label retail customers is likely to persist. In our international markets, we anticipate continued headwinds from softer restaurant traffic, added capacity, and a strong comp. On margins, we expect adjusted gross margin in the second half to be flat to down versus the first half 20.4%, reflecting price mix dynamics and higher manufacturing costs internationally, including ramp-up costs in Argentina and underutilization in Europe as we work to rebalance supply and demand. Adjusted SG&A is expected to continue to benefit from cost savings initiatives. So in the second half, we anticipate incremental investments in innovation and advertising and promotions to support our long-term strategic plan as well as an extra week of expenses in the fourth quarter. Our full-year tax rate is projected at 28% to 29%, with second-half rates in the low 20s. To summarize, given the price mix dynamics and higher manufacturing costs in our international segment, we believe maintaining our adjusted EBITDA guidance range of $1 billion to $1.2 billion is the most prudent approach. We currently expect to finish closer to the midpoint. We remain confident in delivering strong results for the year, supported by strong volume performance and progress under our cost savings initiatives. With that, I will now turn the call back over to Mike. Mike Smith: Thank you, Bernadette. In closing, we are driving and expect to continue driving volume growth, share gains, and customer momentum. Our customers are turning to Lamb Weston Holdings, Inc. for the quality, innovation, and value for which we are known. Our team is embracing and executing our focused win strategy, including delivering our cost savings program targets. We are optimizing our global supply chain, restarting curtailed production in North America, and working to rebalance supply and demand globally. We are generating strong free cash flow and are increasing our quarterly dividend by 3%. And we are focused on executing our strategy and delivering good results for the year. With that, Bernadette and I are happy to take your questions. Operator: Thank you. If you would like to signal with questions, please press 1 on your touch-tone telephone. If you are joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is 1 if you would like to signal with questions. The first question comes from Tom Palmer with JPMorgan. Tom Palmer: Good morning, and thanks for the question. Bernadette, you made a comment in the prepared remarks about rebalancing supply and demand. It sounded like a temporary pullback in production is anticipated in Europe. In the U.S. last year, there was a plant closure and lines curtailed. I am just wondering, should we start thinking about similar actions in Europe coming into play? So something more substantial than maybe reducing shifts, or are there other actions that can be taken to kind of aid this rebalance? Thanks. Mike Smith: Hey, Tom. I will take the first part of that, and then let Bernadette comment further. As we said, we have restarted some of those curtailed lines that we had previously curtailed in North America driven by the strong volume. We have also communicated to our employees that we are curtailing a single line in our European market as well. So we are looking across our global supply chain and making sure that we are taking the right approaches to balance that supply and demand globally. Tom Palmer: Okay. And then just as we think about understood the commentary, I guess, in Europe on some of the pressures. But I did want to maybe focus on North America a bit. As we think about some of the, I guess, volume drivers in the back half and some of the investment in price relative to the first half, should we start to see in 3Q, for instance, more of a seasonal uptick in North America? Or are there items maybe there to consider? Bernadette Madarieta: Yes. So thanks, Tom. As it relates to North America, a big piece that we need to consider is that it is not only price, but a large component of this is mix. In North America, we are seeing a higher proportion of our business with multinational chain customers as well as we are seeing in our retail channel a shift from branded to more private label. And so, that is what we would expect to continue in the back half of the year, which will affect gross margins as we move forward and is also contributing to what we shared in our prepared remarks of the 20.4% or relatively flat gross margins in the back half of the year relative to the first half. Tom Palmer: Understood. Thank you. Operator: And the next question will come from Peter Galbo with Bank of America. Peter Galbo: Hey. Good morning, Mike and Bernadette. Thanks for the question. Mike, I maybe wanted to actually pick up on the international side. I believe in your prepared remarks, you kind of walked through the dynamics in Europe and Latin America. I did not hear, and maybe I missed, but I did not hear any commentary on Asia and, in particular, some of the Asia export markets. I think there has been a fair amount of trade press just around local competitors in the region not only getting more competitive in home markets but in some of your export markets throughout Asia. So I would just love to have an update from you there on what you are seeing in real-time and whether or not that competition has intensified since we spoke, like, three months ago. Mike Smith: Yeah, let me thanks, Peter. Let me speak to a few of those markets that you suggested. As Bernadette talked about some of the mix shifts in our international markets, some of that is driven by strength that we are seeing in China as well as APAC. You know, when you look at Europe, there has been a really strong crop, and it has resulted in lower cost raw. And that is on the backdrop of more depressed kind of traffic in those markets. When you look around the globe, there has been some added capacity in some of those developing markets, like you said. And that is putting more pressure on exports out of Europe into some of those markets, which has challenged the price there a little bit. But overall, you know, we believe in the future of the international market. We believe that as we support our customers in those markets, we will continue to drive growth. Argentina and Latin America is another strong area that has high growth rates. And we believe that having that asset down in that market will set us up for future success. Peter Galbo: Okay. Thanks, Mike, for that. And, Bernadette, I mean, I think the flat to down commentary on the second half gross margin, does that hold for both quarters as well? If I look back at Lamb Weston Holdings, Inc., the history of Lamb Weston Holdings, Inc. as a public company, like third quarter gross margins have been down versus the second quarter, like, twice. It was during COVID, so I do not even know if we count that. So just want to understand if that comment is very much a second-half comment or if it also applies to the third quarter? Bernadette Madarieta: Yes. Thanks, Peter. The comment that I made in my prepared remarks was definitely for the second half of the year. And then about it, or has the mix impact caused that moderation and maybe lessen a bit? Thank you. Matt Smith: Yeah. Thanks, Matt. So first, I just want to start off with the strong momentum that we have had in the first half of the year, and North America being our most profitable segment is strong. We expected price mix to be down more in the first half of the year than the second, and we still expect that trend. And as you mentioned, it is just very important to note that the combination of both price and mix is what is affecting our North America segment. And that mix impact has been more pronounced recently with the growth in more chain business as well as that mix shift from branded products to private label. Matt Smith: Thanks, Bernadette. And so when we think about that mix headwind, should we is that a drag on performance through really this time next year just given how the balance of the business has been performing? Bernadette Madarieta: You know, we will need to continue to monitor that. Certainly, as it relates to our chain customers, that would continue. We will continue to monitor whether the trend from branded to private label persists, but we would expect that to persist throughout the balance of this year. Matt Smith: Thank you. I will pass it on. Operator: And our next question will come from Robert Moskow with TD Cowen. Robert Moskow: Hey, thanks. I wanted to dig into the decision to open reopen more of your capacity in North America. The wording was a little confusing in the prepared remarks. You said you did it because your facilities are returning to more optimal levels versus the very high utilization rates recently experienced. So are you saying that utilization rates got too high in the first quarter? You need to reopen more of your production lines in order to get them lower. And is there any kind of negative impact to your profitability as a result of that or not? And then secondly, how long do you think this will persist? Is this a permanent decision or not? Mike Smith: Yeah, Rob. Appreciate the question. You know, we have been focused on driving customer partnerships over the last several months. You know, when you think about where we spend our time, it is around the customer and around driving out costs. And because of that, you are seeing the results of that hard work. You know, volume up 8% in the quarter. As you said, yeah, you know, utilization rates in our North American facilities were in the low nineties. As we grew that volume over the first half of the year, they got to a level where we needed to open up this additional capacity to ensure that we continue to meet our customers' expectations regarding fill rates. The plants are running really well. As you have those lines start to run more frequently, you start to see better run rates, better OEEs, better potato utilization, which is all positive. So we do not expect a drag from a cost basis from turning those lines back on. Bernadette Madarieta: Yeah, Rob. And if I could just add, you know, the second comment or question that you had was related to the impact on margins. And in the first half, if you think about the results, we had higher fixed burden driven by North America in Q1. And then as we have restarted those lines in North America, we have seen that lessen, but more in international in Q2. In the back half of the year, we would expect there to be a net positive from a factory burden perspective led by North America. As that absorption improves with restarting those lines. But international is going to remain a headwind with Latin America and Europe continuing to carry incremental costs. Robert Moskow: Got it. And in terms of, like, keeping these lines open, it is for the foreseeable future? There is no it is not a temporary measure. Mike Smith: Yeah. You know, as we said in the prepared remarks, I think, you know, as I look at the full year, North America is in a solid position, and we are seeing more predictability. And so we plan on having these lines open as we continue to demonstrate our strength with our customers and the volume here in the North American market. Robert Moskow: Great. Alright. Thank you. Bernadette Madarieta: Thanks, Rob. Operator: And the next question comes from Alexia Howard with Bernstein. Alexia Howard: Good morning, everyone. Can we ask about how you are managing to improve execution through increased discipline, more accountability, and metrics? I know you talked about how when capacity utilization was very high in the last few years. It was very hard to get your arms around all of that. Obviously, you have taken a little bit of a pause on capacity utilization. It is now ramping up again. But what can you manage and monitor now that you may be could not do a couple of years ago, and how is that helping your ability to execute and keep everything flowing smoothly? Thank you, and I will pass it on. Mike Smith: Yeah. Appreciate it, Lexi. You know, there are a few things that are going on. One, you know, as we have started our focus to win work and really focused on the executional excellence part in our cost savings program, we have put clear accountabilities in place across our supply chain. You know, we are now measuring ourselves on certain KPIs in a number of different areas. And really focused on delivering those at the plant level. You know, we have had Alex partners who participated in some of the work with us. Have helped us put together the right scorecarding and the right tracking in place. And we look at that on a regular basis. We are also investing in additional support in our demand and supply planning to make sure that we execute on a better basis or a more accurate basis moving forward that reduces or adds, I should say, better predictability in the business moving forward. Alexia Howard: Great. Thank you very much. I will pass it on. Operator: And the next question will come from Max Gumport with BNP. Max Gumport: Great. Thanks for the question. Halfway through the year, half of the year, you are left. I am curious what scenarios you are seeing that could still push you to the lower half of your adjusted EBITDA. Asked differently, what prevented you today from raising the low end of the range? Thanks very much. Mike Smith: Yeah. You know, Max, you know, as I think about it, you know, we are working really hard to deliver commitments and the expectations that we have made. I think as you look at our overall business, we have delivered strong volume momentum. We have made meaningful changes to how we operate, you know, both in our cost structure but also in our operations overall, which we have talked about. You know, I think restarting those curtailed lines in North America is a great sign in that volume that we are seeing come through. So we are really proud of the accomplishments that we have made in such a short amount of time. You know, that said, you know, turnarounds are not linear. Like I said in the prepared remarks, and we are navigating an ongoing competitive environment. You know, we are seeing continued soft traffic. There are continued macroeconomic headwinds. Like everyone is facing. But I will tell you, you know, as I look at it for the full year, I think North America is in a really solid position, and we are seeing more predictability, as I said earlier. You know, when I think about those international markets, they remain a bit more dynamic. We got to manage through that the right way. And you have heard us say this already, you know, there was a lot a good crop in Europe, which has led to lower costs in that market. There remains soft demand around traffic in those markets. And then as capacity has been built in some of those regions around the globe, there are less exports from Europe, which is creating some of the pressure in that market. That is really where the where the where you know, we are seeing the challenge in the future. Bernadette Madarieta: Yeah. And, Max, just to confirm, you know, in the prepared remarks, we did say that we are expecting to be near the midpoint of that EBITDA range. And again, the factors being price mix headwinds, as well as start-up and ramp-up costs in Argentina along with additional fixed factory burden from underutilization of the manufacturing in Europe. As we work to rebalance supply and demand. Max Gumport: Great. And to follow-up, I think, obviously, the shares are down meaningfully today. I think part of what is being reflected there is investor concern around if Lamb Weston Holdings, Inc. is not able to raise the low end of the guidance today. On EBITDA, what does that mean for '27? You know, for that lower half of the range. Is more likely than the remainder of '26. Then what does that imply for '27? Does it imply further EBITDA declines next year as well? Is there any commentary you can offer to push back against that just given how the shares are performing right now? Thanks very much. Mike Smith: Yeah. Here here yeah. Here is what I would say. You know, listen. We are working hard to deliver on our commitments and expectations, and I think we are taking prudence in our guidance to make sure that we deliver going forward. You know, I would say we are still early in the innings in our focused win plan. We just rolled it out five months ago. And, you know, the traffic environment remains a bit challenged. But we believe in our strategy. We have had some great improvements around our business, especially in costs and also building those customer partnerships. You know, a key element of improving our margin over the long term is going to be unlocking additional cost savings. We are well on our way this year. We believe we have the right plan in place to continue to do that in the future. But we will provide more details on what we think those margin targets will be once we are a little bit further along in our focus to win process. Bernadette Madarieta: Yeah. And just to add, as Mike said in the prepared remarks, North America is our most profitable segment. And it is in a solid position. There are some price mix headwinds in the back half of the year, and there are some incremental costs related to ramp-up but underutilization, and we have already provided an example of actions that we are taking to manage those costs. So for now, we expect to be closer to the midpoint but very important to keep in mind that our most profitable segment, the North America segment, is very strong right now. And international, we are working through those dynamics. Max Gumport: Thanks very much. Operator: Star one. We will go ahead and take our next question from Scott Marks with Jefferies. Scott Marks: Hey, good morning. Thanks so much for taking our questions. Wanted to ask a little bit about the price mix dynamic in North America. Specifically, you highlighted mix impact of that headwind. As it relates to the other side of it, kind of the trade support component, wondering maybe how you are thinking about that in terms of where your support is right now for customers and whether or not you believe there is some incremental support warranted, going forward, or are you comfortable with where levels are right now? Thanks. Mike Smith: Yeah. Appreciate the question. Listen. We are really focused on driving those customer partnerships and driving the volume. You saw that in the first half of the year. As we mentioned in our prepared remarks, about 90% of those large change contracts have been settled. We will have the rest of our contracts to get settled here over the next couple of weeks. And we feel good about where things are at. As we have gone through that RFP and contracting time period, there have been some customers where we have needed to defend some of the pricing to make sure that we succeed with those customers long term and keep those customers. And those are customers who are driving growth and having success in the marketplace. But as you said, I mean, the thing that I want to make sure is clear is that not all of this is price related. There is a mix component of which Bernadette talked about. And a piece of that is mix between customers within the restaurants also mix with some of those faster-growing QSRs and also some mix in our retail side of the business. We are seeing a shift from branded to private label. But the predictability of our North America business is much better than it has been in the past. Bernadette Madarieta: And just to make sure that in the prepared remarks, you did catch that we do expect in the second half for the price mix headwinds to moderate slightly as we lap the fiscal '25 pricing actions. So that is important to keep in mind as we look to the back half of the year. Scott Marks: Understood. Thanks for the answer there. Second question from me, maybe on prior calls, I think you had noted a significant amount of capacity in international markets. Or plans for international capacity that had been paused previously. But it sounds like today, you are talking about there has been actually some added capacity. Wondering if you can just help us kind of square the two, in terms of what, you know, what happened with those projects that were previously paused. Thanks. Mike Smith: Yeah. Listen. The pace of newly announced capacity has definitely slowed. I think what we have been speaking to is some of the capacity has been added over the course of the last year or so in some of those developing markets. But we believe that, you know, the industry is going to be rational over time. I probably am starting to sound a little bit like a broken record. And we will continue to manage our supply chain footprint, as we have in the past. We believe that when traffic returns, we are going to be well-positioned to benefit from that growth. But, again, you know, we have heard continue to hear of postponements or delays or even cancellations in this market and believe that the environment will be rational. Scott Marks: Understood. Thanks so much, and happy holidays. Mike Smith: Happy holidays. Operator: And the next question will come from Marc Torrente with Wells Fargo Securities. Marc Torrente: Hey, good morning and thank you for the questions. First, you called out visibility to volume growth in the back half with North America at or above the front half. I just want to get a sense of how much of that is driven by the fifty-third week and how the underlying momentum is against tougher laps. And I guess, what that could look like entering fiscal '27? Bernadette Madarieta: Yeah. So as it relates to our volume outlook, what we are expecting to see in the second half is that it will be relatively consistent other than the fifty-third week. Again, that is based on the pace of increase in volumes that we have had with some of our chain customers in the first half of the year. As it relates to international, we expect it to be flat in the second half of the year compared with the prior year as we continue to navigate those dynamics markets. Mike Smith: Yeah. And I have already shared a little bit about where, you know, at the right time, we will come back and talk about where we believe margin will be in the future, but we believe that our focused win plan has us on track and to deliver growth. You know, consumption, if you look at it, is expected to be between 24%. And over the next, call it, five years or so. And you are going to see that higher in emerging markets and lower in some of the more established markets. But I think as we have demonstrated in the first half of the year, we are implementing a strategy that positions us to gain share and really lean into some of those premium segments of the market. So we are really confident in our ability to grow volume with our customers even in a challenged environment or challenged traffic environment that we are seeing today. Marc Torrente: Okay. And then, yeah, on the traffic front, continues to be soft. Are you seeing anything in November December that suggests any improvement or deterioration? And what are your expectations for trends over, say, the next twelve months? Mike Smith: Yeah. You know, I think we just saw the November data last night. I think it is very consistent with what Bernadette shared in prepared remarks. Nothing different from that. Marc Torrente: Great. Thank you. Operator: And the next question will come from Carla Casella with JPMorgan. Carla Casella: Hi. Thanks for taking the question. Was just wondering if you could give us a little more color on terms of where you think overall industry capacity for pros and stands and if it varies dramatically by country or region. Mike Smith: Yeah. You know, I a little bit of that earlier. You know, like I said, you know, we believe that the market is going to be rational over time. I probably sound like a broken record. Said that in several calls over the last couple of quarters, but we have heard of delays and postponements. We have seen some capacity built in some of those developing markets, which is having an impact on exports out of Europe. Especially, given the low cost of raw. But again, there has been some consolidation in the market, and we will continue to see how that potentially impacts the future. But, you know, we believe that this industry is going to be rational and has been. We will manage through it the right way as we are and as you have seen in the first half of the year. Carla Casella: Okay. Great. I am sorry to ask. I missed part of the early part, but thank you so much for going over that again. Mike Smith: No problem. Operator: And the next question will come from William Reuter with Bank of America. William Reuter: Hi. Good morning. You have made some comments today about focusing on execution. Working with your partners, it sounds like in some instances, maybe you are paying penalties or having to accept pricing that is lower than would be fair based upon your prior missteps. Maybe some of the ERP challenges. I guess, do you believe that this is the case? And do you believe that over time, as you continue to have high fill rates, that you may be able to demand greater pricing from those customers? Mike Smith: Yeah. I do not think that is the case at all. You know, as we shared, we feel really good about where our North America business is at. You know, in the current macroeconomic environment and with slower traffic or softer traffic, we are winning in the marketplace when it comes to volume. So our customers are turning to Lamb Weston Holdings, Inc. because of that history of innovation, quality, consistency, and delivering on our service, and we are proving that. We spent a lot of time focused on our customers. And when you have the right focus, you see results. And that is what you are seeing in the marketplace right now and believe we will continue to do that in the future. As Bernadette mentioned, yes, price mix was down in our North America business. But it is important to keep in mind that a large sizable portion of that is from mix. Which is driven by some of those shifts from branded to private label and retail as well as some shifts between QSR customers or restaurant customers in the current traffic environment. Bernadette Madarieta: Yeah. And to be clear, all pricing has been based on competitive market conditions. William Reuter: Got it. That makes sense. And then with the stock down, you are still below your 3.5 times leverage target. How is this going to inform decisions on capital allocation and potential acceleration of share repurchases? Bernadette Madarieta: Yeah. So our capital allocation priorities remain consistent with what I shared in my prepared remarks. We are focused on spending capital. We will always where we need to spend to deliver our strategy and our business. As we have in the recent past, look at opportunistic share repurchases. You know, nothing will change there. But we are focused on delivering our capital allocation strategy, which includes investing in the business and returning cash to shareholders. William Reuter: Great. Happy holidays. Thanks. Bernadette Madarieta: Happy holidays. Mike Smith: Happy holidays, everyone. Operator: Thank you. And that does conclude the question and answer session. I will now turn the conference back over to Debbie Hancock. Debbie Hancock: Thank you, Justin, and thank you, everyone, for joining us today. The replay of the call will be available on our website later this afternoon. Have a great rest of your day, and a happy holiday season. Thank you. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. And have an excellent day.
Operator: Welcome to the Winnebago Industries First Quarter Fiscal 2026 Financial Results Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Joanne Ondala, Vice President, Treasury and Investor Relations. Miss Ondala, please go ahead. Joanne Ondala: Good morning, everyone, and thank you for joining us to discuss our fiscal 2026 first quarter results. This call is being broadcast live on our website at investor.wgo.net, and a replay of the call will be available on our website later today. The news release with our first quarter results was issued and posted to our website earlier this morning. Please note that the earnings slide deck that follows along with our prepared remarks is also available on the Investors section of our website under quarterly results. Turning to Slide two, certain statements made during today's conference call regarding Winnebago Industries and its operations may be considered forward-looking statements under securities law. The company cautions you that forward-looking statements involve a number of risks and are inherently uncertain, and a number of factors, many of which are beyond the company's control, could cause the actual results to differ materially from these statements. These factors are identified in our SEC filings, which we encourage you to read. In addition, on today's call, management will refer to GAAP and non-GAAP financial measures. The reconciliation of the non-GAAP measures to the comparable GAAP measures is available in our earnings press release. Please turn to Slide three. Hosting today's call are Michael Happe, President and Chief Executive Officer of Winnebago Industries, and Bryan Hughes, Senior Vice President and Chief Financial Officer. Mike will begin with an overview of our first quarter performance, as well as a forward view of the market. Bryan will discuss the associated drivers of our financial results and our updated fiscal year 2026 guidance. Mike will conclude our prepared remarks. Then management will be happy to take your questions. With that, please turn to Slide four as I hand the call over to Mike. Michael Happe: Thank you, Joanne, and good morning, everyone. Winnebago Industries posted strong top and bottom line results in the first quarter, performing ahead of our expectations and advancing meaningfully on our priorities. Revenue increased in all three segments, with operating profitability higher in both our motorhome and towable RV businesses. Marine segment results in Q1 were just slightly below prior year, which we view favorably given the continued softness in the industry. We entered fiscal 2026 with a disciplined plan and a pragmatic view of industry demand conditions. Our Q1 performance reflected steady execution against our controllables: product innovation, operational efficiency, and brand expansions, while navigating a macroeconomic backdrop that remains mixed. Although the recent rate relief from the Fed may be a positive development for consumers, as outlined during our year-end earnings call, our financial outlook remains firmly anchored in the strategic within our business and is not solely reliant on industry growth. In our Towable RV segment, affordability continues to shape buying power. We are aggressively leaning into the shift towards lower-priced products with models including the Transcend series, Imagine, and Reflection 100 from Grand Design, which enable families to enjoy the outdoors in a great travel trailer that combines quality and value. Winnebago's new Thrive is proving to be an exceptionally popular entry-level travel trailer among consumers whose RV journey is just getting started. While our recent share position in towables has room for growth, we are appropriately prioritizing profitability, stronger product value, and our dual-branded strategy. The transformation underway at Winnebago Towables is designed to give us a second strong brand and access to a higher quality and quantity of dealers in that category, an initiative we believe will lead to meaningful share growth over time. On the Motorhome RV side, we've grown our share in Class A gas, Class A diesel, and Class C over the most recent multi-month periods ended October 31. For many motorhome RV buyers, the priorities versus other RV types are greater convenience, premium amenities, reliable power, and more than ever, integrated technology. Our luxury Newmar brand and Grand Design motorhomes wrap growing Lineage series are hitting those sweet spots. The business refresh initiative is taking shape at our flagship Winnebago motorhomes business, further strengthening that brand as a third pillar of our motorized RV strategy. When you consider that over the trailing twelve months, as a premium branded OEM, we have achieved 33.9% share in Class A diesel, 21.4% share in Class B, 13.7% share in Class C, and 12.3% share in Class A gas, we are a formidable and well-diversified player in a dollar-weighted segment we believe will gain momentum as market conditions improve. The right side of Slide four highlights several products that contributed to our Q1 performance, including the Cabrio from Barletta, which had strong retail in the first quarter. Barletta continues to grow its position in the US aluminum pontoon space, ranking as the number three brand by market share in the segment. From a financial perspective, we've made outstanding progress over the past two quarters, strengthening our balance sheet, reducing our net leverage ratio, and driving positive operating cash flow. Q1 is a seasonally tougher cash generation period historically, and I am very pleased with our balance sheet standing going into calendar 2026. Bryan will provide more details on that shortly. Looking at key RV retail trends on slide five, based on preliminary FSI data, industry RV retail registrations declined 7.6% year over year in October before final adjustments, following a 2.2% net increase in the prior month. Keep in mind, gross monthly numbers are frequently adjusted upward as additional states report. On the wholesale side, North American RV unit shipments totaled just over 30,000 units in October. This is down about 1% from prior year, although on a calendar year-to-date basis, shipments are up about 4% higher. Specifically, towable unit shipments were down about 3% for the month and 4% higher for the calendar year-to-date period. Motorhome unit shipments grew nearly 13% in October and posted a growth rate of 3.5% calendar year-to-date. Based on RVIA's wholesale industry shipment data through October for calendar year 2025, we are revising our industry forecast upward to a range of 335,000 to 345,000 units, or a midpoint of 340,000 units, compared to our prior midpoint of 330,000 units. Our updated forecast essentially aligns with RVIA's current midpoint projection of 339,100 units for calendar year 2025. Now for calendar year 2026, we continue to expect North American RV wholesale shipments in the range of 315,000 to 345,000 units. Our midpoint of 330,000 units for 2026 is 5.5% lower than RVIA's current midpoint estimate, but more optimistic than some industry peers. We do expect the RV retail market to stabilize in the back half of our fiscal year. Inventory turns were 1.8 times in the first quarter, reflecting the seasonal shipment dynamics and dealer demand for our new products. Specifically, we are seeing dealer stocking orders on Grand Design Motorhome and Winnebago Towables as the channel embraces these new lineups. As noted on our year-end call, we are targeting two turns across all of our businesses generally as a yardstick to measure consistent growth and operational efficiency. This number will be dictated largely by dealer behavior and the rhythm of key business initiatives. Moving to the marine segment on slide six, sales improved modestly in the first quarter. Amid ongoing headwinds for the industry, our Barletta and Chris Craft brands continued to demonstrate disciplined inventory management and strong dealer relationships. Both brands saw positive retail momentum coming out of the 2025 Fort Lauderdale International Boat Show and received solid dealer orders from their fall dealer meetings. The customer reception to Chris Craft's Sportster series and the new Catalina 31 has been fantastic. Barletta has received accolades for its model year 2026 offerings, including its industry-exclusive TEC cover, which has been well received as a practical solution that simplifies the ownership experience. Dealer feedback has reinforced that this innovation addresses a real customer need and reflects our focus on thoughtful, owner-centric design. For the trailing twelve months ended October 31, Barletta expanded its share of the aluminum pontoon segment in the US by 30 basis points to 9.1% and has seen even stronger recent retail share results on a monthly standalone basis. Turning to slide seven, our Winnebago, Newmar, and Grand Design brands earned multiple top honors for the 2026 model year from leading RV industry publications. These include RV of the Year awards across several categories, top debut recognition for standout models like Freedom Air and Sun Flyer, best new models for Thrive and Foundation, editor's picks for SupremeAir, and Innovation of the Year for Grand Design's Lineage Shower System. These accolades and many more reflect our relentless focus on innovation, quality, and delivering exceptional experiences for every traveler. In addition, our Grand Design and Newmar businesses both received dealer satisfaction index awards this past November. Chris Craft and Barletta received industry customer satisfaction index awards in 2025 as well. On slide eight, I also want to highlight our recent recognition by Newsweek as one of America's most responsible companies. This was the fourth consecutive year we have received this award, reflecting our ongoing commitment to sustainability and social impact. In fiscal 2025, we contributed over $3.9 million, volunteered 13,600 employee hours, supported Habitat for Humanity Restores, and grew our employee resource group memberships by 38%. We also advanced inclusion initiatives and began a comprehensive sustainability assessment, with our annual and best-ever corporate responsibility report coming next month. Together, these achievements demonstrate how we're driving innovation forward while staying true to our values. I will now turn the call over to Bryan Hughes for the financial review. Bryan? Bryan Hughes: Thank you, Mike. Good morning, everyone. Starting on slide nine, in the first quarter, our net revenue growth exceeded 12%, primarily reflecting higher unit volume and selective price increases. Our towable RV and motorhome RV segments each posted double-digit percentage growth in the quarter, with our marine segment up low single digits on the top line compared to prior year. On a consolidated basis, warranty expense was 3.6% of net revenues, up 40 basis points from Q4, primarily reflecting our ongoing commitment to ensuring product quality and customer service. Operating expenses declined 3.2% compared to prior year, primarily related to the cost reduction initiative implemented in 2025, partially offset by investments to support the growth of our Grand Design motorhome business. On the bottom line, we reported adjusted earnings per diluted share of $0.38 compared with an adjusted net loss per share of $0.03 in the first quarter of last year. Turning to our segment results beginning with Towable RV on Slide 10. Net revenues grew 15.5%. This increase was driven by higher volume from products like the Grand Design Imagine, Grand Design Reflection, Winnebago's New Thrive, and Winnebago Access, all of which are resonating strongly with our dealer partners along with selective price increases partially offset by a mix shift toward lower price point products. Operating income margin of 3.8% improved 30 basis points from prior year primarily due to volume leverage. This increase was partially offset by higher warranty expense. Turning to our Motorhome segment performance on slide 11. First quarter net revenues grew 13.5% year over year. This was driven primarily by favorable product mix and selective price increases partially offset by lower unit volume. Motorhome RV segment operating income margin improved 390 basis points from the prior year due to targeted price increases, lower discounts and allowances, and lower warranty expense. As shown on slide 12, net revenues in the Marine segment for the first quarter grew 2.2% from prior year due to selective price increases, partially offset by lower unit volume. As we noted on our year-end call, both Chris Craft and Barletta have demonstrated strong discipline in managing production, adapting effectively to the cautious retail environment. We continued to strengthen our balance sheet in the first quarter while further reducing our net leverage ratio. Dealer inventory for the quarter remained essentially flat versus the Marine segment operating income comparable period of fiscal 2025, decreased less than 1% primarily due to lower unit volume. Turning to slide 13. Cash and cash equivalents were $181.7 million at quarter end, driven by $25.4 million in net cash from operating activities. While inventories increased just over 4% in the quarter, accounts receivables decreased by more than 22% from year-end, which contributed to improved working capital. We continue to manage working capital prudently, balancing inventory discipline with the flexibility to support retail demand. Adjusted EBITDA more than doubled year over year to $30.2 million and combined with our cash from operations reduced our net leverage ratio to 2.7x at the end of the quarter. We continue to target a net leverage ratio approximating two times by the end of 2026. Turning to guidance on slide 14. We are raising our fiscal 2026 full-year guidance as follows. Consolidated net revenues in the range of $2.8 billion to $3 billion versus a prior expectation of $2.75 billion to $2.95 billion. Reported earnings per diluted share in the range of $1.40 to $2.10 compared with $1.25 to $1.95 previously and adjusted earnings per diluted share in the range of $2.10 to $2.80 versus a prior range of $2.20 to $2.70. From a segment perspective, we continue to expect flat to modest low single-digit growth in the towable RV segment. In the motorhome RV segment, we remain on track for operating income improvement in the low single digits for the fiscal year. Even with some outperformance in the marine segment in the first quarter, industry retail trends remain soft. And as a result, we expect full-year net revenues to be down in fiscal 2026 compared to the prior year. Our revenue and earnings expectations for the fiscal year reflect the strength of our performance rather than reliance on industry-level unit growth. This approach underscores confidence in our ability to deliver results through disciplined execution and strategic initiatives regardless of external market fluctuations. For Q2, we expect a modest increase versus the prior year's Q2 sales, driven by growth in the Motorhome segment. We expect Q2 sales to be down sequentially from Q1 due to the normal seasonal flow of our business further influenced by dealers' preference for low inventory. Similar to sales, we expect EPS to be down sequentially in Q2. Compared to the prior year, we expect EPS to be flat to up modestly taking into consideration the relatively strong sequential recovery we witnessed in Q2 EPS last year. I want to reiterate that our financial guidance reflects current trade policy positions and prevailing tariff rates, which remain under a broader legal challenge before the US Supreme Court concerning presidential tariff authority. Now let me take a moment to formally introduce Joanne Ondala, who has recently expanded her role to lead investor relations here at Winnebago Industries. Since joining the organization more than four years ago, Joanne has been a critical leader on our enterprise team in building the foundation for our strategic planning, risk management, and business development initiatives. And most recently has led our treasury function. Joanne brings a strong background in strategy, corporate development, and finance, including senior roles at Tenant Company and Ecolab. We are excited to leverage Joanne's broad skill set in this new capacity. Joanne, I'll hand things over to you for some brief comments. Joanne Ondala: Thank you, Bryan. I am thrilled to lead the Investor Relations function at Winnebago Industries. During my time at the company, I've deeply valued my work with our commercial and banking partners, and I'm eager to bring that same level of engagement to our analysts and shareholders. I look forward to working with all of you as we execute on our long-term growth strategy. Now please turn to Slide 15 as I hand the call back to Mike for his closing comments. Michael Happe: Thanks, Joanne. In closing, Winnebago Industries continues to demonstrate disciplined execution and resilience across our diversified portfolio. We are expanding margins, strengthening our balance sheet, and advancing a focused product roadmap that positions us for sustainable growth. The process we outlined last quarter—delivering better products, deepening dealer partnerships, and driving operational performance—are gaining meaningful traction and generating tangible results. On slide 15, which we discussed on our year-end call, this shows what we believe are the key drivers for our success in fiscal 2026. While we continue to navigate a dynamic market environment, we do so with a realistic and disciplined optimism. Our approach is rooted in intentional risk management and targeted investment, ensuring we deploy resources where returns are clear and sustainable. Above all, we are committed to supporting our dealer partners and consumers with innovative, high-quality products that deliver on our purpose: elevating every moment outdoors. Now, Bryan and I are happy to take your questions this morning. Operator, please open the line for the Q&A session. Operator: And wait for your name to be announced. Our first question comes from Craig Kennison with Baird. Your line is open. Craig Kennison: Hey. Good morning. Mike, a lot of optimism building around the 2026 retail consumer driven by lower rates and tax policy. What signals are you looking for to ascertain whether your end markets might grow for the first time since the pandemic? Michael Happe: Yeah. Good morning, Craig. The retail environment, as Bryan Hughes indicated in his comments, continues to be soft and tempered here in the fall, early winter the last few months of 2025. But as you well know, we are heading into our retail show season really in the January and February, even early March, periods where we hit the retail shows hard with our RV and marine brands. And so certainly one sign we'll be looking for here in the next, you know, thirty to ninety days is the foot traffic, but more importantly, the retail appetite from consumers at these shows. The other note that I would probably include would be reception to the new products that our teams are bringing to the market. We have a slate of new products across many of our brands. And we'll be monitoring carefully the consumer and dealer reception candidly to those new products in the near future. So as you well know, the early parts of the calendar year are important barometers for the industries that we compete in. And by the time we show up on our next call in March, we'll certainly obviously have a good understanding as to retail prospects in calendar '26. Bryan Hughes: Hey, Craig. I'll just add. You know, we continue to monitor as you would expect, a basket of macro indicators. You know, it's certainly helpful to have interest rates reduced, but lower gas prices, housing starts. We had a good inflation reading. And then certainly and probably most importantly, consumer sentiment we'll keep a close eye on that as well. All these things will certainly weigh in contribute to, an improved retail environment as you would expect. And if I could, on a follow-up, I know you've got some affordable units in the market now that chase a new price point and a new consumer. But I'm wondering if you can look at your portfolio of customers today and wonder, I guess I'm wondering when we might see an upgrade cycle, if feels like that has been deferred much like the housing market, but you should be pretty well positioned as consumers look for higher quality. And I'm wondering if you're seeing any of that in your checks or data. Michael Happe: Craig, we agree with your sentiments about the deferral of an upgrade cycle that seems to have taken place over the last couple years. I think many of our industry peers are also thinking the same thing. We are not seeing probably yet any signs of that upgrade cycle taking off with any significant momentum. Again, you know, we'll see if that happens in the '26. As you said, I mean, our brands are positioned better from an accessibility standpoint for a first-time or younger or more cost-conscious buyers. But we are absolutely well positioned for those consumers that are looking for a step up in product to, especially products that offer innovation quality, and a great aftermarket customer experience as well. So optimistic that as the cycle eventually turns upward, know, that our product lineups and brands are well positioned. Craig Kennison: Thank you. Operator: Thank you. Our next question comes from Joe Altobello with Raymond James. Your line is open. Joe Altobello: First question on the Towable business. It looks like incremental margins almost $40 million year over year. Operating income was up about $2 million. I know you guys called out higher warranty expense, but what were the big driver or drivers of that were pretty light this quarter. I think revenue was up. Bryan Hughes: Yeah. Good morning, Joseph. Bryan. You know, warranty was certainly one of the drivers. We continue to have some mix you know, that we are seeing as headwinds as well. I'd say that those are the primary drivers. You know, down at this level of volume, you know, a lot of the equation is leverage. We did have growth, as you pointed out, which contributed favorably. But overall, I think those are the drivers. It's mix. It's and it is that higher warranty expense. Joe Altobello: Got it. Okay. And just in terms of the guidance for this year, if I look at your industry shipment outlook, it calls for at least at the midpoints a little bit of decline in calendar 2026. What sort of market share trends on the RV side are you guys baking into that guidance? Michael Happe: Craig, we are or excuse me, Joe, good morning, by the way. This is Mike. We are absolutely looking to drive a little bit of market share in fiscal twenty-six. It'll be in areas like super c's from Newmar and Grand Design, The Winnebago brand should see some share lift as well. We anticipate, obviously, share increases with some of our Grand Design travel trailers, Transcend brand specifically. And then when you get to the marine side, Barletta continues to show very strong market share growth. You know, in even in recent individual months, that haven't been reported, I'm quite confident that you'll see Barletta standalone monthly market share continue to be at very impressive levels. I do want to emphasize, Joe, that, know, we have been very consistent since the call in October. And including the call this morning. That much of our increase in earnings from fiscal twenty-five to fiscal twenty-six is within our control. And while we are somewhat conservative on our industry wholesale shipment assumptions that we're sharing, we view any upside to the number that we're sharing as something that could flow through to our financials in the future. We are executing the controllables here at Winnebago Industries. Operational discipline, we have significant cost improvement, margin improvement, initiatives that are happening new products that are being launched that we believe will both drive share, but also potentially, you know, add some profitability as well. So our plan is really based this fiscal year on what we can control. And we'll certainly be agile should the market grow. Or even decline versus our current assumption. Joe Altobello: Got it. Okay. Thank you, guys. Operator: Thank you. Our next question comes from Scott Stember with ROTHMKM. Your line is open. Scott Stember: Good morning, and thanks for taking my questions. Michael Happe: Yeah. Good morning, Scott. Scott Stember: Yeah. Clearly, some very nice progress here on the operational front. But just trying to get a sense of the price increases that you guys talked about on a select basis. On RV. Just trying to get a sense of the size and the scale and basically see if you've seen any pushback at retail at any point just given those increases. Michael Happe: Yeah. Good morning, Scott. I think the word that we used was selective related to the price increases, and that is an important word. The market is not conducive nor supportive of broad significant price increases, even with some of the cost input pressure that we're seeing from still ongoing tariffs for the time being. So our teams are really focusing their pricing around new products, around some of the feature enhancements we made in the latest model year transition. Certainly, as we transform some of our brands, like particularly the Winnebago brand of RVs, we are actively pruning both the motorized and towable lines under the Winnebago brand, by discontinuing some products that were not performing at retail and candidly, we're pressuring our margin and replacing those with healthier products. In some cases, even with probably an ASP lift as well. So the pricing is intentional, but it's also disciplined and selective. And we'll monitor the cost input environment, obviously, here as we go forward. We have seen a few shifts in some commodities like aluminum lately as an example. That we'll have to react to in the future if those trends continue. But to your point, we have to price to market and not necessarily to profit, because we do want to maintain and in fact, grow market share over time as well. Scott Stember: Got it. And then just, touching on the comment you made about what's in your control within guidance. I guess given your commentary about where you expect Q2 to come in on the bottom line, obviously, back half of the year is virtually everything. So just trying to get a sense of self-help items versus the market. Just trying to get a sense of how much will be based on what you have in your control. Michael Happe: Yeah, Scott. Our business model, as you well know, is always back half loaded from an EPS standpoint. Q1 and Q2 from our fiscal year timing are always softer from an EPS contribution standpoint. So the back half loading isn't abnormal from my standpoint from a historical perspective. That being said, when I talk about controllables, I talk about several of the cost management and profit improvement initiatives we have underway here at the company. In different parts of the business, across supply chain, I talk about a lot of the new products that we're bringing out. Some of which the market doesn't know about yet that we'll be bringing to some of the retail shows later in the spring for the first time. We have brand expansion going on, and we're candidly still seeing stock ins on business revenue streams like Grand Design Motorized and Winnebago Towables. The new class c Freedom Air from Newmar has not hit the market yet in any material way. So the back half of the year is certainly a reflection of a market assumption that we've been transparent about. But to your point, it's a collection of the commercial and the operational initiatives that we're driving. And so while we still have a relatively broad range on the guidance, I think you can take our moderate guidance increase this quarter to reflect our confidence in executing Q1 well and looking at the following three quarters, Q2 and Q4, and saying, listen, most of those results are within our control. Scott Stember: Got it. Thanks again. Operator: Thank you. Our next question comes from Tristan Thomas with BMO Capital Markets. Your line is open. Tristan Thomas: Hey. Good morning. Michael Happe: Good morning. Tristan Thomas: You guys shipped in above retail during the quarter tied to new products. How should we think about that retail wholesale relationship the rest of the year? Michael Happe: Well, we've been very clear that, you know, every business is expected to try to drive their trailing twelve-month turns level in the field to around two times. Now there's some seasonality related to that. There'll be businesses that will be slightly above that. At times, there will be businesses that are slightly below that. As an example, our motorized RV businesses, at times tend to run below two times, particularly in the high-end Newmar type product. But I would say we're really trying to stay disciplined. And with the exception of new products, and some of these, let's call it sort of brand reinvigoration efforts. Or new revenue streams like Grand Design Motorized. We're really trying to stay disciplined and keep dealer inventory in good shape. If you look at our aging inventory, Tristan, year over year in macro, on both the RV and marine side, the percentage of aged inventory in our businesses is on a consolidated basis, less than it was a year ago. And so we not only feel good about the quantity of inventory in the business, but we are particularly pleased with the quality of the inventory at this time. The next three, four months are gonna be critical, obviously, to seeing what retail, how that will shape up in '26 selling season and how some of the current model of your inventory moves going forward. Tristan Thomas: Okay. Thank you. And this is necessarily a directly related follow-up. But just, you mentioned a couple of times some of the operational and margin improvement initiatives you've done. My understanding is a lot of that's the motor asset? So can you maybe just give an update on everything you've done and how much more there is to come and kind of what you're doing. Thanks. Michael Happe: Yeah. We probably use the word operational from a broad definition standpoint, but we have been more transparent about the operational initiatives particularly around our Winnebago motor home business where we have been consolidating the footprint where we are undergoing rationalization of vertical discussions and even actions here at the company. We have been consolidating assembly lines across much of the RV portfolio candidly. There are lines that are not running today that were running two years ago. But there are also lines in, and or buildings in the company that are running multiple models today that weren't doing that a couple years ago as well. I also use the word operational when talking about supply chain efforts. As Bryan indicated, our tariff exposure for fiscal year twenty-six is embedded in the guidance that he provided, but there's a significant amount of work being done to obviously mitigate the tariff pressures. But also more importantly, we are really putting our foot on the pedal on what we'll call coordinated or centralized strategic sourcing initiatives to try to be smarter about how we buy, working with our valued supply partners, but also leveraging candidly some of the volume that we do have. And even working on things like engineering efficiency, to harmonize specs on key components across brands. That allows us to buy a little smarter. So, you know, over time, I think we'll probably figure out a way how to be more articulate about some of these operations initiatives and how they'll improve or contribute to improving gross margin in the future. But you know, there's a lot of things going on across the whole of the portfolio. Tristan Thomas: Thank you. Operator: Thank you. Our next question comes from Mike Albanese with Benchmarkstone X. Your line is open. Mike Albanese: Yeah. Hey. Good morning, guys. Thanks for taking my question. Nice to see some momentum in the business. Here. Just quickly on Grand Design, Motor, could you just comment on where you're tracking relative to your expectations as it relates to kind of that initial $100 million dealer stock? Michael Happe: Yeah. We had mentioned in our fiscal twenty-five year that Grand Design Motorized would exceed $100 million in net revenue. And in fact, for the year that ended in August, we did reach that goal. The great news about the Grand Design Motorized strategy is that it's multiyear in its formation. We have a candidly, a three to five-year plan on making Grand Design Motorized one of the most exciting brands in the motorized segment. We've already reached more than four points of market share, fifteen months into this journey. And many of the products that are on the wish list at Grand Design from a motorized perspective have not seen the light of day yet in the market. So we are really pleased with the products that have been released. Even some things that, you know, candidly, I personally wasn't sure how the market would react to, like the series f lineage, super c. That's been fantastic. The market has reacted very strongly. And as you all know, the super c category has been one of those sort of hot trendy categories in motorized RVs the last several years. So we're on track, if not ahead of our plan. We just gave our board an update on this here recently as well. So we anticipate, you know, fiscal twenty-six to benefit. But from the continued progression, not just at wholesale, but in the market and with our dealer relationships from the retail success that we're beginning to see across their line. So very, very excited about that particular business initiative. Bryan Hughes: Yeah, and the series M for that the Grand Design Motorhome series m is already number two, number three in its class. For retail share. So just a phenomenal entry point by that particular model and floor plan. And then similarly, as Mike was just talking about the class f, a super c has already achieved a top three rating as well in retail. So, you know, the two models that they've come forward with have both hit the market extremely well. Both from a retail and wholesale perspective. Mike Albanese: That's great context. Thank you. That just quick follow-up. That you know, initial stock, if you will, for some of these new models, I mean, how would you frame the opportunity size relative to, you know, the original lineage that came out? And yeah, I'm just trying to think about growth here as new models are implemented. Michael Happe: Yeah. Michael, we're not sharing a specific target number for Grand Design Motorized for fiscal twenty-six as it becomes a more meaningful part of the portfolio. We tend to obviously share disclosure by segment, but you can expect it to grow. You know, we won't provide a sales target this morning. Some of the back half wholesale volume certainly be dependent on retail replenishment of current models in the field. In addition to any new products that you'll see Grand Design Motorized bring to the market, you know, as well. Mike Albanese: Fair enough. Thanks. And then just another quick one, if I may. I just want to follow-up on mix shift. Obviously, you have some selective price increases. You come out with new models across the board to kinda meet consumers where they're at from an affordability standpoint. Just taking a step back here and thinking about the overall mix shift from the consumer, they've obviously, over the last couple of years, gravitated toward those value products. I mean, are we still moving in that direction, or has that kind of stabilized? And, again, that's a little more industry-specific than company-specific because you have some that are obviously affecting mix shift within your portfolio. But Michael Happe: Yeah. I don't think the consumer has stabilized quite yet from an affordability perspective. I mean, as you guys are well aware, there's a lot of chatter in the financial media and many industries about consumer affordability, particularly of this discretionary higher-priced items. I'll tell you this. We're kinda playing the game at both ends. We have absolutely improved our lower price point products. Almost in every brand that we carry. And so while we sometimes don't get that first-time buyer, we have a better chance through some of the products that we've introduced here recently with access the Winnebago Towables line, Transcend One in the Grand Design line, The ARIA from Barletta continues to do fantastic. But when I say we're playing both ends, we're also introducing products with higher price points that are being successful as well. The Super C products from Newmar and Grand Design are a good example of that. You know, some of Barletta's best-performing brands continue to be in the higher side of their line. The LUSO, of which I own a LUSO myself. That continues to be a really strong performer in the Barletta line, and that's probably their one of their top two or three brands in the whole catalog. And so we're gonna try to have a broad full lineup within, better bet within our segments. And not only attract more affordable consumers, but those consumers who also have a little higher level of discernment and will trade up buy up, and expect the best as well. So we don't talk a lot about retail dollar share on the call. Candidly because we don't have the greatest data here at Winnebago Industries. But I'm really confident that if you look at the combination of our unit retail volume, and our ASP trends versus the rest of the market, that we're actually gaining retail market share, in both the RV and marine industry. And I think that's just as important as unit volume. You take dollars to the bank, and those retail dollars, you know, ultimately are really, really valuable to us. Bryan Hughes: The only other thing I'd add as it relates to mix is that, you know, we welcome the more recent strength in both retail and growth in the motor home business. You know, as I think everyone on the call understands motor home for a long time had been seeing declines. And more recently, we're finally starting to see that show year over year improvement. So we welcome that trend as well, as it relates to our portfolio of business. Mike Albanese: Got it. Great contacts. Appreciate it. Nice quarter, guys. Thank you. Michael Happe: Thank you, Mike. Operator: Thank you. Our next question comes from Bret Jordan with Jefferies. Your line is open. Bret Jordan: Hey, good morning, guys. Michael Happe: Good morning, Bret. Bret Jordan: Pretty much everything's been asked. But I guess one macro question when you think about your forecast for 2026, what is the assumption on sort of a rate backdrop? And, you know, what kind of Fed move would make you either more positive or negative on that outlook? Bryan Hughes: Yeah. But this is Bryan. You know, we hesitate to drop too much correlation to Fed action. We are anticipating from a macro perspective another two to three twenty-five point cuts over the next year. I think that that's the prevailing expectation in how the bond market's priced out right now. You know, what happens to the ten-year as I think you know, Bret, is probably more important for our industry as it relates to floor plan financing costs as well as retail finance. So we'll keep a close eye on that. You know, there's differing points of view, I think, as to what will happen with the ten-year rate. You know, as it relates to the correlation between that and the fed funds rate. But that's kinda how we're thinking about it right now. Bret Jordan: Okay. Great. Thank you. Operator: You bet. Thank you. Our next question comes from Noah Zatzkin with KeyBanc Capital Markets. Your line is open. Noah Zatzkin: Hi. Thanks for taking my questions. I guess, first, just on the margin recapture initiatives at Winnebago Motorhomes. You touched on this a bit, but any way to, like, quantify kind of the magnitude of those initiatives on the improvement in motorized margins in the quarter? And then just kind of thinking through like where you are maybe, like, in terms of innings or opportunity that's kind of left from a margin perspective? Structurally moving forward. Any thoughts would be helpful. Thanks. Michael Happe: Yeah. Good morning, Noah, and thanks for the questions. Let me comment. The other motorized contributors in that segment, which means from a positive standpoint that the contributions of a stronger Winnebago motorhome business are still ahead of us. Not just in fiscal twenty-six, but fiscal twenty-seven. That particular business is obviously our flagship legacy business. We're very busy there under Chris West's leadership and his team. To improve that business. I would not tell you that the financial benefits of that business are being quite felt yet within the Q1 financials. But the expectation is that those do grow sequentially in the future. So we're not providing specific dollar references there, but that journey should become a bigger contributor in the future. Bryan Hughes: Yeah. I guess what I'd add, on that one, Noah, is you know, we gave guidance that the motor home segment would reach OI yield in the low single digits. We stand by that guidance. You know, that compares to a negative 0.6% so slightly negative OI yield in '25. So that continues to be our target. Hey, I think we saw a good proof point in Q1. You know, some good improvement there. A lot of the improvements longer term, including the back half of fiscal year, are tied to the product and the new introductions, the refreshes that the team is working very hard on. And as Mike alluded to, some of those are yet to really impact the yield. So we look for continued improvement there long term. But we like what we saw in Q1 here as it relates to an initial proof point. Noah Zatzkin: That's really helpful. And maybe just one more. Thinking about this from an industry perspective, I think motorized shipments have been kind of stronger at least year over year overall for the industry. Of late. When you think about kind of inventory levels there for the industry, as well as drivers of that, is that more that levels kind of got the products that they want to have in the class c space. We're watching that class c category carefully. It's pretty crowded. There's a lot of competition. And I would say the turns in that class c category need to be a little bit higher in the future. And hopefully, we'll see some retail momentum in the calendar '26 to help the whole industry, you know, get the inventory in that particular segment, maybe even in a little bit better shape. But, you know, I don't think we're overly concerned. You know, the dealers are putting their bets there, and obviously, the OEMs are working closely with them. I don't know, Bryan, if you'd have. Bryan Hughes: Just one small add. You know, we feel really good about our dealer inventory position. We saw a pretty sizable decline year over year, 19% in inventories. Out in the field, and that is even with the launch of the Grand Design Motorhome and the stocking up in the feed of that business, the series M and F. So we feel really good about our position there, and I think that that will serve us well throughout fiscal twenty-six. Noah Zatzkin: Thank you. Operator: Thank you. Our next question comes from John Healy with Northcoast Research. Your line is open. John Healy: I wanted to ask one about the margin outlook in the business and how it ties into the tariff environment we're in. Mike, I know you've mentioned numerous times on the call that you guys are working on sourcing, working with your suppliers. You're doing all the things that we would expect you to. But was curious if there's been any development in terms of tying cost and input costs to the actual tariff environment. Have you been able to develop any sort of linkage? So, theoretically, if we do get some relief on tariffs, and maybe certain ones kinda go to the wayside in calendar '26, is there any sort of kind of automatic kind of indexed type relief that you would get, or is this gonna be a situation where you have to go back and try to price some dollars out of things? And you know, hypothetically, is there a view with your suppliers that hey. We need to maybe share more of this or work with more of this than there was six months ago. Just to impact and solve this affordability issue. Because when I listen to calls of your industry, everyone talks about affordability and interest rates. But you know, it seems like there could be more giveback with the suppliers and the sourcing community. So was hoping to hear your thoughts on that. Thanks. Michael Happe: Thank you, John, for the question. So multiple dimensions to what you talked about. Let me try to break it down efficiently here. We have a very robust tariff exposure risk management process in the company. It extends from our centralized strategic sourcing function as the air traffic control tower on that, to deep within the businesses in terms of their day-to-day with suppliers. I think we feel good that there's a high level of transparency by our tier one suppliers as to the tariff pressures that they have been experiencing. They're not always the importer of record, that they have either tier two or tier three supply relationships that pass those costs up to them. And in many cases, our suppliers have agreed to defer and or share the increased tariff costs that we've seen since April of 2025. But that's on a case-by-case basis, and it's one of those cases where if you don't ask, you may not get that as an initial response, but our supply chain partnerships have been good there. We've also done a lot of other things in terms of engineering design, bill of material management, working through some of our own raw materials, and component inventory to try to be creative and mitigate that. And so while that's been a Herculean exercise for really the last eight, nine months, we feel good about managing the exposure. And as I said earlier, Bryan's guidance here this morning embeds that into our earnings outlook for fiscal twenty-six. Now overall, should the Supreme Court make the decision target for fiscal twenty-six to secure some savings. And that doesn't always necessarily mean that's a bad thing for our supply chain. That just may mean that we're going about our purchasing just a little bit differently as well. There could be some consolidation or of how many suppliers we use on a certain part. So all of that is kinda baked into this, you know, I think 40% plus increase in EPS year over year. It's one of the controllables, quote, unquote, that we believe that we can execute in the year. But tariffs continue to be very top of mind and we'll manage those for as long as that pressure is upon us. But you're absolutely right that any input pressure cost-wise in this industry is nonconstructive. You talked about in Newmar having competitors in lower price segments. Are we talking just new product there? Or are you actually talking about price reductions? Because that's a luxury brand. You don't have a lot of leeway to cut pricing there. Bryan Hughes: Yes. Good morning, David. Good to hear from you. It's really about new products in the Newmar business. Not price reductions. I would tell you that Casey Tubman, who leads that has been very disciplined with, again, managing their floor plan and their model mix to make sure that, you know, we have the right floor plans that are moving in the market. So you may see a little ASP shift, you know, because of that. Newmar is one of our most coveted brand assets. Just a tremendous consumer experience, great dealer partnerships, and the product is second to none in the marketplace. So everything we do at Newmar is about maintaining that brand promise that is luxury, that is second to none. So when we talk about affordability there, it's really coming up with new products. That, you know, maybe fill out the little lower side of that luxury lineup, on the pricing side. So the Freedom Air in the class c space is premium versus the other class c's in the market. But it is affordable for people to get into the Newmar brand in a whole different way. So it depends on how you kinda define affordability. But a lot of people wanna get into that brand and we're trying to provide a catalog there that gives them access across multiple segments. But, no, we're not looking to raise price dramatically on that brand by any means, but we're certainly trying to keep that consumer experience just best in class. Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to Joanne Ondala for closing remarks. Joanne Ondala: Thank you all for joining us. For those of you planning to attend the upcoming Florida RV Super Show in Tampa, we look forward to meeting with you. Have a wonderful holiday season. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for your continued patience. Your meeting will begin shortly. If you need any assistance today, please press 0. A member of our team would be happy to help you. Operator: Please stand by. John B. Gibson: Good morning, and welcome to Paychex, Inc. Second Quarter Fiscal 2026 Earnings Call. Participating on the call today are John B. Gibson and Robert Lewis Schrader. Following the speakers' prepared remarks, there will be a Q&A session. As a reminder, this conference is being recorded, and your participation implies consent to our recording of this call. I would now like to turn the call over to Robert Lewis Schrader, Paychex, Inc. Chief Financial Officer. Robert Lewis Schrader: Thank you for joining us to discuss Paychex, Inc. second quarter fiscal 2026 results. Our earnings release and presentation are available on our Investor Relations website. We plan to file our Form 10-Q with the SEC within a couple of business days. This call is being webcast live and will be available for replay on our Investor Relations portal. Today's call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. We will also reference non-GAAP financial measures, descriptions of these items, along with the reconciliation of the non-GAAP measures, can be found in our earnings release. I would now like to turn the call over to John B. Gibson, our President and CEO. John B. Gibson: Thanks, Bob. I'll start with the second quarter business highlights, and then Bob will cover financial results and our outlook. And then afterwards, of course, we'll open it up for your questions. We delivered solid second quarter results, with revenue up 18% year-over-year and adjusted operating income grew 21% over the prior year driven by higher productivity as we continue to demonstrate our long-standing capability to be the best operators and begin to drive AI into our operational systems and overall DNA of the company. We are proud of the significant progress we've made in advancing our strategic priorities, including the Paycor acquisition and integration and our data and AI initiatives. We continue to make progress on the Paycor integration. As best operators, we continue to identify additional expense and now expect approximately $100 million in cost synergies for fiscal year 2026. We also remain on track to achieve the revenue synergies targets we set for this fiscal year. We continue to strengthen broker relationships through our Partner Plus program and refresh value proposition centered on delivering greater value to our partners as we continue to expand and fully integrate the Paychex Enterprise team with Paycor. Cross-sales efforts continue to gain traction with broker-referred PEO deals and with larger clients than initially anticipated. We continue to make steady progress executing our go-to-market technology and cultural integration initiatives that are critical in an acquisition of this size, scale, and complexity. Our PEO business continues to perform well, achieving market-leading mid-single-digit worksite employee growth, driven by strong demand and near-record retention. Our PEO solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies, supporting their efforts to attract and retain talent in a tight labor market. October enrollment for our at-risk Florida MPP plan came in largely as expected, and early indications for January enrollment give us confidence in finishing the year with solid revenue growth in the PEO. Regarding the labor market, our clients' workforce levels remain relatively stable with flat same-store employment growth this quarter. Our small business employment watch index, while down from last year, has remained relatively stable throughout 2025. And our other indicators show no signs of a recession at this time. Small businesses continue to face challenges sourcing qualified talent in competitive labor markets, areas where we believe our solutions are uniquely positioned to add value. They are also looking for ways to manage costs. We remain confident in our value proposition, and demand for our HR technology and advisory solutions continues to be in line with our expectations. We are halfway through the year and pleased with the progress we've made to date. As we look at where we are today in the middle of our busy selling season, we have seen some trends that impact a few key metrics. Bob will provide more color about how we are thinking about those in the context of the balance of the year. Given the increased focus on AI, this morning, we published a presentation outlining why we believe Paychex, Inc. is well-positioned to succeed in this AI era, why we see ourselves as less exposed to AI employment risk, and how we are capitalizing on AI-driven opportunities. I encourage you to review it, but I'll share a few highlights. Starting with AI-related employee risk, we believe our portfolio is less exposed due to our client base and our business model. Over 70% of our clients' employees work in industries that are harder to displace, in blue and gray-collar industries, and the majority work at smaller businesses where staff often wear multiple hats and AI investment tends to be lower. If AI disrupts large firms disproportionately, over 70% of our clients' employees work in talent may shift to smaller businesses benefiting our clients. Meanwhile, our clients continue to face talent shortages, and AI can help improve efficiencies to address those gaps. From a business model perspective, our revenue model has a significant fixed base fee component and has for years, providing downside protection against employment fluctuations. We also differentiate from tech-only providers by combining advanced technology with HR experts who provide strategic guidance and nuanced advice, which is difficult for our competitors in AI to replicate. In terms of our differentiation, AI success hinges on data quality and data scale. With one of the largest proprietary datasets in the industry, we believe we have a powerful competitive advantage to drive superior AI performance. In December, we proudly announced our patent-pending AI-powered knowledge mesh system, which transforms unstructured data such as phone calls and emails into a connected searchable network. This innovation unlocks deep insights and enables smarter workforce management, positioning us at the forefront of AI-driven solutions. Paychex, Inc. has a strong track record of delivering pragmatic AI solutions focused on measurable outcomes such as time saved and friction removed from everyday processes. We are accelerating AI innovations that enhance efficiency and improve client outcomes while fueling our growth. We recently launched our GenAI-powered employment law and compliance platform that helps clients and Paychex, Inc. HR experts efficiently navigate thousands of constantly changing federal, state, and local laws, generating compliant documents and staying current with the regulations. Since its deployment, we have seen strong adoption and frequent utilization by our HR experts. This advancement is key to our strategy to have the leading expert-embedded technology platforms for businesses of all sizes, and we will be integrating across our three platforms: SurePayroll, Paychex Flex, and Paycor. We are proud that both Paychex Flex and Paycor platforms were recognized as leaders in Nelson Hall's 2025 HCM technology and Gen AI evaluation. This distinction highlights our strength in delivering intelligent HCM solutions that enhance client outcomes, streamline HR processes, and support our partners. We are excited to share that our first Agenic AI pilots were a success this quarter. They autonomously handled thousands of payroll calls and emails with nearly 100% accuracy, decreasing payroll processing time, and enabling our service teams to focus on higher-value strategic advisory support. We are continuing to invest in these capabilities and are actively exploring additional applications across the business. In sales, we are leveraging a new GenAI platform to drive revenue growth and improve efficiency by equipping our sales teams with instant answers, tailored scripts, objection handling, and prospecting insights. These AI-driven advancements reinforce our commitment to being the digitally driven HR leader by reinventing the HCM experience as AI-first. By leveraging our unique blend of innovative HCM technology, our unrivaled data, and deep HR expertise, we believe Paychex, Inc. is well-positioned to capitalize on the evolving AI landscape to drive growth, expand margins, and strengthen our leadership in HCM. I will now turn the call over to Bob to discuss our financial performance and outlook. Robert Lewis Schrader: Thank you, John. I'll begin with an overview of our second quarter financial results, followed by an update on our fiscal 2026 outlook. Total revenue increased 18% over the prior year to $1.6 billion. Management Solutions revenue grew 21% to $1.2 billion, with Paycor contributing approximately 17 percentage points to the growth. Growth was primarily driven by product penetration and price realization, but was moderated primarily by softer than expected revenue per client. Operating margin was 41.7% in the quarter, driven by increased productivity and continued cost discipline. Diluted earnings per share decreased 4% to $1.10 per share, and adjusted diluted earnings per share increased 11% to $1.26 per share. Our financial position remains strong with cash, restricted cash, and total corporate investments of $1.6 billion and total borrowings of approximately $5 billion as of the end of the quarter. Operating cash flows for the quarter were $445 million, largely driven by net income. During the quarter, we returned $514 million to shareholders in the form of cash dividends and share buybacks. Our twelve-month rolling return on equity remains robust at 40%. I'll now turn to our guidance for fiscal 2026. This outlook reflects the current macro environment, which has some uncertainty. We are reaffirming our fiscal 2026 outlook with the exception of raising our earnings expectations. However, given some of the trends that we've discussed earlier, we would now expect to come in towards the low end of the ranges for management solutions, PEO and insurance, and total revenue. Interest on funds held for clients is now expected to be at the high end of the range, of the $190 million to $200 million range that we previously provided. We are also raising our earnings expectations with adjusted diluted earnings per share now expected to grow between 10-11%, up from the 9-11% we shared last quarter. Our effective income tax rate for the year is expected to be approximately 24%. All other guidance metrics remain unchanged. Let me turn to the third quarter just to provide you some color with where we would expect to come out in the third quarter. We anticipate total revenue growth of approximately 18% with an adjusted operating margin between 47-48%. Just as a reminder, Q3 is one of our larger quarters, both from a revenue and operating margin standpoint, driven by the higher margin year-end fees that get recognized during the quarter. I'll now turn the call back over to John. John B. Gibson: Thank you, Bob. We will now open the call for your questions. Thank you. Operator: Press 1 to ask a question. Our first question comes from Mark Steven Marcon with Baird. Your line is open. Mark Steven Marcon: Good morning and thanks for taking my questions. Nice to see the earnings strength. The stock's down three and a half percent right now, and you've got so many positive things to talk about. But I wanted to address initially the underlying reason, which seems to be around Paycor. When we go through the math, in terms of the contribution from Paycor, it looks like even if we adjust in the form filings from December, the growth wasn't significant. So I was wondering, this seems like it's optics and there's obviously integration challenges. But can you just initially address this, what you're seeing with regards to Paycor? And then I'd like to follow-up. Thank you. Robert Lewis Schrader: Sure, Mark. This is Bob. Happy holidays. I'll address the first question. First of all, I think as we've talked about in the past, we're trying to give our best estimates of what the contribution to Paycor is. We've talked about how we've integrated the business, and I think when you do that math, we're giving round numbers approximately 17%. I think giving a point specific number would imply a level of specificity that just isn't there given how we've integrated the businesses. But I think when you do that math and, you know, it's 17%, a little bit north of that, a little bit south of that, as you know, you've already done kind of looking at last year. If you look at their quarter last year, that ended in December, and that is when they have a lot of their year-end processing fees. So you have to adjust, and I know you're trying to adjust for that. I'm not sure that I have your math in front of me. But our best estimate, on a pro forma basis, now you're asking us to explain how it grew versus last year when we didn't own the asset. Our best estimate during the quarter is that it grew between 8% to 9%, and it was certainly in line to, I would say, slightly better than what we saw in Q1. Yes. And Mark, I would just say this is John. I would say, look, when we looked at it against how we're measuring it, we continue to progress well against the opportunities that we identified to drive value. We're achieving the revenue synergies that we laid out for this fiscal year. For the first half. And quite frankly, we're beating the cost synergies. As you recall, our original target was at $80 million. And we've now committed to $100 million, and we have more opportunities we're pursuing. Client and revenue retention in that client base continues to exceed plan and is at their historical levels. Activity and bookings continue to accelerate through the first half of the fiscal year. As you can imagine, when we announced the deal in January, a lot of uncertainty. As you can imagine, bookings kind of dropped at that point in time. We finally own the asset in April. We've seen steady progress. Actually, we see broker bookings in the quarter. We're back to pre-acquisition quarters. Again, after dropping for the announcement. So we feel good about where we are at this point in time. As Bob said, we've integrated the businesses. We're upselling our products and services. Some of that revenue goes to other places. We're moving clients, of course, across platforms. Where potentially the client's not in the best platform position, both in terms of moving Flex clients into Paycor, moving Paycor clients into Flex. So there's a lot of movement going on. It's extremely difficult to get with precision because we're not looking at the business as Paycor as a standalone business. It is now our enterprise, a 100-plus market segment. Hope that helps. Mark Steven Marcon: That does. And just as a follow-up, just two quick ones. Quick commentary just with regards to I know we're halfway through the selling season, but what are you seeing so far? And then secondly, just on the cost side, clearly doing a great job. And I'm particularly excited about what you're talking about with regards to the Agenic pilots that have handled things with 100% accuracy. What does that make you how does that make you feel with regards to the longer-term cost synergies that you could end up getting from some of these efforts? Thank you. And happy holidays. Robert Lewis Schrader: Thank you, Laurie. Let me segment. Let's start with the let's start let's start kind of maybe with demand. I mean, I think we feel good about our competitive position. I and staffing going into now, as you know, in the lower end of the market. We're into the we're not even into the selling season yet. Q2 was in line with our expectations in past Q2s. I think demand for our solution remains consistent with historical levels, really no surprises there. Our activity is actually up pretty significantly. What I would tell you is what I see is I see a lot of shoppers out there. You know, again, we know that people are very cost-conscious right now. And I would say, you know, prospects and clients are looking for value in managing their costs very carefully. And you know, that's what we see in the market. Feel good about where we are. In terms of where we are at this point in the selling season and feel good about our setup going into the remaining of the selling season. Look. On the cost side, look. You know, we take great pride as a company in our DNA of being the best operators. You know, I think we have been working with I don't know whatever AI was called before it was AI. You know, we've been doing that. That's built in. Certainly, the revolution that's occurring in the speed of the advancement we're getting our hands on these tools. We've now deployed AI to every one of our 19,000 employees. And we have a process by which we're encouraging them to build their own AI models to help them each and every day. So I think we're just scratching the surface of what the potential is. What I would tell you is, at least strategically for us, we're going to continue to balance what we've always done, which we're going to continue to grow the business, invest in growth and innovation the top line of the business. As we do that, we're going to continue to look for ways to expand margins proportionally to that. And then we're going to invest, and we're going to continue to invest in our back office. One of the great opportunities that I see for us with AI and some of the things that we're doing with our patent-pending mesh network is we're really putting our service providers in a position now where they can be true advisers. And I think what we've learned in our advisory side of the business is when we have an advisory relationship with the client, lifetime value goes up, retention goes up, our ability to upsell goes up. So I think you'll see that as we display some of the transactional work, gonna do a lot. We're gonna invest a lot in really repositioning our people to be more proactive and be proactive advisers for our clients and look for ways that we can use our data assets and information we have to provide higher value to our clients. We think if we do that, we're gonna improve the lifetime value of the customers. And I think we're gonna create a competitive moat that's gonna be very challenging for others to, to ask. I encourage all of our competitors to add a thousand HR their business model next week. Mark Steven Marcon: Great. Thanks a lot, and happy holidays. Robert Lewis Schrader: Thanks, Mark. Happy holidays. Operator: We'll take our next question from Bryan C. Bergin with TD Cowen. Your line is open. Bryan C. Bergin: Hey, guys. Good morning. Happy holidays. We'll start on the fiscal 2026 growth guide here. So just wanted to dig in on your comment there, Bob, on the greater comfort at the low end of the range now. And you noted penetration and price realization have been driving growth so far, but I guess softer than expected revenue per client. So could you just talk about that a bit more? Robert Lewis Schrader: Yeah. I mean, it's really, across the board and it isn't in any one specific business. I mean, obviously, when we look at those two items that you highlighted, price realization and product penetration drive revenue growth and our revenue per client growth. And that had been strong. It just was a bit softer than what we assumed in the plan. I'd probably call out a few areas. We are seeing a little bit smaller deal sizes, and John can comment on that. We've seen a little bit less attachment upfront at the point of sale. Obviously, those things impact revenue per client. And then I would tell you on our HR outsourcing solution, which is one of our highest value solutions, you know, volumes have been in line or better than our expectations, but it has been at a little bit softer rate than we assumed when we put together our plan. And so, you know, as we sit here, and services that we could sell. I thought we were well-positioned. What I would tell you is I think prospects and clients are looking for value. And they're managing their costs very, very closely. So when I look at, you know, sitting a rep into the field and they have three bundles, you know, good, better, best to sell, and we're making some predictions about historic how people have picked those various bundles. What I would say is I think people are being careful on what they're adding. So we were generally adding two modules additional, or three modules. Maybe we're adding two today. The good thing is we're getting the clients. Now we gotta go back. And as we've had a track record of doing is going back into our base and upselling them as times go forward. So that's just what we see in the market right now. Like I said, a lot of activity the proposal activity, and the meeting activities are solid. I just think there's a lot of shoppers out there. That's what I'd say. Bryan C. Bergin: Okay. Understood. Thank you. Thank you for that detail. And my thoughts is on Paycor. So the 8% to 9% that you mentioned earlier, is that adjusted to remove out the December form filings? Just any context around that, please. Robert Lewis Schrader: Yeah. Yes. Absolutely. Again, as I mentioned, Bryan, it's an estimate. At best, but I assume that most of you guys would go back to their Q2 and look at what the recurring revenue my team did that and we're like, doesn't make sense. And then we realized that, hey. December, you know, we didn't own the asset last year, but we realized that they had all their form filing in December. And so when we adjust that and compare apples to apples, and adjust it to our fiscal quarter and you do that math, that's where you get to the 8% to 9% pro forma growth. Bryan C. Bergin: Okay. Thank you. Happy holidays. Robert Lewis Schrader: Yep. Happy holidays. Operator: We'll move next to Bryan Keane with Citi. Your line is open. Bryan Keane: Just to follow-up on Paycor, is it still a low double-digit grower? Or should we be modeling more in this eight to 9% growth territory for this fiscal year? Robert Lewis Schrader: Yeah. I think we generally said, Bryan, we expect it to be double digits. I would tell you that the revenue per client comments that we made related to, maybe being a bit softer than our expectations. It was interesting. It was really across the board to every line of our business. We saw that. And same thing with Paycor. I do think we saw some similar trends with maybe not as much attachment upfront than what we assumed. As well as maybe a little bit lower average deal size. So hey, we'll see where it plays out as we get through the balance of the year, but I would still expect it to be, if not low double digits, high single-digit grower. As we move forward. Bryan Keane: Yeah. I got it. Again, Bryan, again, just probably for everybody because this is where I continually want to make sure everybody understands how we're managing the business, and I understand why you're asking the question, why you're asking it. And Bob and the team are trying to model two different companies at the same time. You know, we've integrated the business, and we have integrated businesses and we're going into the 50,000 Paycor clients, and we're beginning to upsell them. So remember, we upsell something ASO or insurance or whatever we upsell. That revenue is gonna show up somewhere else in the P&L. We're also they had a lot of customers in the lower end of the market. Those clients may have been better off on our Flex platform in terms of what they were looking for, or we had clients in the upper end that were on Flex platform that were in our P&L that we're moving over to Paycor because that's a better technology fit for them. You've got all this geography moving that's going on, so it's very difficult. I think for us, too as we continue to get into this, into the cross-sell movements, that we get into the customer success movements that we're doing, that, again, we just really gotta begin to look at Paycor as our enterprise segment for Paychex, Inc. going forward. We're gonna continue to try to do everything we can to guide you guys and give you the information as best we can. But I wanted to at least give Bob and his team some air coverage and some of the challenges that we're creating for them we're saying we're gonna go do this and it's the right thing to do for the customer, and it's the right thing to do for the shareholders too. Bryan Keane: No, that's helpful. And then just to follow-up on managed services. So the smaller deal sizes, the less attachment and then the softer rates in HR, are those all macro driven, or is anything fundamental happening there, competition, causing some of that softness? Robert Lewis Schrader: Yeah. There's nothing competitive that I'm seeing. It's all macro, but what's interesting is when you go remember, we've got market segments set up. So we've got various market segments based upon client size. So we start there. We got multiple bundles for each of those segments. That each of the sales forces go. What's interesting, you go to retirement. And we go out in the retirement market. And, typically, we see an average client size of x. And lo and behold, the average size is lower. Okay? Now you go over into our under 10. Segment. Go out there. We're selling the volume. We have an average number of, we have number of client size. We also have a regular distribution of our three packages they can sell. Normal, in that market. Average size is lower. And we're seeing more clients pick the lower lower end bundle. They're still buying but they're buying the lower bundle. They're not buying as many in the middle bundle. Then you go to the mid segment. And you see some of these similar trends that are going across each of the segments, and you just begin to realize that there is a macro. What I think you're seeing is what I said, which is I think there's a lot of people shopping. And I think a lot of businesses are trying to manage their costs. It's not that they don't want to have the bell and whistle, but at the end of the day, they may only be able to afford the bell. And what we gotta do is just continue to try to see if we can sell them the whistle. Down the road. Bryan Keane: Okay. Very helpful. Happy holidays. Robert Lewis Schrader: Happy holidays. Same to you, Bryan. Operator: We'll move next to Tien-Tsin Huang with JPMorgan. Your line is open. Tien-Tsin Huang: Hey, thanks so much. I'm just curious, like given the smaller deal size commentary you just shared there, any consideration or thought to changing your pricing and packaging of bundles? Maybe there's an opportunity here to sell more at a more value or at a lower price. Curious if this is the new normal, how you might adjust is really what I'm trying to get at here. Robert Lewis Schrader: Yeah. Well, Tien-Tsin, I would say between SurePayroll, Paychex Flex, and Paycor, and the various bundles and options that we have, I think we have everything we need in our arsenal to position the client. I would say there's more work, and we're still working through this from a go-to-market strategy. We don't have reps selling across all the platforms like probably we will someday, but that will take time to do. But my point is I think we have everything that we need. I actually view that our pricing is an advantage to us particularly some of the commentary that I hear out there. You have a lot of fixed fee components to our pricing model. We think that's advantaged given the employment situation. So we feel good about where our pricing is. We do have an initiative and effort underway across the three platforms to look at that strategically, but that's something that's going to take time both for us to model and for us to execute. But we feel right now that between the three platforms, and the various bundles and offerings that we have, that we have something pretty much for everyone. And so I feel good about where we are. Tien-Tsin Huang: Yeah. No. It does seem like opportunity, which is why I thought I'd ask the question. Thank you for that. Just on the just my just on PEO that did come in better, similar question. Is the insurance rate a bigger selling point here? I'm just trying to understand it. If you're reading it that way and there's an opportunity to lean harder on the PEO front given this macro situation that we're in, perhaps prospects are valuing the insurance offering more in this push towards value. Your thoughts? Robert Lewis Schrader: Well, look. The PEO is performing extremely well, on all aspects of it. Demand, retention, really across the board. Like I said, the numbers would be even more impressive for the PEO and insurance market if we didn't have the insurance agency dragging down, and we're making some changes there, to improve that performance. But you know, we've never been a cheap insurance value proposition. And nor do we intend to be. I will tell you that a lot of clients are shopping. Health care inflation is a real issue. It probably feeds some of the macro comments I just said in terms of if you're a business and you're facing high health care costs, now you gotta come up and figure that out. What we did see in our enrollment is we've not seen clients dropping health care at the rate we saw last year, which is a positive. Thus far. So that's pretty much through and done. We kinda know that. But that puts a lot of pressure when you're getting 10 to 15% increases. So I think we're doing very well externally. I do think that when you look out in the PEO market, there's a lot of very high rate increases going out there. We may be a bit of a benefactor from some of that. Coming into the market. But, again, cheap benefits is not our value proposition. Never has been, never will. Tien-Tsin Huang: Yep. No. Thanks so much for the details. Operator: We'll take our next from Andrew Owen Nicholas with William Blair. Your line is open. Andrew Owen Nicholas: Hi, good morning. Thanks for taking my questions. Wanted to talk a bit about the upsell motion to PEO specifically. Kind of a two-parter here. One on just overall Paycor client receptivity to PEO. And then also, kind of in this environment, and you just spoke to some of the unique dynamics with health care inflation. Is the percentage of worksite employees going into the PEO business from your kind of HRMS segment evolved at all? Is there a bigger percentage coming from existing clients than previously, or is that remained relatively steady in this environment? Thank you. Robert Lewis Schrader: Yes. Ed, it's remained consistent in and the PEO is one of our stronger outside the base organization. So it's five fifty-fifty, I would imagine. Somewhere around there. Maybe a little sometimes it tilts a little more outside the base, sometimes it tilts a more inside the base, but it's not it's not an inside the base play. Your question on the Paycor side, we've actually been very pleased with the receptivity of the PEO. Remember, our PEO did partner with brokers, insurance brokers already, so that was the one area of our business where we already had a broker relationship program. Brokers, insurance brokers tend to use the PEO as one of the alternatives that they position to their clients where it makes sense. And we've actually been very pleased with the early progress. And what we've been most pleased with is the size. Been very surprised at the size of deals that we've been able to both get on our ASO HR outsourcing, but also on the PEO side. So we are working jointly within the Paycor client base, working with our customer success leaders as well as with our brokers. To make sure that they know that we have this option, and it's a great option for them to consider if their client is facing, you know, a rate that they that maybe we can do better at in the PEO. Andrew Owen Nicholas: That's helpful. Thank you. And then switching gears, really appreciate the AI investor presentation that you put out, including some of the examples of wins and benefits. Is there any way to quantify? Or maybe it's not in the numbers yet, but kind of the impact on cost efficiency it sounds like, you know, you're doing things using Agenetic AI to streamline payroll without people. Is that something that is already impacting headcount? You'd expect to impact headcount in the future, or is it more having those same individuals do more with their current hourly availability or capacity? Robert Lewis Schrader: Yeah. Look, I think that we have been using predecessors of AI and early models of AI for decades. Since I've been with the company, it's been big of what we're doing. You don't get to our margins. If you compare our margins to other players, unless you're using every tool in your arsenal, to be able to drive margins. Now what we're going to do with that margin, because I think this is important, our point of view is what's gonna continue to differentiate us is we're going to have experts and advisers embedded into our technology. We're going to more proactively engage our customers in the small and mid-end with our people. And so when we're using these tools, we're making our people more productive. And then we're driving more advisory conversations and relationship-building conversations with our customers. That's our goal. Now over time, do I think we can grow our business without adding as much headcount as we historically have? Absolutely. I think that's well with and we've done that for the last decade. If you go back, if you looked at the number of service people we had when we had 400,000 clients, versus what we now have with 800,000 clients. I think you would say that we've done that very effectively. And I think that's a model that we will continue to work on. Andrew Owen Nicholas: Thank you very much. Robert Lewis Schrader: Yep. Thank you. Operator: We'll move next to James Eugene Faucette with Morgan Stanley. Your line is open. James Eugene Faucette: Thanks so much. A couple of follow-up questions for me. First, on the incremental realized gains on the investment portfolio from Paycor, are those gains included in the guide moving forward? And were they contemplated when you put together your forecast for the second quarter? Robert Lewis Schrader: Yeah. I mean, it's definitely in the full year high. It already happened in Q2, and it was contemplated. Maybe I'll just provide a little more color on it, James. I mean, this was part of our integration plan, taking over the client fund portfolio at Paycor. You know, given, you know, they were largely invested short and, you know, just given our liquidity and financial strength. You know, our main priority when we took it over was, you know, understand the cash flow needs of it, but really wanted to allocate that long, to lock in those balances before interest rates went down. And so that was part of what we did in Q1. When and that was our main priority. And when we looked at, you know, they did have a long-term portion, but their long-term portion, I would say, skewed more on the front end of the curve. And so when we put the two portfolios together and I started looking at the treasury team started looking at the duration of our long-term portfolio, it was getting well below what we typically target. Typically, we're in around three years on average duration, and we were getting closer to two. So this was an opportunity that was identified early on. We didn't get to execute it on it in Q1. We knew we were gonna execute on it in Q2. I had some sense of what the impact was going to be. Didn't know exactly what it was gonna be. It was probably a little bit higher than I thought it was gonna be. As you know, interest rates move every day, but it was certainly part of the plan and I think a big win, you know, now that we've taken over the balances. And I would tell you, we now have a more balanced laddering of the securities the curve when we look at our long-term portfolio. James Eugene Faucette: Great. And then I wanna just check-in on kind of some of the go-to-market changes you've made. You've talked about territory resets and broker program launches. What are you seeing there, and how are you feeling about your ability to deliver efficacy and when do you expect to see the full benefit in bookings momentum? Thanks. John B. Gibson: Yeah, James. I'll handle that one. As you know, we did a lot of that disruptive work, right after the acquisition was announced. We talked about that in prior piece, was we tried to move very quickly. We reestablished a lot of new teams, new territories. Reset that. So a lot of that was done right after the acquisition after acquisition was in that April April, May time frame going into the fiscal year. As you can imagine, that was disruptive. And so what we've been focused on is really, you know, continuing to just drive execution there, continuing to support the team. So we feel good about where we are. That hard lifting is kind of behind us. We've kind of got the model set up. We've got the go-to-market message. We have the Partner Plus program out there for the brokers. Everybody knows what their list is. Everybody knows what they should be doing. Everybody knows what they're selling. And we're continuing to see activity and bookings accelerate to first half of the year. So, you know, again, these things take time. This is very complex as you can imagine, particularly when you do this much go-to-market disruption. But I'm very pleased that, like I said, every quarter since we've done this, we've seen improvements. Our the broker network and the Paycor side is still contributing. 50% of the bookings, and we continue to see that up. And we actually saw in the second quarter got back to booking numbers from brokers that were similar to what it was before the acquisition was announced. So I'm pleased with the progress, and I feel very good about where we are from a staffing perspective going into the remainder of the selling season. James Eugene Faucette: Great. Thanks, guys. John B. Gibson: Thanks, James. Operator: We'll take our next question from Samad Saleem Samana with Jefferies. Your line is open. Samad Saleem Samana: Hi, good morning. Thanks for taking my questions. Maybe first, Bob, just on the question about the guidance and nudging toward the low end, you mentioned in that that, I guess, you got feedback from investors that maybe there is risk in the back comment that about guidance and that's partly what drove the recalibration. I guess I just want to understand is it the underlying variables in the model that made you think the lower end is better for us or is it more about to be at because of what you're seeing in the business? Derisking the numbers because we all thought it might be tough to hit? Just maybe help us understand the mechanics and the variables and the adjustments were to bring that lower end, which implies that back half production down. Robert Lewis Schrader: Yep. And maybe I misspoke, Samad, there. I mean, certainly, that did not factor into what we did with the guide. I think we felt, like, the guide you know, when we came out with it in Q1 and last quarter, felt comfortable with it. I was just making the point that in addition, we'd heard that you guys thought we were too aggressive in the back half but that's not really what drove the guide down. It's really again, I would tell you through the first half of the year that it's largely played out, you know, an execution and certainly from a macro standpoint. Where we expected it. It's the couple of things that we highlighted on the management solutions side. Is strong revenue per client, just a little bit softer than what we had in our plan. And we talked about some of those reasons. And then on the PEO side, the PEO has exceeded our expectations through the first six months of the year. We had another quarter of double-digit demand. We had near record levels of retention. We continue to see strong worksite employee growth. And when you look at the PEO and Insurance category, this is what I was telling everyone was gonna happen because you start getting easier compares as you move into the back half of the year and we anniversary those enrollments that we have where we had the headwind last year, sequentially PEO and Insurance went from 3% in Q1 to 6%. And that's despite some of the challenges that we continue to see on the agency. John mentioned, we're working on that, but the agency has a headwind. We continue to see some challenges with worker comp worker comp rates and lower health and benefit volumes. The PEO grew high single digits in the quarter. So it's really the combination of what we're seeing on the agency side on the PEO and insurance business and then the revenue per client comments that we made on Management Solutions, that's really what's steering us to the lower end of the ranges. I was just also commenting that you guys were already kind of there from a consensus standpoint. And had shared that feedback that you thought we were too aggressive, but that certainly didn't play into our thinking. Although, I do appreciate your feedback, Samad. Samad Saleem Samana: Appreciate that, and thank you for that color. And then maybe just one follow-up. I know it's been covered about what you're seeing in terms of maybe new bookings and average revenue per customer there. But in terms of pricing inside the install base on renewals, are you seeing any either is it kind of a similar consistent pricing environment where traditional price increases are going through? Are you moderating price increases on renewal, maybe just help us understand what's going on inside the existing book of business, both in maybe management solutions at the Robert Lewis Schrader: No. We continue to drive the value proposition and value in the customer base we continue to get the realization that we expected. In our plan. Which I would also say is higher than what we were getting prior to the pandemic. We've added a lot of product to that. So we've added some things to the bundle to support our clients in understanding why the price is the price, but we've added additional product capabilities, and we've been able to sustain that in the payroll business. So Samad Saleem Samana: Understood. Happy holidays, guys. Thank you again. Robert Lewis Schrader: Thanks. Operator: We'll take our next question from Will Chi on for Ashish Sabadra with RBC Capital Markets. Your line is open. Will Chi: Appreciate you guys taking our question. Maybe just on the AI presentation report, on Slide 15, as you guys are thinking about the go-to-market strategy and the monetization there, do these AI products lend themselves to more pricing power than some of the non-AI products, improving kind of revenue per client? Or, given the current environment where there's some choice of cost, is it helping offset some of that with the productivity improvement that you're able to show to clients? And just in general, from a timing perspective, did you see any uplift from these products as a start hitting more clients or there's more traction gain from an adoption perspective? Robert Lewis Schrader: It's a broad question. I would say that AI is going to help us in multiple ways improve the value proposition for clients, in terms of our ability to do more for them probably at less cost, the ability for us to provide them more insights. When I look at what we're planning to do across each one of the three over the course of the next year, in terms of redoing the customer experience, and making it more AI forward, I think our clients are going to love that. And I think that's going to help us not only keep our existing clients, but I think it's going to allow us to attract new clients as well. The productization of AI, I think, is still to be determined. And I think there are areas where we will add that into the bundles as a way to enhance and support the price increases that we've just talked about and driving additional value. And then I think there are other components of AI that will have such value to the customer that I think the customer will be willing to pay for that. Think of our retention insights where our clients that are using that, our compensation insights that we're providing. Again, where else can you get if you're a small medium-sized business owner, relative to that information to tell you whether or not you're paying your chef the right amount or the wrong amount. And we have over 250 million data points. Those are compensation surveys. Every large company in America can buy them. Small business owners have never had access to that kind of information. That's something we think is valuable. We think they'll pay more for it. So again, I think AI is going to be very interesting as we try to productize it. We're going to try to improve the customer experience. We're going to try to add more value to our products and differentiate ourselves because very few players are going to have the depth of insights and information from our data that we can provide. Inside the technology. And then at the end, I think there's going to be additional products and services that we're going to be able to charge incremental for because they're going to provide more value or simply things are have never been available to small, medium-sized businesses. And that's one of the great things I think Paychex, Inc. has done historically is we democratize these things that are only for big businesses. Right? That's why that it's our 401k business. When you look at our insurance business, it's in the low end of the low end of the customer segment where not a lot of people don't want to go or they don't know how to go and do it profitably. We're going to continue to look for ways that we can drive AI into our products for all of our customers. Will Chi: Thank you, guys. Happy holidays. Robert Lewis Schrader: Happy holidays. Operator: We'll take our next question from Kartik Mehta with Northcoast Research. Your line is open. Kartik Mehta: Hey, good morning, John and Bob. Hey, John. You know, you've talked about customers being a little bit more price conscious, especially around where the economy is. But then you also said you feel good about getting the price realization that you were originally anticipated. I'm wondering, you know, just trying to make sense of those comments if customers are being more cost-conscious. Will they not push back on pricing, or are you doing something different? To make sure that doesn't happen? John B. Gibson: Well, I think you gotta separate the world. Right? I think once you're a customer of ours, we're gonna do everything we can to make sure that you love us and that we're providing additional value and support to you to the point where you're saying, yeah. This is worth what I had. And quite frankly, then you've got the whole prospect area. What I would say, usually, go out into the market what we see. People are shopping. They want a lot of things. They're not willing to pay they're not willing to pay, or they're only gonna pay a certain amount. For what they're going to do. And what we're seeing is they're picking the lower the lower bundles or they're not attaching as many things. It's not that we're not getting attachment. Let's be very clear. We're getting the attachment. We're just not getting the attachment at the rate that we had put in the plan which was, which is what we assumed. Know if that answers your question or not. Kartik Mehta: No. That helps that helps. Hey, Bob. Just a question for you on your buyback. Seems like the buyback was higher this quarter than you've done in the past. In the past, your strategy has been, let's do enough to offset dilution. But seems like this time is a little bit more. I'm wondering, is that a change in strategy, a one-quarter event, or is this something you can continue doing? Robert Lewis Schrader: Yeah. Good question, Kartik. You I mean, we had an existing authorization out there. We had capacity on it. And as you mentioned, I think our philosophy hasn't necessarily changed. We typically try to maintain a flat share account and buy back shares. The offset dilution. You know, that being said, I think if you go back six months ago when we kind of closed out last year and provided our outlook for this year. I think as we sit here today, I don't think John and I believe that our future growth opportunities are any less today than they were six months ago. And, you know, six months ago, the stock was in the in the January. And so, hey. We're gonna continue to focus on the fundamentals. I know we're gonna continue to manage the business to try to continue to be a high-quality compounder. And my hope is over time, that comes back into favor. And opportunistically, I looked at where the value was and pulled forward some future purchases. And really no change in philosophy, just more opportunistic Kartik. Kartik Mehta: Perfect. Thanks, Bob. I appreciate it. Hope you and John have a great holiday. Robert Lewis Schrader: Hey. Good luck on Sunday. Go Bills. Kartik Mehta: We'll talk about that later. Operator: We'll move next to Scott Darren Wurtzel with Wolfe Research. Your line is open. Scott Darren Wurtzel: Hey. Good morning, guys, and thanks for taking my questions here. Bob, just had a question on the sort of 3Q guide and calling for total revenue growth of 18%. If I kind of do some back of the envelope math and assume some degree of acceleration on the PEO side of the business as you lap the MPP headwinds. You know, it implies not really too much change on the MS side, and I'm just trying to kind of square that with some of show up in fiscal 3Q. So any, you know, color you can give on the different moving parts there would be super helpful. Robert Lewis Schrader: Yeah. I mean, again, I don't want to get into the habit of giving timing around, you know, Paycor form filing revenue that they quarterly guidance. We try to give you color and obviously I try to set myself up so I can at least be in line with the numbers. So we expect the business, as you mentioned, you're going to see acceleration like we did this quarter with the PEO, in insurance. We're gonna anniversary, you know, the annual enrollment in January and some of the headwinds from last year. We're going to continue to make progress on Paycor integration, the synergy realization where we had success, you know, that revenue is going to start flowing into the back half of the year. So you know, I'm, you know, sitting here in the middle of the year, we still have selling season. There's probably an element of conservatism in there, but we would expect the business to continue to accelerate. Scott Darren Wurtzel: Got it. That's helpful. And then just on the AI side, I know you guys mentioned having sort of, like, an AI-powered sales engine. Just wondering how you know, how much that's deployed across your Salesforce, and any noticeable productivity gains that you're seeing off of that? Thanks. Robert Lewis Schrader: Yes, Scott. I would say that we launched it maybe it's been sixty days ago, into a pilot group. And, it took actually, it went rogue on us is what happens. Once we were gonna do a pilot and then people started hearing about started demanding it. So it's early on. We'll certainly use it during selling season. It's a pretty powerful tool in we're pretty much fully deployed at this point in time within the Paychex, Inc. Salesforce. We're still doing some additional integration work on the Paycor side in inside their go-to-market systems. But the sales teams are loving it at this point in time. Scott Darren Wurtzel: Okay. Thanks, guys. Robert Lewis Schrader: Yep. Operator: We'll take our next question from Jason Alan Kupferberg with Wells Fargo. Your line is open. Jason Alan Kupferberg: Good morning, guys. Thanks. So I'm wondering just in the Management Solutions segment, if you expect the organic growth rate to improve off the current 4% levels just as we move into the second half? And then just any thoughts on a realistic organic growth rate for the MS business once you lap Paycor? Robert Lewis Schrader: Yeah. I mean, we definitely expect it to get better in the back half of the year, Jason. I mean, I don't wanna give a longer-term growth until we, you know, get through this year with the integration. And, obviously, synergy realization plays into that. But, you know, we expect some modest acceleration to the organic growth rate in Management Solutions, probably moving closer towards the, you know, 5% range, over time, but that definitely there is some acceleration there in the back half of the year. Jason Alan Kupferberg: Understood. Understood. And then I wanna just ask a follow-up on PEO. I know we've talked about it already out on the call, but you're at 4.5% year to date and you'll need to do, I guess, seven and a half percent in the second half to get to the lower end of the six to eight range that you're pointing us to. And obviously, we know the lapping of the comps etcetera. But, you know, maybe if you can just talk through any other factors driving the acceleration and just some commentary on your visibility to kind of get three points of acceleration from first half to second half? Robert Lewis Schrader: It's a good question. I would start with pointing to the three points of acceleration that happened this quarter relative to last quarter. And again, some of that is, I know there's been some confusion around it and concern and, you know, a lot of it you know, there's strong execution there for sure. As I mentioned, you know, we had double-digit demand and really strong retention again this quarter. But some of it is just the easier compare, Jason, as you move into the half of the year. So we just anniversaried in October the annual enrollment. Last year, there were some headwinds from that. You know, that's probably only 25% of the M enrollment is in October. The rest of it is in January. So you're going to have another lapping or anniversarying of the enrollment. And the headwind from last year. So the comps are just gonna get better. So it's a combination of the comps getting better and we continue to see strong execution in the business. As I mentioned, I mean, that 6% number was weighted down from some of the challenges that we see in the agency. PEO grew high single digits in the quarter. So we feel really good about where we are, with the PEO and as we move into the back half of the year. Jason Alan Kupferberg: Okay. Understood. Enjoy the holidays. Thanks. Robert Lewis Schrader: Happy holidays. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to the presenters for any additional or closing remarks. John B. Gibson: Thank you, Coy. Listen, appreciate everybody, being with us here Friday before the holiday. So, just to summarize, we delivered a solid double-digit revenue and adjusted operating income growth this quarter. I'm very proud of the team and all the hard work that's went in. This has been a challenging year. For both the Paychex, Inc. team and the Paycor team. You know, coming together, working together, you know, there as you can imagine, going through integrations like this are always challenging. From an emotional side and a cultural side and a people side. You have to make some tough decisions. Everyone has to deal with change. And I've just been so proud, of the team. Not only the Paychex, Inc. team, but the Paycor team. As you know, we've had great employee retention there, and we've brought on some great talent. Into the organization. And there's no question to me, that we're better together. And I think as we continue to come together, as an organization, around a one paycheck strategy that we're executing. I really think there's tons of opportunity. And that's why Bob said before, this combination added $10 billion of total addressable market. And so we like the runway in front of us. We like the team we have. And we're committed to executing as we go into 2026. So we're very proud of the significant progress we've made. Our latest AI advancements, very proud of the innovation is being driven across all the platforms. I really think it's going to further differentiate us and position Paychex, Inc. for growth. Margin expansion, which we're known for, and really leadership in the human capital management industry as we enter this new AI era. That we're all entering. So thank you for your continued support and interest in Paychex, Inc. and I hope everyone has a happy Hanukkah and a happy holidays. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and welcome to the Conagra Brands Second Quarter Fiscal Year 2026 Earnings Q&A Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Matthew Nieses. Please go ahead. Matthew Nieses: Good morning, everyone, and thank you for joining us. Once again, I'm joined this morning by Sean Connolly, our CEO, and Dave Marberger, our CFO. We may be making some forward-looking statements and discussing non-GAAP financial measures during this Q&A session. Please see our earnings release, prepared remarks, presentation materials, and filings with the SEC in the Investor Relations section of our website for descriptions of our risk factors, GAAP to non-GAAP reconciliations, and information on our comparability items. I'll now ask the operator to introduce the first question. Operator: Our first question is from Andrew Lazar with Barclays. Please go ahead. Andrew Lazar: Great. Thanks so much. Happy holidays, everybody. Good morning, Andrew. Good morning. Maybe to start off, you've mentioned in the prepared remarks that you're seeing some of the delayed shipments materialize in December. On top of this, you've got easier comparisons starting in frozen, a return to full merchandising, and a full innovation slate that you've talked about. And then some pricing in Staples brands with, so far, expected elasticity. So I guess all in, would you be expecting positive year-over-year organic sales in fiscal 3Q? Or are there other things in the third quarter that we need to keep in mind? Sean Connolly: All right. Let me break that down for you. Yes, like what I'm seeing so far in December, as we mentioned in the prepared remarks. And I like where we sit going into the second half here with some momentum. We don't provide formal quarterly guidance, but I will say that overall, we do expect organic net sales growth in the second half. And as for the quarterly flows, if you incorporate the information we're sharing today into your models, you will get a more accurate balance between Q3 and Q4. Dave, you want to add any color to that? Dave Marberger: Yes. I mean, Andrew, I think you hit it with the shift in the kind of the trade inventory from Q2 to Q3. Wrapping the supply constraints from the prior year and then wrapping the unfavorable Q3 trade adjustment a year ago. They're the three big things. Andrew Lazar: Great. Thank you for that. And then, earlier this week, Sean, another food company mentioned a higher cost of volume. Shoppers are increasingly sort of waiting to buy more of their needs on promotion. It's not the depth or frequency to change much. It's just the amount of a product being sold on deal. And it's partially, at least, seems to be coming at the expense of base or sort of full-price volume. I'm just curious if you're seeing the same thing at this point or expect to? You have some vagaries obviously because you're getting back to full merchandising in the back half that you didn't have last year. But just trying to get a sense of what you're seeing more broadly in the industry with regard to that sort of dynamic. Thank you. Sean Connolly: Yes, good question. I saw that regarding cost of volume, we have not seen what you just described. We built our plan to invest margin for continued upward volume inflection in frozen and snacks. Coming into the year, when we built the plan, we fully understood the cost of that inflection from last year when we strung together six straight quarters of consistent volume progress prior to running into those temporary supply constraints in frozen that we've talked about previously. So what we're seeing this year is unfolding very consistent with our expectations, which, of course, was based on last year's experience. In terms of both costs and lifts. Andrew Lazar: Thanks so much. See you in February. Sean Connolly: See you soon. Thank you. Operator: Our next question comes from Tom Palmer with JPMorgan. Please go ahead. Tom Palmer: First, I just wanted to clarify on the annual outlook. You reiterated sales and operating margin. You did take down Arden. I think the $30 million is around 5¢ to EPS if I'm doing the math right. So I guess I'm just trying to bridge, I know there is a range here, but is there something that kind of helps to elsewhere in the P&L that helps to make up for Ardent? Thank you. Dave Marberger: Yes, Tom, this is Dave. You can see, through the first half, our operating profit and our operating margin performance is good. Now there's a lot of puts and takes in terms of performance both for this quarter and the first half. But we feel good about the momentum. We've had some favorability with the tariff timing that was more Q1. We've had some favorability in chicken inflation. Although we're seeing some offsets with beef and pork. And importantly, our core productivity programs are really on track. So we feel good about that. We feel good about the second half. And Sean just talked about we're forecasting positive organic sales growth for the second half. We do have some headwinds from absorption. We talked about that in the call. And that's just simply us being really diligent in managing our working capital, our inventories because we're really tracking well on cash flow and we want to make sure that we deliver those numbers. So just given the momentum we have, Tom, and kind of how we plan the year, we think that we can cover the shortfall in Ardent and still stay in the EPS range. Sean Connolly: Yeah. And Tom, it's Sean. Just to remind everybody of one other factor. We guided to a wider range this year than we normally do. Because we were very clear-eyed that it's a volatile environment. And there can be things that unfold that are very difficult to predict. That's one of the reasons we put out a broader range this year. So that we could navigate things like what you've seen in Ardent in the trading piece of the business and still hit our guidance. So we like where we are. Tom Palmer: Okay. Thanks for that color. And look, I appreciate more coming here in calendar 2026, but I did want to just ask on Project Catalyst. As we think about its potential impact and implementation, should we be thinking about like in some past programs you've had very clear cost savings targets and then any sort of like stepped-up spending be it CapEx related or other types of investments that we should start thinking about? Thank you. Sean Connolly: Sure. Let me give you just some more color on Catalyst. So in CPG, you've got big core business processes that for the better part of a century have been heavily manual in nature. And therefore not perfect, let's put it that way. Now, with technology kind of being democratized for even industries with our margin structure, the access to technologies to automate a lot of these business processes is kind of in an unprecedented place. And that's a pathway to more effectiveness and more efficiency going forward. So we've got a fully dedicated team led by some of my most senior leaders to make sure that we implement this. And it's basically a reengineering of core business processes using factoring, especially AI, for more effectiveness and more efficiency. There undoubtedly will be time to complete the project, there will be cost to complete the project. Then there will be a return on the project. And based on what we're seeing after being at this for several months, we're very excited about the potential. And during calendar '26, we'll unpack this in more detail for our investors. Tom Palmer: Okay. Thank you. Operator: Our next question comes from David Palmer with Evercore. Please go ahead. David Palmer: Great, great. Thank you. Just one big picture question. Just looking across your big two retail segments, consumption trends, on a two-year basis would seem to imply a return to growth in the second half of this fiscal year. But then again a modest decline in the first half of fiscal 2027. Strong growth on snacks, and we've got a very strong snacks marketing plan. In the back half of the year to continue the momentum we've got, especially on Slim Jim and Fatty. So that's already growing robustly. Frozen, I know you've had a write-up recently on Frozen, and you could see in our prepared materials today wouldn't pay too much attention to Q2 year on year in frozen because we had a block frozen quarter in Q2 last year. And our goal this quarter in Frozen was to reclaim the market share that we basically loaned out to a competitor when we had supply constraints beginning last winter. And as you could see in the market share charts today, we've clawed back almost all of that. Our biggest business, frozen single-serve meals, almost up to 53, which is pretty much the high watermark for us there. So on a two-year basis, when you factor out the fact that we had a huge quarter last Q2 and we didn't repeat the same promotions this quarter, it's actually a very impressive quarter with good upward momentum. And as you look at the back half of the year on that business on frozen, you're going to have more high-quality promotional activity than we had last year because we were basically out of business on promo last year. And the baseline is looking good as well. And we've got good innovation and things like that. So we've got good momentum in the underlying trends on our frozen business. Vegetable, I think, is back to a record share. And we've got a really good program in the second half. So, that all bodes well. Obviously, it's too early to talk about '27 right now. We're gonna have very good momentum on frozen as we go into '27. And snack is already, as I said, growing at near mid-single digits. David Palmer: Great. Very helpful. Thank you. Operator: Our next question comes from Peter Galbo with Bank of America. Please go ahead. Peter Galbo: Hey, guys. Good morning. Thanks for the question. Sean, I just wanted to get your perspective. You've now had two of your largest peers not only talk about, but start to enact price cuts. And just asking kind of for your crystal ball into the back half of fiscal 2026 and even into early 2027, what that potential activity from some of your largest peers could mean for the group? And do you think it translates to some of the actions you all may need to take? Obviously, considering that you've announced some pricing in some of the Staples portfolio? Would just love your perspective on that, please. Sean Connolly: Sure. I'll try to give you some color on that, Pete. We don't have a tremendous amount of overlap with some of the other big food companies that you've seen. And in frozen, we're far and away the market leader in our big business. And in our specific snacks categories like meat snacks and seeds, we really don't interact with a lot of the other big food companies. But the way to think about pricing with respect to Conagra Brands is that we have not rolled back price in order to move volume. What we effectively have done on frozen and snacks is we did not take pricing. Inflation-justified pricing to protect margins. We kept pricing where it was so that we could then layer on a very reasonable and high-quality promotional business that's consistent with what we've done in years past, and get those businesses to growth. And that's what we've seen. So we've seen the desired inflection and in some parts of the business, we're already back to growth. Without lowering list price. We just deferred taking inflation-justified pricing because we were focused on moving volume. So it's a little bit of a different nuance than lowering prices in order to move volume. And when you look at our percent volume sold on deal and you look at depth of discount, you do not see anything beyond what we've done historically. If anything, we're more conservative than what we've done historically. So I guess the net of that is I would say, the volume inflection we're seeing is very efficient. And that's good. And that makes me feel good about this cost to volume concept and how we feel about our guidance. We've seen favorability in chicken. But we're forecasting increased costs in beef and pork. And so we have some offsets there. We see some favorability in tariffs. But remember, more than 50% of our tariff exposure is on tinplate. And there's been no change to those tariff levels. And also, the areas where we've seen some of the tariff come down, our mitigation has come down as well. So it's not a significant impact on the overall year. So I would say our original kind of inflation guidance of 7% and net of five and a half is still where we are. Peter Galbo: And, Dave, just sorry for clarification. You ran at about 5% gross inflation in the second quarter if I look at Slide 24. That was it was yes, it was closer to 7% because that's the margin impact. That you see on the bridge. So we were first inflation around a little bit south of seven. Dave Marberger: Okay. Very much, guys. Operator: Our next question comes from Max Gumford with BNP. Please go ahead. Max Gumford: Hey, thanks for the question. Your prepared remarks mentioned that 3Q operating margins are expected to be below 2Q levels due to A&P and then also some absorption headwinds associated with reducing inventory. I realize you've framed A&P as going to over 3% of sales in 3Q. But is there any way to size the magnitude of the absorption headwind that you'll see in March? Thanks very much. Dave Marberger: Yeah, what I would say is you look at gross margin, Q3 it will be similar to where we landed in Q2. Maybe a little bit better. But again, there's a lot of puts and takes with absorption and absorption timing. So we don't like to get too specific on the quarter. The big impacts, if you look at Q3 operating margin relative to Q2, is over 3% A&P and SG&A as a percentage of net sales will be higher than Q2 as well. So they're really the two drivers. Gross margin is going to be pretty much in line with what we delivered Q2. Max Gumford: Great. Thanks very much. And then longer-term question. Just looking back at your gross margin over time, clearly, it was running in the high 20% pre-COVID. It looks set to end this year around the 24% level. So several hundred basis points below historical levels. And I recognize there's reasons for that. There's investments you've made this year that you're and there's also meaningful inflation that you're not offsetting with price given the consumer environment. I'm just wondering as we look out over the next several years, is there anything that you're seeing that would prevent you from getting back to a high 20% gross margin level? Thanks very much. Sean Connolly: Well, we plan on clawing our way north on gross margin. So we absolutely expect margin expansion going forward, particularly in frozen, and the building blocks have not changed. It starts with productivity. So our productivity is running now at about 5%, which is very strong. At some point, we're going to get inflation relief here, hopefully back to a typical 2% level. The third piece is the advancement of our supply chain resiliency investments, including our chicken plants. And over time, we're going to have the ability to repatriate the outsourced production, which will be another tailwind to margins. And we are taking pricing in certain categories as you saw in our documents today. And then the last thing I'll point to is Project Catalyst. This reengineering of our core business processes using technology will be another meaningful contributor. So between those actions and the ongoing efforts to reshape the portfolio for faster growth and better margins, we do expect good margin expansion following FY26. Operator: Okay. Great. Thanks very much. Our next question comes from Robert Moskow with TD Cowen. Please go ahead. Robert Moskow: Hey, thanks for the question. Dave, I wanted to ask about the assumption of a 100 basis point headwind in 2Q and the extent to which it can reverse in the third quarter. Because some of it sounds like it's the thought that retailers are just not ordering as much in relation to consumption, then they're going to do in the third quarter because they don't have to worry about the SNAP issues or other issues. But retail inventories have been notoriously difficult to predict. Is there a risk here that retailers just decide to go forward with less inventory than normal for the rest of the year just because they want to be more efficient? And if so, it may be more so in the frozen area than in the shelf-stable? Thanks. Sean Connolly: Hey, Rob, it's Sean. I'll give you my color on this. So the way to think about our company, our portfolio is we've got a baseline of volume that is pretty steady across all twelve months of the year. But we also then on top of that baseline, starting usually in the fall, there is another line, which is the seasonal promotional build because we have a lot of seasonal products in the Conagra Brands portfolio. Products that are huge traffic builders at our retailers. So, the retailers have that promotional seasonal volume build in terms of what sells, what scans through, in their base. And every year, they are determined to wrap that essential during the seasonal successfully, meaning at least achieve what they delivered a year ago if not grow a year ago. And promotions are absolutely period to get to that level of absolute volume. So the promotional volume always comes. The seasonal inventory build always comes. It's usually just a dynamic of does that build fall into Q2? Or does that build fall into Q3? And sometimes it's linked to Thanksgiving timing and whether or not Thanksgiving is in Q2 or Q3. Sometimes it's linked more to the promotional calendar. And is the promotional calendar queued up if not grow a year ago. And promotions are absolutely in their base. And every year, they are determined to wrap that successfully, meaning at least achieve what they delivered a year ago so that it's earlier, like it was last year where we had our uniquely a function of the government shutdown and kind of the SNAP pause. Because what I believe it happened with some retailers is anticipating a slowdown in consumer takeaway because of the SNAP pause, manage their working capital too. And there's no reason to build inventory if you've got a pause on the near-term horizon, you can build it later. And so we've already got most of December in the books here, and so we've had a chance to see how orders are shaping up. And it's unfolding in a manner very consistent with what I just described. Robert Moskow: Okay. Helpful. Thanks, Sean. Operator: Thank you. Our next question comes from Alexia Howard with Bernstein. Please go ahead. Alexia Howard: Good morning, everybody. Can I ask about innovation? Firstly, are there any numbers you can put around where you're at? And I assume that you're now significantly above where you were a few years ago during COVID. Are you now at a sort of level that you feel comfortable with? Maintaining, or is there more increase to come? And then sticking with the innovation theme, I wanted to ask about how you're leaning into the health and wellness trends. It seems as though there's a lot of health and wellness themes going on out there, Walmart has said that they're going to eliminate dirty additives from the whole of their private label portfolio. We've got potential food labeling, front-of-pack legislation coming in. Dietary guidelines coming up as well. I remember you talking about GLP-one unpacked labels. How is that all going? And what are the priorities from here? Sean Connolly: Yes, great question, Alexia. Innovation performance over the last several years has just gotten better and better and better every year and it was good to start with. So we've wrapped really good innovation years. And each year, we make progress in innovation, both in terms of TPDs that we're able to secure but also velocity per TPD has gotten better and better. And this year is better than last year, and last year was better than the year before. So I'm very pleased with where we are on innovation, and we'll continue to share more about some of the success stories that we've had with innovation. But I think your second question speaks to also what's driving a lot, not all, a lot of the innovation success. There's undoubtedly a lot of consumer focus these days on health and wellness. And has been the case for fifty years. Kind of the definition of what does good health and wellness food look like in 2026 is different than it looked ten years ago. Which is different than it looked twenty years before that. So right now, and wellness is heavily, as everybody knows and can see, heavily about protein. So the presence of protein in products is hugely important to consumers. That's a major part of our benefit bundle that we've baked into a lot of our innovations. I would say, secondly, clean label continues to be really important as well as vegetable nutrition. So if you think about our portfolio with brands like Birds Eye Vegetables, which are just awesome vegetables frozen at the peak of ripeness, you think about protein, meat sticks, as well as seeds, you think about our frozen businesses like Healthy Choice, which are incredibly clean label, incredibly healthy, high in protein, low in sugar, low in carbs, things like that. It's very well positioned. And so I probably feel like our portfolio is as well positioned today as it's been to compete in a world that's very focused on health and wellness. And one of the things I find most interesting about the double click on that is its young consumers. Young consumers, which we over-index with, are more focused on health and wellness than I've seen in a while. And it is playing right into some of our tailwind businesses, like our protein-focused brands. And that's a real positive. And you see it in categories outside of food, like they're drinking less, things like that. And so you get a good return when you can secure young consumers because you keep them around a lot longer. And we've had really good progress with our young consumers and that's helping us, because obviously young consumers also tend to be lower-income consumers because they're just getting started in their career, and we have a lot of good value products. Alexia Howard: Very helpful. Thank you very much. I'll pass it on. Sean Connolly: Than they were three years ago. Relatively speaking, it's hard to beat the value and the quality that our products offer. And that value message is that really value as a priority area is being very woven into our innovations themselves. Some of our innovations coming this year will be more value-oriented. And our marketing messages will be value-oriented. And we think, given the inflection we've already got, that will continue to push some of the light or lapsed users back into the franchise and continue to help drive our organic sales growth. Alexia Howard: Okay, great. And then I just have one quick follow-up on the weather piece in the quarter, specifically around related to the slow start to winter. Now that we've shifted to much colder weather across the US, just seeing if there's any color commentary around, quarter-to-date trends. Have those normalized with your expectations or anything to think through there? Sean Connolly: Yeah. Weather outlook certainly changed in the last couple of weeks. That's great for us. As I mentioned, just to put a fine point on this, there were two weather things in the quarter that we noticed and they're tangible. So we'll just kind of unpack them. One is this hurricane thing. Probably wondered, what is this hurricane thing? Well, we've had hurricanes for ten years. That hit the Continental U.S. And when we have hurricanes hit the Continental U.S., we sell a lot of food in Florida, particularly canned food, also along the Gulf Coast, sometimes the East Coast. And so that's kind of captured in our base. And last year, we had an unusually high hurricane quarter. We did not plan for that this year, but we planned for a normal quarter. We didn't get any hurricane. So that's fortunate for the people along the coastline but it was a little different than we planned. So that was a bit of a headwind. And then the question around when does the cold weather roll in, tends to affect when do we start to see that seasonal ramp-up in our canned food cooking ingredients portfolio, like tomatoes or even canned chili? And so it always comes. It's a question of is it going to come early October? Is it going to come November? So it came a little later than normal, but obviously since the quarters turned, you've seen very cold weather. And you already know what that does to businesses like Cocoa and canned tomatoes and chili. So, yeah, that's another timing factor. Alexia Howard: Okay, great. Thank you. Operator: Our next question comes from Meghan Clapp with Morgan Stanley. Please go ahead. Meghan Clapp: Hi, good morning. Thanks for squeezing me in. I just had a quick follow-up to Tom's question earlier. On the EPS outlook. You mentioned you seem confident on offsetting the shortfall from Ardent. The range is still quite wide. Sean, you mentioned it was wider than normal coming into the year. So you just help us understand what are kind of the key swing factors or uncertainties that remain that justified keeping the EPS range wider now that we are halfway through the year rather than narrowing it? Thanks. Sean Connolly: Yeah. I wouldn't overthink keeping it wider. We are just at Q2. So, when we narrow the range historically, it's usually in the back half of the year. As we move toward the end of the year, it's usually not in the first quarter even after the second quarter. So I wouldn't read much more into that other than we're just now finishing up the second quarter, and we got the second half to go. And we'll update that range again next quarter. Meghan Clapp: Okay. And then maybe just another follow-up on think it was Andrew's question at the beginning. So you talked about in the and in your prepared remarks, the two-year consumption trends in refrigerated and frozen inflecting back to positive. Know that the reported numbers are pretty noisy, and I know you don't want to provide guidance, but as we look to Q3 and just consider the momentum you're seeing in consumption on a two-year and all of these timing shifts and what we'll see in terms of the shipment timing benefit. Would you expect that two-year reported trend in R and F to accelerate versus the first half? I'm just trying to get a sense because the street does imply a bit of a deceleration. So just trying to understand how to think about that segment in particular given the noise. Thanks. Sean Connolly: I just I think you can expect a good second half in Frozen. I mean, it's not a lot more complicated than the underlying trends or inflecting northward. Our market shares are either already back to the high watermark or very close to it. The programming that we've got in the marketplace in the next quarter will be stronger than we've had not only in the last quarter, but significantly stronger than a year ago because a year ago, we were basically out of business in the quarter on promotions because of the supply constraints. So all of that lends itself to high-quality underlying momentum in the third quarter and in the second half. Meghan Clapp: Okay, great. Thanks, Sean. Operator: Thank you. Our next question comes from Chris Carey with Wells Fargo. Please go ahead. Chris Carey: Hey, guys. Just regarding the, you know, inflation, for this year, you know, like, there's some puts and takes but it's basically tracking you know, to where you thought. Is there any reason why it shouldn't be back in that you know, 2% range going into next year based on what we can see today? Are there anomalies with the timing of some of pork and beef inflation that you're seeing? Are there tariff carryover into next year with inventory? I think the comment was we'd like to get back to range over time, but I just wondered if there were anomalies that you're thinking about that would prevent you from getting there going into next year. Sean Connolly: No, Chris. You know, I feel like I'm more cautious on prognosticating about inflation now than probably have ever been. But we've looked back one hundred years at these inflation super cycles and when you hit these kind of peaks on any individual commodity that have been a downward slope on the other side of that hill. We just have not as an industry experienced unprecedented, you usually see that yet. Skewed toward proteins, which, of course, remained high. But in our case, it's been a bit more challenging than some portfolios in that we're heavily proteins go up, they usually come down. So at some point, it's going to normalize here. At some point, very soon, we're going to have a lot of this stuff baked into our base already. So you could really start to see some relief in the P&L if things start to break our way. Chris Carey: Okay. We'll see how it goes. From a just from a portfolio standpoint, little bit bigger picture. We've seen a ton of activity in the food sector with portfolio changes. What's going on in the environment right now? Can you just give us the latest on Conagra Brands' approach to its portfolio, you know, how you think through portfolio opportunities one way or the other, and just how the balance sheet and your leverage targets factor into your medium-term objectives. Just any context would be helpful. Sean Connolly: Sure. Well, first of all, just to remind the listeners on the call, we have done probably more M&A than most of the companies in our space over the last ten years and that includes inbounds and a lot of divestitures, even separations. So we're quite familiar with that. And of course, prior to being here, I was at Sara Lee where we had a split and we stood up two independent companies. And had a good outcome. So, Dave and I and the Board are always thinking of everything under the sun in terms of ways to create value for our shareholders. And we are not the slightest bit entrenched in any way. If there is a clear path to creating value, we will pursue it, and we have done that in the past. So reshaping has always been part of our game plan, and that has included inbounds from time to time. I don't see us doing that anytime soon because we're focused on debt reduction. But it's also included outbounds. And we only recently completed the divestiture of Chef Boyardee. And while we sold some EPS with that, felt like it was the right thing to do for the portfolio long term. So we'll continue to look at our options there. And if we see a clear pathway to value creation, we are always eagerly in pursuit of that. Chris Carey: Okay. Thanks, Sean. Operator: Our next question comes from Scott Marks with Jefferies. Please go ahead. Scott Marks: Hey, good morning all. Thanks so much for taking our questions. Wanted to ask about the completion of the Baked Chicken facility. Could you just remind us how you're thinking about the cadence of repatriating some of that production and how we should be thinking about the magnitude and cadence of the margin improvement from those actions. Sean Connolly: Sure. I'll make a quick comment, and then I'll flip it to Dave. But it's amazing. Chicken's always been an important part of our portfolio, but chicken's just been on fire over the last several years. And our historic business was mostly kind of roasted or baked chicken and that's where we ran into some of the supply challenges last year. We got some quality inconsistencies. We fixed those. That's done. So the baked chicken project is complete and we like the way that looks and that's great. But as you know, we also, in the last year, had some tremendous success with our new Banquet Mega Filets, which is a fried chicken product that basically looks a lot like a Chick-fil-A product. And that's an area where we've had limited capacity going forward. So we've elected to make some additional investments there to increase our capacity. It will take some time to build that out. But that's super exciting because chicken as a protein has just been on fire. And in part, because beef has been so expensive for the consumer. But I would say, even overall, when you look at food service trends and the success of Chick-fil-A and Raising Cane's, things like that, it's just been undeniable. So we're very excited about that being a continued tailwind for us and getting those capabilities in-house enables us to make these products in the most efficient way possible with the best margin. Dave, you want to add to that? Dave Marberger: Yes. So we're as we communicated at the beginning of the year with our guidance, we had estimated completing this line, this production at the end of the second quarter, which we have. So now we're in transition of bringing volume back in from the third party. As you can imagine, there's a transition there. And we build inventories and we deplete inventory. So but all of that was built into our guidance, our margin and profit forecast for fiscal 2026. So we're on track and that's incorporated into what we've guided to. Scott Marks: Understood. And then just quickly, second question for me. There was a pretty sizable impairment charge taken in the quarter. I don't believe I saw any details in the press release. So wondering if you could just share any insight around that. Thanks. Dave Marberger: Sure. So we had a obviously have had a sustained decline in our stock price and market cap. And so the way that you do impairment accounting if there is a triggering event and this would qualify for where your stock and market cap over an extended period of time is lower, you have to go back and do all the analysis you do for goodwill impairment and brand impairment. So always do this work in our Q4 every year. So the last time we did it was at the end of our third quarter or fourth quarter last fiscal year. We had to do that in the second quarter. And when we went through that process, given the macro backdrop, which has impacted the stock price, obviously, we've made the decision to increase our discount rate. So a lot of our forecasts were the same. And as you see, we're holding our guidance. So we feel good about where the business is going. It's in line with expectations. But because we changed our discount rate, that drove the impairment. So it's really just marking kind of book down to the fair value. Scott Marks: Understood. Thanks so much. Happy holidays. Operator: Thank you. At this time, there are no more questions. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Carnival Corporation & plc Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin. Beth Roberts: Thank you. Good morning, and welcome to our fourth quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our CFO, David Bernstein; and our Chair, Micky Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income, ROIC and related statistics for all, which are on a net basis or adjusted as defined, unless otherwise stated. A reconciliation to U.S. GAAP is included in our earnings press release and our investor presentation. References to ticket prices yields and cruise costs without fuel are in constant currency unless we note otherwise. Please visit our corporate website where our earnings press release and investor presentation can be found. For further information on our proposed DLC unification and shift in legal incorporation, please visit carnivalcorp.com/unify. With that, I'd like to turn the call over to Josh. Josh Weinstein: Thanks, Beth. It is definitely gratifying to begin this call by saying we delivered yet another very strong quarter to finish a fantastic year. Not only did we deliver historical fourth quarter highs for revenues, yields, operating income and EBITDA, we achieved these record results in each and every quarter of the year and for the full year. 2025 was clearly another step change forward for us. We delivered over $3 billion to the bottom line, a 60% increase over 2024 and an all-time high net income for our company. This was over 30% greater than our initial guidance. Full year yields improved more than 5.5% over last year and topped our initial guidance by almost 1.5 points, driven by successful commercial execution across our industry-leading cruise lines, and all while absorbing the heightened volatility we encountered periodically throughout the year. We also brought unit costs in over 1 point better than initial guidance at a 2.6% increase for the year with successful cost management mitigating inflation, higher dry dock expenses and the inclusion of costs for our amazing new destination Celebration Key Grand Bahama. This combination pushed operating margins and EBITDA margins up by over 250 basis points year-over-year, leading to the highest operating income per ALBD in almost 20 years and EBITDA per ALBD reaching an all-time high. For all of these incredible achievements, full credit goes to our hard-working and dedicated team, the best in all of travel and leisure for the consistent outperformance throughout the year that resulted in ROIC in excess of 13%, the highest level this company has seen in 19 years. Having said that, we are very well positioned to top 2025's fantastic results in 2026. We are already about 2/3 booked in line with where we were a year ago at this time and at historical high prices for both North America and Europe. And over the last 3 months, we achieved booking volumes that were at record levels for both 2026 and 2027. At the same time, closing demand remains strong, as demonstrated by the outperformance in our fourth quarter by our onboard revenue per diem significantly outperforming prior year levels and our customer deposits up 7% year-over-year, hitting an all-time high for year-end. Our book position and recent performance are all despite Michigan's U.S. consumer sentiment readings dipping quite low for several months throughout 2025, and in fact, last month dropping pretty close to its lowest level in recorded history. It is a true testament to the strength of the product offering across our portfolio of world-class cruise lines and our guests prioritizing their spending with us. In reality, the disconnect between consumer sentiment and actual booking behavior continues to reinforce what we've said for a long time. Demand for our cruise lines is proving far more resilient than traditional macro indicators would suggest. We are expecting another year of same-ship yield improvement marking our fourth consecutive year of low or mid-single-digit per DM growth. Normalizing for the accounting changes from the implementation of Carnival Cruise Line's beneficial new loyalty program and late-stage deployment changes necessitated by geopolitical uncertainties in the Arabian Gulf, we are forecasting a 3% yield increase in 2026. And while I think it's obvious, to address the question we've been getting most often, our 2026 guidance fully incorporates the 14% increase in non-Carnival Corporation capacity growth in the Caribbean taking that to a 27% increase in just 2 years as well as our 4% growth over that time period. Now even against that backdrop, we continue to drive the business forward underscoring the advantage of our diversified global portfolio. We are also continuing to successfully mitigate inflation through effective cost management. And again, with no ship deliveries for 2026, we don't have the advantage of offsetting large cost increases with significant capacity growth. On that basis, we've guided to unit cost growth of 3.25%, which includes a partial year of operating costs from our successful new destination developments and the timing of expenses hitting in the first quarter of 2026 rather than Q4 2025. David will provide more color around the costs, but normalized just for these 2 items, net cruise cost ex fuel per ALBD are expected to be up about 2.5% for the full year. All told, in 2026, we will bring over $350 million more to the bottom line year-over-year and generate over $7.6 billion of EBITDA. With this strong cash flow, no new ship deliveries this year and the fantastic balance sheet improvements we've made over the last 2 years, we're about a year ahead of schedule and can now embark on a capital allocation strategy that will return even more value to shareholders. Having reached a better-than-expected investment-grade leverage ratio of 3.4x at year-end, I am pleased to say we are now formally resuming our dividend at an initial rate of $0.15 per quarter, which we expect to grow responsibly over time. Reinstating the dividend reflects both our confidence in the durability of our cash generation and the structural improvements we've made to our balance sheet. Alongside the dividend, we will continue to delever to get below 3x net debt to EBITDA, while still allowing for opportunistic share repurchases in the future. In fact, we just kick-started that a bit by calling the last of our convertible debt and in the process using some cash to take out 18 million shares. We will also have ample opportunity to deliver even greater shareholder value over time as we continue to reinvest in our future, through our disciplined newbuild program, return-generating vessel enhancement programs like our successful AIDA Evolution project, which will soon expand to several of our other brands and our ongoing destination development efforts. We see much more pricing opportunity ahead as we transition our destination strategy from what has historically been a utilitarian asset base to a marketable growth driver for years to come. Celebration Key is a real differentiator for us and will be complemented by the expansion at RelaxAway, Half Moon Cay later this year. This will soon be followed by Isla Tropicale, as we lean into the rest of our Paradise collection even harder. And as recently announced, we'll also be looking forward to a great guest experience we're developing with our partners in Ensenada, Mexico, showcasing the culture and natural beauty of Baja California, Mexico that will greatly benefit our West Coast deployments and our significant competitive lane advantage in the incredibly profitable Alaska trade will continue to serve us well for decades to come. On top of these important attributes, cruising has clearly become a mainstream vacation alternative. And we have positioned our company with the most diversified portfolio of world-class cruise lines in the industry. And in fact, we hold the #1 or #2 brand in every major market for cruising today. Our well-recognized cruise lines have been honing in on their target markets, sharpening their marketing messages and reaching target consumers in an incredibly efficient manner. Moreover, we are continuously improving upon our yield management tools and techniques to generate the most revenue possible from our asset base. We're also leaning into AI to further improve in areas such as marketing effectiveness and enhanced personalization and to find further efficiency gains across the business. And the good news is the price to experience ratio to land-based alternatives is still at a ridiculous value and provides enormous headroom for many years to come. and that's despite what will be an approximately 20% cumulative yield increase for us since 2023. So while we are not immune to things like the lowest consumer sentiment in years, or capacity spikes in our most concentrated market or geopolitical conflicts around the world, having 2/3 of the business on the books at higher prices underscores the resilience of our business model. Against all of that background noise, we plan to deliver another double-digit earnings growth on top of the 60% increase we achieved in 2025, leaving us well positioned to continue to outperform in the consumer discretionary and travel space yet again. Again, thank you so much to each of our team members, ship and shore, who have delivered such phenomenal results in 2025 and set us up well for another step forward in 2026. At the end of the day, this is about delivering unforgettable happiness to over 13.5 million people around the world by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sale, place we visit and life we touch, and that is something we do incredibly well. Thanks also goes out to our travel agent partners who have contributed immensely to this success. Likewise, a heartfelt thanks is owed to our loyal guests, investors, destination partners and other stakeholders. Suffice it to say, these accomplishments reflect the effort, support and loyalty we've received from all of you. I continue to be very proud of what we've been able to accomplish together while at the same time, remain incredibly excited about the runway ahead that leads to continued improvement to our business and results for years to come. With that, I'll turn the call over to David. David Bernstein: Thank you, Josh. I'll start today with a summary of our 2025 fourth quarter results. Next, I will provide a recap of our 2025 deleveraging and refinancing efforts. Then I'll give some color on our 2026 full year December guidance as well as some key insights into our 2026 first quarter and then finish up with some comments on the recommended simplification of our corporate structure. Turning to the summary of our fourth quarter results. Net income of $454 million was nearly 2.5x the prior year and exceeded September guidance by $154 million or $0.11 per share as we outperformed once again. The performance versus September guidance was driven mainly by two things: First, favorability in revenue were $0.03 per share as yields came in up 5.4% compared to the prior year, and that was on top of last year's robust increase of nearly 7%. This was 110 basis points better than September guidance, driven by continued strong close-in demand, which resulted in higher ticket prices and an acceleration of strong onboard spending. The increase in yield was driven by improvements on both sides of the Atlantic. Second, cruise cost without fuel per available lower-berth day, or ALBD, were only up 0.5% compared to the prior year. This was 2.7 points better than September guidance and was worth $0.04 per share. The favorability was driven by both cost-saving initiatives, which we firmed up during the quarter as well as timing of certain expenses between the years. The balance of the favorability $0.04 per share was a combination of better fuel prices, favorability in fuel consumption and fuel mix, slightly less depreciation than expected favorable net interest expense and a variety of other small factors. Next, I will provide a recap of our 2025 deleveraging and refinancing efforts. We have reached a meaningful turning point achieving an investment-grade net debt to adjusted EBITDA ratio of 3.4x as of the end of the fiscal year 2025. We successfully completed our $19 billion refinancing plan in less than a year. These efforts strengthened our balance sheet by simplifying our capital structure, reducing interest expense and debt, optimizing our future debt maturities and enhancing our financial flexibility. In total, we have reduced our debt by over $10 billion since the peak less than 3 years ago. These efforts and our strong continued operating performance resulted in multiple credit rating upgrades throughout the year, culminating and reaching investment grade with Fitch and being one notch away with a positive outlook from S&P. All of this is expected to result in an over $700 million improvement in net interest expense in 2026 as compared to 2023, which is fully reflected in our guidance. Now I will provide some color on our 2026 full year December guidance. On top of the 17% yield growth over the last 2 years, we are expecting to deliver further yield improvement in 2026 with our guidance forecasting an increase of approximately 2.5%, which is really 3% when normalized for the Carnival Cruise Line loyalty program accounting and the last-minute changes we made to our Arabian Gulf deployment and certain dry dock schedules. The 2.5% yield growth is worth over $0.35 per share when compared to 2025, which is a result of both an increase in ticket prices and higher onboard spending, which has continued to remain strong. Turning to costs. Cruise costs without fuel per ALBD are expected to be up approximately 3.25% costing $0.27 per share for 2026 versus 2025. This is really a normalized rate of 2.5% when factoring in two things. First, operating expenses for full year operations of Celebration Key Grand Bahama and the midyear opening of our new peer at RelaxAway, Half Moon Cay will impact our overall year-over-year cost comparisons by 0.5 point. Second, the sliding of some costs from fourth quarter 2025 to 2026 will impact our overall year-over-year cost comparisons by about [ 0.3 ] point. The three main drivers of our normalized 2.5% cost increase are: First, 3% attributable to inflation and higher advertising expenses; second, about 0.6 point from dry dock expense on our income statement. In 2026, after optimizing our dry dock schedule, we are expecting 604 dry dock days. While the total actual spending for our dry docks in 2026 is expected to be roughly in line with 2025 as a result of the nature of the 2026 work more of the spending is classified as operating expense and less as capital expenditures. And third, cost mitigation of approximately 1.1% from efficiency initiatives and further leveraging our industry-leading scale. Regulatory costs related to emission allowances and higher income taxes driven by Pillar 2 will cost us $0.11 per share. Benefits from net interest expense, fuel consumption and capacity were partially offset by increased depreciation for a net favorable impact of $0.06 per share. The net impact of fuel price and currency is expected to favorably impact 2026 by $0.20 per share, with fuel prices favorable by $0.17 and the change in currency exchange rates adding $0.03. In summary, putting all these factors together, our net income guidance for full year 2026 is over $3.45 billion, an improvement of more than 12% versus 2025 or $0.23 per share. In addition, this will result in $7.6 billion of EBITDA. As we mentioned on the last earnings call, for the longer term, we're targeting a net debt-to-EBITDA ratio under 3x. While I'm happy to report that even with 4 dividend payments modeled into our guidance for 2026, we are projecting to get there by the end of the year. Before I leave our 2026 guidance, I did want to update you on the impact of Carnival Cruise Line's new loyalty program, Carnival Rewards, which will now start in September 2026, impacting results for the fourth quarter. As a reminder, while the program will be cash flow positive from day 1, it does impact our yields in 2026. The impact is expected to be 0.2 point in 2026, 0.5 points in 2027, 0.2 point in 2028 and turn positive thereafter. Now some key insights into our 2026 first quarter. Yield improvement is approximately 1.6% or 2.4% when normalizing for the last-minute changes to our Arabian Gulf deployment and certain dry docks in the first quarter. First quarter 2026 has a difficult prior year comparison as 2025 was at a record level with a 7.3% increase compared to 2024. In addition, the quarter is being affected by the Caribbean double-digit industry-wide growth along with the first quarter having the largest absolute quarterly capacity in the Caribbean during the year, as well as the impact of volatility in the first half of last year had on our advanced booking curve. Adjusted cruise costs, excluding fuel per ALBD are expected to be up approximately 5.9% compared to the prior year and higher than the full year. This results from the fact that all of the items that are expected to impact the full year will have a greater impact on the first quarter. I'll finish up with some comments on the recommended simplification of our corporate structure. We are recommending to our shareholders that we unify the dualistic company or DLC framework into a single company listed solely on the New York Stock Exchange. This aligns with the marketplace. We are aware of 15 dual-listed companies or DLCs created over the last 4 decades, including our DLC in 2003. A substantial number of those have been unified in recent years for many of the same reasons we are recommending our unification. Today, we know of only 3 other major DLCs remaining. Under our plan, Carnival plc shareholders would receive Carnival Corporation shares on a one-for-one basis and Carnival plc shares and ADSs would be delisted. Carnival plc would become a wholly owned U.K. subsidiary of Carnival Corporation. This would create a single global share price, streamlined governance and reporting and reduce administrative costs. We believe we will also increase liquidity for stock trades and increased weighting of the stock in major U.S. stock indices. We intend to hold meetings of our shareholders in April to consider the recommendation. Subject to shareholders approving our recommendation, we intend to complete the unification in the second quarter of 2026. Now operator, let's open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Robin Farley with UBS. Robin Farley: Great. That was a lot of information that covered a lot of the initial questions. Maybe just one thing when we think about your guidance. It sounds like if we were just taking up the accounting accrual, it will be closer to sort of 2.8% yield growth for next year. You mentioned that a lot of the beat in Q4 similar to what you said during the year was this acceleration in onboard spend and better close-in demand. Would you say that you -- when you're thinking about your guidance for 2026, are you factoring in that those things will continue at that level? Or are you kind of assuming that those would be at the rate that you'd originally thought? In other words, I'm just thinking about whether that acceleration and good close in demand is in your guidance or that would really be upside to your guidance? Josh Weinstein: Robin, so I think the fair thing to say, look, this is our guidance based on what we expect to happen at this point in time when we look into 2026, taking into account the business we've got on the books, the momentum we've got and the fact that the world changes on a pretty daily basis. And so we're always going to try to continue the momentum on the onboard side. We're always going to try to make sure that the close-in bookings are going to hopefully beat our expectations. But -- at this point in time, it's truly our best guess. And as we always do around this time of year, you could say that we started early. It always starts early at this point, which I do believe, and it's really something that takes off as we get into the latter part of November. We're still right in the mix of it, as you know. And so we do need some more time to see how it all develops. Robin Farley: Okay. Great. And then you alluded to the increase in Caribbean capacity and a lot of that really is focused on Q1. Typically, at this point, right, you would be over 80% booked for Q1? Or if you could just kind of remind us where that is? I know you mentioned kind of overall for the year and that your overall for the year in line with those record highs. Would you say for Q1 that you're further ahead than typical or sort of in line with typical just when we think about how far past the point of digesting anything in the Caribbean is already -- has already happened? Josh Weinstein: Yes. I mean for our Q1 sailings, there's not that much left to go. And we are, at least at this point in time, we're a little bit better positioned tiny bit versus last year on the fringes. So not much to say about the first quarter. Operator: Our next question comes from the line of Brandt Montour with Barclays. Brandt Montour: Congratulations on the dividend and the results. So the first question is on the bookings. You guys called out the momentum and it was clear in the release in the commentary. We had heard that there had been some slightly less robust demand, still good, but it's just not quite what some folks have seen last year. So just wondering from a revenue management perspective, as you guys have chosen to take any volume at the expense is slightly less pricing growth this year, if that was a strategy at all for you guys? Josh Weinstein: Yes. Thank you for the question. We're -- as you said, we -- our revenue managers brand by brand, voyage-by-voyage are doing the right things to maximize ultimately the amount of revenue we have in the bank by the time the ship comes back to port. And so the momentum has been good. We're doing things that we think are going to continue to help support the guidance and support the business, not only for 2026, but for 2027 and even some that we're getting into 2028. So we feel good about the way our teams are going about managing the curve. Brandt Montour: Okay. That's great. And then on the Caribbean commentary, we hear about that capacity lift. A lot of it is in the close end market, 3- and 4-day itineraries. I don't know if you want to comment in terms of your exposure to that market specifically or if you could get in the weeds and kind of help us understand if you have a little bit of different mix versus what you guys see coming into that market for this first quarter specifically? Josh Weinstein: I actually don't have it offhand with respect to the first quarter. But clearly, there is -- there's all sorts coming into the Caribbean, right? You've got the 7 others, you got the shorts from others. When it comes to us, Carnival has been America's crews line operating in the Caribbean on shorts for, I don't know, 5 decades. And they'll continue to do that and do that thoughtfully. We like the portfolio approach we're taking even into the Caribbean because -- when you think about our mix and you look at the first quarter, 20% of our Caribbean capacity is actually from our European brands that have flare programs going into places like Barbados and Dominica, and it works very well for us. So probably in a roundabout way to answer your question, there is short, there is 7 nighters, and there's things that are even longer, and we play in all of it. Operator: Our next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: Congrats on another nice quarter. So Josh, could you elaborate on the momentum carrying into '26 that you cited, specifically maybe the cadence of booking volumes that you've seen up through holiday, prices in North America and Europe, which I think you cited at historical highs? And maybe even to say it a different way, have you seen anything irrational at all? And does your guidance for the 3% normalized yields for the year, does that require today's level of momentum to sustain? Did you bake in benefit for Celebration Cay Half Moon? Is there anything in there for lapping up against the tariff volatility from a year ago that you saw in bookings? And did you put anything in at all for stimulus in terms of potential benefit? Josh Weinstein: Yes. Thanks for the question, Matt. Let me see if I can answer it holistically. So as a starting point, like I said in an earlier call, we are very happy with the momentum that's taken us through the end of the first quarter and into the last few weeks and volume is up nicely. And we're doing that the way that we always do that, which is managing the curve and putting out our product and our experiences to our guests who are looking for value, and that's what we do, and that's what we've done over the last couple of years as our yields have gone up 17%, and we'll continue to do that. With respect to all of the ins and outs of what's been baked in, like I said before, every forecast to some extent, is a guess and it's based on some assumptions. So as far as stimulus specifically, we didn't really bake anything into that. As far as the macroeconomic impacts that we saw this year, yes, that did play into it to some extent. I mean, we know that we're going to lap some of the volatility in the spring. And we also know we didn't have the volatility of the spring on our radar screen this time last year. Things do happen all the time, all around the world. And so we just got to be prepared to deliver in light of that. I just keep going back to the well. The one thing I'd reiterate to everybody is the fact that things happen in cycles, things happen differently in different geographies, and the diversity that we've got sets us up very well to be able to withstand volatility. And the fact that we're guiding to a normalized yield increase of 3%, I think, is very good. And I'd just remind you that if you remember, what we've talked about with respect to the volatility last spring, it was really having an impact on the second half of '25 into the first half of '26, which is what's been built in exactly to our to our forecast. So as always, we're going to try to exceed everything. That's always the goal, but this is our guess at this time. Best guess. Matthew Boss: Great. It's great color. And then, David, just relative to your 3.25 net cruise cost outlook for the full year, what have you embedded if anything, as it relates to cost management? Last 2 quarters, you've shown really nice results on the cost side. I think you cited hundreds of items that you found to leverage scale as potential offsets the transitory cost headwinds. What have you embedded on the cost management side that could be potential offsets to the cost headwinds that are in your forecast, if anything? David Bernstein: Yes. So no, as I mentioned in my prepared remarks, we did put in about 1.1% of cost mitigation from efficiencies and other initiatives, sourcing, which leverage our scale, et cetera. So we put in a substantial amount, which offset inflation. Operator: Our next question comes from the line of Steven Wieczynski with Stifel. Steven Wieczynski: Happy holidays to all you guys. So Josh, I want to dig into the Caribbean a little bit more. And I know it's a topic you probably haven't been asked about a lot recently. But if we think about 2026, can you maybe give us some color on what you're seeing right now in terms of demand for your Caribbean products? And maybe that's not the right way to ask it, and maybe a better way to ask that is your ability to take pricing action right now in the Caribbean? And then maybe how you're thinking about pure Caribbean yields in '26 relative to your overall 2.5% yield guidance? Josh Weinstein: Yes. I mean just -- I guess I'm going to broken record myself, right? I mean, we're managing the business as we think is appropriate. I'm not going to comment on our competitors on any type of individual basis. I can just tell you our profile is 4% growth over the last 2 years between '25 and 2026. I will tell you that when the industry -- when you back us out is growing as much as it has, it's -- yes, that's just the backdrop, but we feel good about what we've been able to accomplish and how we put it into the forecast. So I'm not sure if you want to try to take it from a different angle, but we feel good about the way we've been tackling our business. Steven Wieczynski: Let me ask it this way then. Caribbean yields will be positive in 2026? Josh Weinstein: Caribbean yields will absolutely help support the momentum of this business. And we look forward to talking at the end of the year when we find out what happens. Steven Wieczynski: Okay. I thought I tried to ask it that way. Okay. Second question is probably going to be a David question. Obviously, we have the first quarter guidance. Wondering, David, if you could help us think a little bit more about the cadence over the last 3 quarters in terms of both yields and costs and anything we should think about in terms of timing of both of those metrics as we update our models. David Bernstein: Yes. So as far as cost is concerned, the first quarter was, as you saw, higher than the full year. So when you start thinking about the second, third and fourth quarter, I do believe that there will probably be all 3 quarters less than the full year. However, keep in mind there's a lot of decisions left to be made on particular items and exact spending and advertising, repair and maintenance and other things. So the seasonalization between the quarters, as I've said before, it's a tough thing to forecast. Judge us on the full year and not the quarters, but I think it will be probably less than the full year. As far as the revenue is concerned, you saw the first quarter. I mean, the prior year first half has much more difficult comparisons, higher yield increases than the back half. So relatively speaking, I would expect to see on a year-over-year basis, higher yield increases in the back half of this year than the first half. Operator: Our next question comes from the line of Ben Chaiken with Mizuho Securities. Benjamin Chaiken: For '26, on the cost side, it sounds like the 2.5 normalized cost has 0.6 point for dry docks in it with more OpEx versus CapEx, to your point, David. I guess what's the more typical allocation as we think about the future, is it the '25 version of the '26 version, if that makes sense, assuming I understood you properly. David Bernstein: Yes. It's really difficult to depict here because, remember, we're talking about a very small movement on a large number, maybe 4% or 5% on over $1 billion. So as a result of that, it is very difficult to project what will happen in 2027. This has been going on for a long time. One is -- and it has swung both ways. I mean, one of the things that I used to -- that I've always said many times is the fact that not every dry dock day is created equal, and this is what I was referring to. Now I'm just getting to a little bit more detail of the split between CapEx and OpEx. But we're really talking about a small movement, and as we plan through 2027, we'll get better visibility into that. But on the margin, it's kind of small. So it's a handful of percent difference between the two pieces. Benjamin Chaiken: Okay. Got it. And then on the fuel side, there was -- there's some rounding, so it's not like perfect math, but it seems like there was quite a step-up in the emission allowance tax. I could be mistaken, but I think it's around $160 million for you in '26. Is there any way to... David Bernstein: The increase was about $0.06 a share or about call it, roughly $80 million. Remember, in '26, we went from -- we went to the full 100% versus '25 where we were -- it was 70% of the emissions allowances. So because of the step up, there was an increase, plus there was a slight increase in the projected cost of the EU allowances as well. Benjamin Chaiken: Totally. No, I got you. I was just think is there a smart way to think about the out years? Like are we -- is clearly -- is that step function over and now it just grows by what you guys do on a... David Bernstein: Yes, the step functions over because we're at 100%. Operator: Our next question comes from the line of James Hardiman with Citi. James Hardiman: So circling back to the Caribbean conversation. As we think about -- obviously, there's some one-timers in the first quarter, the Arabian Gulf deployment changes. But sort of your like-for-like numbers that you've given us, right, 2.4% for Q1 relative to 3% for the year. Is that delta primarily just the outsized mix of the Caribbean in Q1? And then to Steve's question, as we think about the shape of the year, do you ultimately feel better as we move into the year about that Caribbean piece. I think the Caribbean is a much larger chunk of Q4 as well, but it seems like based on the answer to the previous question that you feel pretty good. The Q4 yields, if anything, are probably going to be better than the full year? So just trying to understand the Caribbean dynamic in the context of all that. Josh Weinstein: Yes. James, so I think you've heard pieces of this throughout. So first of all, if you look at the first quarter versus the first half versus the second half, the comps are a lot different when it comes to the yields that we're lapping. We have the impact of the volatility in the spring, which is having the outsized impact now, not for the second half of 2026. Overall, we feel good about the business. There are some specific drivers for Q1 that we've talked about. And we'll hopefully continue to, like I said, ride the momentum and keep improving the business. James Hardiman: Got it. And then I guess moving to the other side of the pond. Obviously, as we think about global capacity growth for 2026, it's in a very good spot, right? The issue is that a lot of that capacity is moving from Europe into the Caribbean, I would think that given your relative exposure to some of your peers in Europe that maybe that's a net benefit to you guys? Maybe speak to that dynamic and whether or not you feel like you're sort of uniquely positioned there. Josh Weinstein: Yes. So I'd say, yes, I love it. Keep clearing out of Europe. That will be fine with us. At the end of the day, with our strategy and our approach, when you have P&O Cruises, which is the biggest investment in the U.K. and AIDA, which is the biggest and the best in Germany. And then we've got cost. It's really servicing the Southern European countries. Our European strategy, we think, is very, very effective over the long term, as we've been saying for a long time. And we also, frankly, see strength in our North American Brands European program. So we're very happy with, a, where we're sourcing; and b, where we're deploying. And so we'll continue to stick to our strategy. Operator: Our next question comes from the line of Lizzie Dove with Goldman Sachs. Elizabeth Dove: I wanted to get a higher level and just on the strategy that you've taken, you have fewer ships launching than some of your peers, yet you're seeing, clearly, congrats on a great yield growth. Can you maybe talk more about what you think is driving that same-ship yield growth from here? How much of that is maybe brand improvements and some of the brands that have been lagging, maybe more exposure to new to cruise? Just anything you could share, that would be helpful. Josh Weinstein: Lizzie, so I think it is our brand is getting better and better at their commercial execution up and down that silo, right, is everything from how we do the revenue management and the tools we use and the capabilities that we have. It's the performance marketing. It's the better and clearer brand messaging that's really speaking to why you shouldn't just want to take a vacation with us or cruise with us, but you want to take a cruise with that brand, that's when we know we're doing it right. And that's what we've been focused on. And of course, I always say I talk about this as the lease only because we're really so good at it. We're always trying to figure out how do we make the experience on board, meet and exceed expectations of our guests. And as you've heard me say, we have a tremendously ridiculous price to experience ratio gap between what we give to our guests and what you can get in land-based alternatives. And that value proposition, I think, is getting clearer and clearer when it comes to how we can market and talk about this. Now because we don't have capacity growth in the next couple of years to speak of any real size. We don't have the situation where we're trying to figure out how do we get more people on to our ships. We have actually got pretty maximum capacity on our ships. So newcomers are welcome as are our loyal guests who we love, as are folks who have cruised on others and want to try one of ours. And so we're trying to appeal to as broad an audience as we can for the limited space that we have, which is a good recipe for being able to improve our revenue. Elizabeth Dove: Great. And then I know you get asked this every quarter, but I'll ask it again, especially in the context of contribution to your net yield guidance this year. Celebration Key has been open a number of months now. I think you've had 1 million guests you said go there. I think we all make our own estimates of ticket yield contribution on board. Anything you can share it just participation rate, spend rate, what you are seeing on uplift and what you're expecting on the go forward and as you kind of develop RelaxAway more? Josh Weinstein: Thanks for asking again. So I'd say we celebrated just yesterday, the 1 millionth guest coming to Celebration Key, which we were ecstatic to be able to celebrate. And it will give you the same answer, which is we're getting the ticket premium that we anticipated. The output from the onboard shore operations is in line and the fuel consumption is too. So it's proceeding pretty much as we had planned. We'll continue to learn and adopt over time as we should. And we'll certainly factoring in, as you said, order some lessons learned that could be translatable to Half Moon RelaxAway. But I would say we're trying to make them very distinct and different experiences. And I think our guests are going to be delighted with that, and we can't wait to show them both for much of our capacity on the same itinerary. So we're looking forward to that. Operator: Our next question comes from the line of David Katz with Jeffries. David Katz: David, could you just help us a bit with fixed versus variable costs within where you're at today? I know we're not going to be able to predict the future necessarily, but we'd love to get a sense for how we might find leverage in the model, should it turn out to be a better year than anticipated. David Bernstein: So it's a difficult question to answer because we do operate at full capacity and essentially sell every cabin. So once you have that basic premise in the business. What you're basically saying is a ship size, most of your costs are fixed. However, that doesn't mean that you can find better ways and optimize the business by doing things differently, which is whether it's been using AI or other things in order to improve your cost structure. We're doing that shore side as well. Shore side, you find that obviously, somebody could say, your advertising expense is variable. But in the long run, it really isn't. So what we have to do and what we focus on continually is being most efficient with every single dollar we spend and find ways to do more with less. David Katz: Understood. And just my follow-up, one more for you, David. Sorry, Josh. So on the listing, presume that there could be a couple of bucks of cost savings upfront and ongoing, thinking a few million dollars upfront and maybe a few million as an ongoing, every little bit helps. Is that the neighborhood, David? David Bernstein: Yes, that's the neighborhood. And so -- and the payback on this is very quick. It's just less than 2 years. And so we feel very good about the situation, and it also streamlines reporting and simplifies governance and other things for us. So we're -- we feel very good about the decision and we finally got to it. Operator: Our next question comes from the line of Jaime Katz with Morningstar. Jaime Katz: Nice quarter guys. Can I ask a little bit about consumer demand. I think you guys did a nice job of dissecting demand by geography, but maybe can you talk a little bit about the behavior of consumers between income levels because we've been hearing a lot about this K-shaped demand patterns and how they've differentiated. Are we seeing things like seaborne consumers being more resilient [indiscernible] than Carnival consumers or vice versa? Is there any way to parse that out to a better degree for us? Josh Weinstein: Yes, sure. So when you look at the segments, you got contemporary premium and luxury. We're not seeing any meaningful difference across the segments, I would say. And this has been asked before when you think about our U.S. consumer across the big brands that we've got in the U.S., excluding seaborne, the range of our of our household income is something in the $100,000 to $150,000 range. So it's certainly in the middle class. And now having said that, our guests don't live in a vacuum. They live in the same world as every other consumer does, and they see the headlines. And they're looking, I think, in a lot of cases, to figure out how do they get more value for what they're spending. That's been a pretty constant theme for a long time, and it certainly was in the fall, as you heard, not only us and people in the cruise space talk. But I think as you hear retailers talk and as we've been getting into the holiday season. Some people are looking to make sure that they are getting the most they can get for the money that they spend. And they're specifically looking to preserve and protect things that are dearly important to them like spending time with their friends and family on holidays. And when you put all of that together, that is a very nice tailwind for what we have to offer because we are an amazing value, we give an amazing experience, and we can help you make your money go further than what the land-based alternatives are. And so we feel good about the positioning. I'm happy to always have a gap to land and always be a value and close the gap over time and always have a gap and be a value. I think that's a great thing that we can provide to our guests. Jaime Katz: Okay. And then I think there was a comment on always sailing full, but can you talk a little bit about how you guys are thinking about managing occupancy in 2026 just relative to the past, given that prices are at an all-time high and maybe the experience improves with fewer people on the ship? So maybe how is the occupancy being optimized in the year ahead? Josh Weinstein: Sure. And I think that's a fair call out. We are not mandating -- I am not mandating to my teams you better say full to the last decimal point going 3 places over, right? At the end of the day, we want people to maximize revenue. And that's why we could miss an occupancy by a little bit, and we still end up with more revenue than what our forecast was because we're managing and our teams are managing that balance, and I think doing it the right way. And so there's always going to be opportunity to figure out on the fringes whether it's worth getting the last few people on board or it's not and keep a little bit more price integrity overall and generate more in the long run. So we give our brands rightly so the leeway to do that, and they have been doing it. And I expect that, that will continue. Operator: Our next question comes from the line of Conor Cunningham with Melius Research. Conor Cunningham: Just on the balance sheet, you've obviously done a tremendous amount of work. I think you're targeting, I think you said sub-3, David. Just -- why is that the right level? And is there a desire to go above and beyond the $2.6 billion, I think, that you have naturally coming due this year in general? David Bernstein: Sure. So overall, if you calculate using our guidance where we'll wind up the year, we will wind up less than 3. We wind up at about 2.8x. So we are moving in the right direction and feel very good about that. I would say we had said sub-3. But overall, we're probably targeting something in the range of 2.75, that should get us around a BBB rating, and we feel that, that is strong at this point in time for a company like ours. Conor Cunningham: Okay. And then I know there's been a lot of talk about the Caribbean, but like the -- it's pretty normal in this industry to have big swings in supply from time to time. I think one -- I mean, not too long ago, I think we were talking about Alaska as having too much supply at one point, but it normalize pretty quickly. So can you just -- and I know you talked a little bit about this, Josh, but just on core pricing versus occupancy, like what the biggest change to me seems to be that Carnival is less willing to discount to fill. So I mean, I know you've talked about maximizing revenue. But if you could just talk like holistically, how that's changed versus history, I think, would be helpful just given I think that's a big deal here? Josh Weinstein: Sure. And I think that's a great intro. I mean, first of all, let me just say real clearly, the Caribbean is and it always will be a fantastic market for us. And we have successfully absorbed elevated supply in the Caribbean before and in Europe and Alaska many times over the last many decades, and it comes and it goes and it gets absorbed, and we move along. And I don't feel any different about the long term in light of what this particular instance is because we do that very well. With respect to the philosophy, look, I think it is Fair to say that we are thinking and acting, I think, in a rational basis in a way that we want to maintain price integrity in the market for us. And at the same time, making sure we get folks on board that are happy and spending money not only in the ticket and -- but the onboard. And because we have evolved over the last several years and we'll continue to with bundled pricing and packages, it does change the dynamic about how we can position ourselves in the market and do things and make folks think that and understand that it's a great value. We have been -- like I said before, we've been doing this over the last couple of years, and our yields are up 17%. It's part of the arsenal to put out promotions to make people interested in what we have to offer and get our base of business and hopefully generate as much revenue as we can on as much happy guests as we can. So no specific formula to give you, but I think it's fair to say that that's the approach. Operator, I think we've got time for one more. Operator: Our final question will come from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I wanted to ask about marketing because clearly, you had a lot of success with increasing your marketing spend, and I think that was called out at someday you will increase more in '26. Can you talk about where you ended with marketing as a percent of sales in '25, how do you think about that for '26? And then there's a lot of talk about the way to get to consumers kind of changing with maybe SEO and things like that being less effective. I mean how do you think about targeting consumers as the way to get to them, maybe shifting, particularly in the digital landscape? Josh Weinstein: Yes. Well, so I'll talk about the last part first. You're 100% correct. It is one of the fastest changing areas of our business when it comes to technology use of AI tools, not only by us but by the consumer and how are we marrying all of that up. And so there are lots of things that are already in place because not surprisingly, there are third-party companies that have tools already available that we're taking advantage of to make sure that we're keeping pace with the way that consumers are changing how they go about looking for not just the vacation, but frankly anything now it is. So that is -- I think that's just going to be a common theme as we move ahead over the next several years, and we've got to be -- we have to be nimble, and we have to be really thoughtful about the fact that the world is going to change dramatically, I think, over the next 5 years, and we just -- we need to make sure we're keeping pace. So that -- so we are reallocating dollars as we talk with our operators about how they need to spend differently to adjust to that. I think it's fair to say, though, there will still be top of funnel things that we are always going to want to do to get into the consideration set. And we're talking about how do we optimize once you get below that to make sure that we're being put the right way in front of the right guest or potential guests to close the booking. As far as how we're seeing the advertising, it's not like it's spiking dramatically over -- as a percentage of revenue. We're just trying to do what we think is, is the right thing for our brands and our business. It's about 3.5%, give or take. That's -- it's a metric we look at, but it's not the metric that end the discussion about how much people should be spending on advertising because as you can probably appreciate, there's a lot behind it as we develop and change those plans real time. Thank you very much. So for everybody, I would just say thank you. Happy holidays, and thank you again for all the support that we have had as a corporation and for all of our guests and all of our trade partners, thank you very much for everything you do for us and for the team. Well deserved -- well-deserved break next week. So thanks very much, and happy holidays. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Carnival Corporation & plc Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Beth Roberts, Senior Vice President, Investor Relations. Thank you, Beth. You may begin. Beth Roberts: Thank you. Good morning, and welcome to our fourth quarter 2025 earnings conference call. I'm joined today by our CEO, Josh Weinstein; our CFO, David Bernstein; and our Chair, Micky Arison. Before we begin, please note that some of our remarks on this call will be forward-looking. Therefore, I will refer you to today's press release and our filings with the SEC for additional information on factors and risks that could cause actual results to differ from our expectations. We will be referencing certain non-GAAP financial measures, including yields, cruise costs without fuel, EBITDA, net income, ROIC and related statistics for all, which are on a net basis or adjusted as defined, unless otherwise stated. A reconciliation to U.S. GAAP is included in our earnings press release and our investor presentation. References to ticket prices yields and cruise costs without fuel are in constant currency unless we note otherwise. Please visit our corporate website where our earnings press release and investor presentation can be found. For further information on our proposed DLC unification and shift in legal incorporation, please visit carnivalcorp.com/unify. With that, I'd like to turn the call over to Josh. Josh Weinstein: Thanks, Beth. It is definitely gratifying to begin this call by saying we delivered yet another very strong quarter to finish a fantastic year. Not only did we deliver historical fourth quarter highs for revenues, yields, operating income and EBITDA, we achieved these record results in each and every quarter of the year and for the full year. 2025 was clearly another step change forward for us. We delivered over $3 billion to the bottom line, a 60% increase over 2024 and an all-time high net income for our company. This was over 30% greater than our initial guidance. Full year yields improved more than 5.5% over last year and topped our initial guidance by almost 1.5 points, driven by successful commercial execution across our industry-leading cruise lines, and all while absorbing the heightened volatility we encountered periodically throughout the year. We also brought unit costs in over 1 point better than initial guidance at a 2.6% increase for the year with successful cost management mitigating inflation, higher dry dock expenses and the inclusion of costs for our amazing new destination Celebration Key Grand Bahama. This combination pushed operating margins and EBITDA margins up by over 250 basis points year-over-year, leading to the highest operating income per ALBD in almost 20 years and EBITDA per ALBD reaching an all-time high. For all of these incredible achievements, full credit goes to our hard-working and dedicated team, the best in all of travel and leisure for the consistent outperformance throughout the year that resulted in ROIC in excess of 13%, the highest level this company has seen in 19 years. Having said that, we are very well positioned to top 2025's fantastic results in 2026. We are already about 2/3 booked in line with where we were a year ago at this time and at historical high prices for both North America and Europe. And over the last 3 months, we achieved booking volumes that were at record levels for both 2026 and 2027. At the same time, closing demand remains strong, as demonstrated by the outperformance in our fourth quarter by our onboard revenue per diem significantly outperforming prior year levels and our customer deposits up 7% year-over-year, hitting an all-time high for year-end. Our book position and recent performance are all despite Michigan's U.S. consumer sentiment readings dipping quite low for several months throughout 2025, and in fact, last month dropping pretty close to its lowest level in recorded history. It is a true testament to the strength of the product offering across our portfolio of world-class cruise lines and our guests prioritizing their spending with us. In reality, the disconnect between consumer sentiment and actual booking behavior continues to reinforce what we've said for a long time. Demand for our cruise lines is proving far more resilient than traditional macro indicators would suggest. We are expecting another year of same-ship yield improvement marking our fourth consecutive year of low or mid-single-digit per DM growth. Normalizing for the accounting changes from the implementation of Carnival Cruise Line's beneficial new loyalty program and late-stage deployment changes necessitated by geopolitical uncertainties in the Arabian Gulf, we are forecasting a 3% yield increase in 2026. And while I think it's obvious, to address the question we've been getting most often, our 2026 guidance fully incorporates the 14% increase in non-Carnival Corporation capacity growth in the Caribbean taking that to a 27% increase in just 2 years as well as our 4% growth over that time period. Now even against that backdrop, we continue to drive the business forward underscoring the advantage of our diversified global portfolio. We are also continuing to successfully mitigate inflation through effective cost management. And again, with no ship deliveries for 2026, we don't have the advantage of offsetting large cost increases with significant capacity growth. On that basis, we've guided to unit cost growth of 3.25%, which includes a partial year of operating costs from our successful new destination developments and the timing of expenses hitting in the first quarter of 2026 rather than Q4 2025. David will provide more color around the costs, but normalized just for these 2 items, net cruise cost ex fuel per ALBD are expected to be up about 2.5% for the full year. All told, in 2026, we will bring over $350 million more to the bottom line year-over-year and generate over $7.6 billion of EBITDA. With this strong cash flow, no new ship deliveries this year and the fantastic balance sheet improvements we've made over the last 2 years, we're about a year ahead of schedule and can now embark on a capital allocation strategy that will return even more value to shareholders. Having reached a better-than-expected investment-grade leverage ratio of 3.4x at year-end, I am pleased to say we are now formally resuming our dividend at an initial rate of $0.15 per quarter, which we expect to grow responsibly over time. Reinstating the dividend reflects both our confidence in the durability of our cash generation and the structural improvements we've made to our balance sheet. Alongside the dividend, we will continue to delever to get below 3x net debt to EBITDA, while still allowing for opportunistic share repurchases in the future. In fact, we just kick-started that a bit by calling the last of our convertible debt and in the process using some cash to take out 18 million shares. We will also have ample opportunity to deliver even greater shareholder value over time as we continue to reinvest in our future, through our disciplined newbuild program, return-generating vessel enhancement programs like our successful AIDA Evolution project, which will soon expand to several of our other brands and our ongoing destination development efforts. We see much more pricing opportunity ahead as we transition our destination strategy from what has historically been a utilitarian asset base to a marketable growth driver for years to come. Celebration Key is a real differentiator for us and will be complemented by the expansion at RelaxAway, Half Moon Cay later this year. This will soon be followed by Isla Tropicale, as we lean into the rest of our Paradise collection even harder. And as recently announced, we'll also be looking forward to a great guest experience we're developing with our partners in Ensenada, Mexico, showcasing the culture and natural beauty of Baja California, Mexico that will greatly benefit our West Coast deployments and our significant competitive lane advantage in the incredibly profitable Alaska trade will continue to serve us well for decades to come. On top of these important attributes, cruising has clearly become a mainstream vacation alternative. And we have positioned our company with the most diversified portfolio of world-class cruise lines in the industry. And in fact, we hold the #1 or #2 brand in every major market for cruising today. Our well-recognized cruise lines have been honing in on their target markets, sharpening their marketing messages and reaching target consumers in an incredibly efficient manner. Moreover, we are continuously improving upon our yield management tools and techniques to generate the most revenue possible from our asset base. We're also leaning into AI to further improve in areas such as marketing effectiveness and enhanced personalization and to find further efficiency gains across the business. And the good news is the price to experience ratio to land-based alternatives is still at a ridiculous value and provides enormous headroom for many years to come. and that's despite what will be an approximately 20% cumulative yield increase for us since 2023. So while we are not immune to things like the lowest consumer sentiment in years, or capacity spikes in our most concentrated market or geopolitical conflicts around the world, having 2/3 of the business on the books at higher prices underscores the resilience of our business model. Against all of that background noise, we plan to deliver another double-digit earnings growth on top of the 60% increase we achieved in 2025, leaving us well positioned to continue to outperform in the consumer discretionary and travel space yet again. Again, thank you so much to each of our team members, ship and shore, who have delivered such phenomenal results in 2025 and set us up well for another step forward in 2026. At the end of the day, this is about delivering unforgettable happiness to over 13.5 million people around the world by providing them with extraordinary cruise vacations while honoring the integrity of every ocean we sale, place we visit and life we touch, and that is something we do incredibly well. Thanks also goes out to our travel agent partners who have contributed immensely to this success. Likewise, a heartfelt thanks is owed to our loyal guests, investors, destination partners and other stakeholders. Suffice it to say, these accomplishments reflect the effort, support and loyalty we've received from all of you. I continue to be very proud of what we've been able to accomplish together while at the same time, remain incredibly excited about the runway ahead that leads to continued improvement to our business and results for years to come. With that, I'll turn the call over to David. David Bernstein: Thank you, Josh. I'll start today with a summary of our 2025 fourth quarter results. Next, I will provide a recap of our 2025 deleveraging and refinancing efforts. Then I'll give some color on our 2026 full year December guidance as well as some key insights into our 2026 first quarter and then finish up with some comments on the recommended simplification of our corporate structure. Turning to the summary of our fourth quarter results. Net income of $454 million was nearly 2.5x the prior year and exceeded September guidance by $154 million or $0.11 per share as we outperformed once again. The performance versus September guidance was driven mainly by two things: First, favorability in revenue were $0.03 per share as yields came in up 5.4% compared to the prior year, and that was on top of last year's robust increase of nearly 7%. This was 110 basis points better than September guidance, driven by continued strong close-in demand, which resulted in higher ticket prices and an acceleration of strong onboard spending. The increase in yield was driven by improvements on both sides of the Atlantic. Second, cruise cost without fuel per available lower-berth day, or ALBD, were only up 0.5% compared to the prior year. This was 2.7 points better than September guidance and was worth $0.04 per share. The favorability was driven by both cost-saving initiatives, which we firmed up during the quarter as well as timing of certain expenses between the years. The balance of the favorability $0.04 per share was a combination of better fuel prices, favorability in fuel consumption and fuel mix, slightly less depreciation than expected favorable net interest expense and a variety of other small factors. Next, I will provide a recap of our 2025 deleveraging and refinancing efforts. We have reached a meaningful turning point achieving an investment-grade net debt to adjusted EBITDA ratio of 3.4x as of the end of the fiscal year 2025. We successfully completed our $19 billion refinancing plan in less than a year. These efforts strengthened our balance sheet by simplifying our capital structure, reducing interest expense and debt, optimizing our future debt maturities and enhancing our financial flexibility. In total, we have reduced our debt by over $10 billion since the peak less than 3 years ago. These efforts and our strong continued operating performance resulted in multiple credit rating upgrades throughout the year, culminating and reaching investment grade with Fitch and being one notch away with a positive outlook from S&P. All of this is expected to result in an over $700 million improvement in net interest expense in 2026 as compared to 2023, which is fully reflected in our guidance. Now I will provide some color on our 2026 full year December guidance. On top of the 17% yield growth over the last 2 years, we are expecting to deliver further yield improvement in 2026 with our guidance forecasting an increase of approximately 2.5%, which is really 3% when normalized for the Carnival Cruise Line loyalty program accounting and the last-minute changes we made to our Arabian Gulf deployment and certain dry dock schedules. The 2.5% yield growth is worth over $0.35 per share when compared to 2025, which is a result of both an increase in ticket prices and higher onboard spending, which has continued to remain strong. Turning to costs. Cruise costs without fuel per ALBD are expected to be up approximately 3.25% costing $0.27 per share for 2026 versus 2025. This is really a normalized rate of 2.5% when factoring in two things. First, operating expenses for full year operations of Celebration Key Grand Bahama and the midyear opening of our new peer at RelaxAway, Half Moon Cay will impact our overall year-over-year cost comparisons by 0.5 point. Second, the sliding of some costs from fourth quarter 2025 to 2026 will impact our overall year-over-year cost comparisons by about [ 0.3 ] point. The three main drivers of our normalized 2.5% cost increase are: First, 3% attributable to inflation and higher advertising expenses; second, about 0.6 point from dry dock expense on our income statement. In 2026, after optimizing our dry dock schedule, we are expecting 604 dry dock days. While the total actual spending for our dry docks in 2026 is expected to be roughly in line with 2025 as a result of the nature of the 2026 work more of the spending is classified as operating expense and less as capital expenditures. And third, cost mitigation of approximately 1.1% from efficiency initiatives and further leveraging our industry-leading scale. Regulatory costs related to emission allowances and higher income taxes driven by Pillar 2 will cost us $0.11 per share. Benefits from net interest expense, fuel consumption and capacity were partially offset by increased depreciation for a net favorable impact of $0.06 per share. The net impact of fuel price and currency is expected to favorably impact 2026 by $0.20 per share, with fuel prices favorable by $0.17 and the change in currency exchange rates adding $0.03. In summary, putting all these factors together, our net income guidance for full year 2026 is over $3.45 billion, an improvement of more than 12% versus 2025 or $0.23 per share. In addition, this will result in $7.6 billion of EBITDA. As we mentioned on the last earnings call, for the longer term, we're targeting a net debt-to-EBITDA ratio under 3x. While I'm happy to report that even with 4 dividend payments modeled into our guidance for 2026, we are projecting to get there by the end of the year. Before I leave our 2026 guidance, I did want to update you on the impact of Carnival Cruise Line's new loyalty program, Carnival Rewards, which will now start in September 2026, impacting results for the fourth quarter. As a reminder, while the program will be cash flow positive from day 1, it does impact our yields in 2026. The impact is expected to be 0.2 point in 2026, 0.5 points in 2027, 0.2 point in 2028 and turn positive thereafter. Now some key insights into our 2026 first quarter. Yield improvement is approximately 1.6% or 2.4% when normalizing for the last-minute changes to our Arabian Gulf deployment and certain dry docks in the first quarter. First quarter 2026 has a difficult prior year comparison as 2025 was at a record level with a 7.3% increase compared to 2024. In addition, the quarter is being affected by the Caribbean double-digit industry-wide growth along with the first quarter having the largest absolute quarterly capacity in the Caribbean during the year, as well as the impact of volatility in the first half of last year had on our advanced booking curve. Adjusted cruise costs, excluding fuel per ALBD are expected to be up approximately 5.9% compared to the prior year and higher than the full year. This results from the fact that all of the items that are expected to impact the full year will have a greater impact on the first quarter. I'll finish up with some comments on the recommended simplification of our corporate structure. We are recommending to our shareholders that we unify the dualistic company or DLC framework into a single company listed solely on the New York Stock Exchange. This aligns with the marketplace. We are aware of 15 dual-listed companies or DLCs created over the last 4 decades, including our DLC in 2003. A substantial number of those have been unified in recent years for many of the same reasons we are recommending our unification. Today, we know of only 3 other major DLCs remaining. Under our plan, Carnival plc shareholders would receive Carnival Corporation shares on a one-for-one basis and Carnival plc shares and ADSs would be delisted. Carnival plc would become a wholly owned U.K. subsidiary of Carnival Corporation. This would create a single global share price, streamlined governance and reporting and reduce administrative costs. We believe we will also increase liquidity for stock trades and increased weighting of the stock in major U.S. stock indices. We intend to hold meetings of our shareholders in April to consider the recommendation. Subject to shareholders approving our recommendation, we intend to complete the unification in the second quarter of 2026. Now operator, let's open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Robin Farley with UBS. Robin Farley: Great. That was a lot of information that covered a lot of the initial questions. Maybe just one thing when we think about your guidance. It sounds like if we were just taking up the accounting accrual, it will be closer to sort of 2.8% yield growth for next year. You mentioned that a lot of the beat in Q4 similar to what you said during the year was this acceleration in onboard spend and better close-in demand. Would you say that you -- when you're thinking about your guidance for 2026, are you factoring in that those things will continue at that level? Or are you kind of assuming that those would be at the rate that you'd originally thought? In other words, I'm just thinking about whether that acceleration and good close in demand is in your guidance or that would really be upside to your guidance? Josh Weinstein: Robin, so I think the fair thing to say, look, this is our guidance based on what we expect to happen at this point in time when we look into 2026, taking into account the business we've got on the books, the momentum we've got and the fact that the world changes on a pretty daily basis. And so we're always going to try to continue the momentum on the onboard side. We're always going to try to make sure that the close-in bookings are going to hopefully beat our expectations. But -- at this point in time, it's truly our best guess. And as we always do around this time of year, you could say that we started early. It always starts early at this point, which I do believe, and it's really something that takes off as we get into the latter part of November. We're still right in the mix of it, as you know. And so we do need some more time to see how it all develops. Robin Farley: Okay. Great. And then you alluded to the increase in Caribbean capacity and a lot of that really is focused on Q1. Typically, at this point, right, you would be over 80% booked for Q1? Or if you could just kind of remind us where that is? I know you mentioned kind of overall for the year and that your overall for the year in line with those record highs. Would you say for Q1 that you're further ahead than typical or sort of in line with typical just when we think about how far past the point of digesting anything in the Caribbean is already -- has already happened? Josh Weinstein: Yes. I mean for our Q1 sailings, there's not that much left to go. And we are, at least at this point in time, we're a little bit better positioned tiny bit versus last year on the fringes. So not much to say about the first quarter. Operator: Our next question comes from the line of Brandt Montour with Barclays. Brandt Montour: Congratulations on the dividend and the results. So the first question is on the bookings. You guys called out the momentum and it was clear in the release in the commentary. We had heard that there had been some slightly less robust demand, still good, but it's just not quite what some folks have seen last year. So just wondering from a revenue management perspective, as you guys have chosen to take any volume at the expense is slightly less pricing growth this year, if that was a strategy at all for you guys? Josh Weinstein: Yes. Thank you for the question. We're -- as you said, we -- our revenue managers brand by brand, voyage-by-voyage are doing the right things to maximize ultimately the amount of revenue we have in the bank by the time the ship comes back to port. And so the momentum has been good. We're doing things that we think are going to continue to help support the guidance and support the business, not only for 2026, but for 2027 and even some that we're getting into 2028. So we feel good about the way our teams are going about managing the curve. Brandt Montour: Okay. That's great. And then on the Caribbean commentary, we hear about that capacity lift. A lot of it is in the close end market, 3- and 4-day itineraries. I don't know if you want to comment in terms of your exposure to that market specifically or if you could get in the weeds and kind of help us understand if you have a little bit of different mix versus what you guys see coming into that market for this first quarter specifically? Josh Weinstein: I actually don't have it offhand with respect to the first quarter. But clearly, there is -- there's all sorts coming into the Caribbean, right? You've got the 7 others, you got the shorts from others. When it comes to us, Carnival has been America's crews line operating in the Caribbean on shorts for, I don't know, 5 decades. And they'll continue to do that and do that thoughtfully. We like the portfolio approach we're taking even into the Caribbean because -- when you think about our mix and you look at the first quarter, 20% of our Caribbean capacity is actually from our European brands that have flare programs going into places like Barbados and Dominica, and it works very well for us. So probably in a roundabout way to answer your question, there is short, there is 7 nighters, and there's things that are even longer, and we play in all of it. Operator: Our next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: Congrats on another nice quarter. So Josh, could you elaborate on the momentum carrying into '26 that you cited, specifically maybe the cadence of booking volumes that you've seen up through holiday, prices in North America and Europe, which I think you cited at historical highs? And maybe even to say it a different way, have you seen anything irrational at all? And does your guidance for the 3% normalized yields for the year, does that require today's level of momentum to sustain? Did you bake in benefit for Celebration Cay Half Moon? Is there anything in there for lapping up against the tariff volatility from a year ago that you saw in bookings? And did you put anything in at all for stimulus in terms of potential benefit? Josh Weinstein: Yes. Thanks for the question, Matt. Let me see if I can answer it holistically. So as a starting point, like I said in an earlier call, we are very happy with the momentum that's taken us through the end of the first quarter and into the last few weeks and volume is up nicely. And we're doing that the way that we always do that, which is managing the curve and putting out our product and our experiences to our guests who are looking for value, and that's what we do, and that's what we've done over the last couple of years as our yields have gone up 17%, and we'll continue to do that. With respect to all of the ins and outs of what's been baked in, like I said before, every forecast to some extent, is a guess and it's based on some assumptions. So as far as stimulus specifically, we didn't really bake anything into that. As far as the macroeconomic impacts that we saw this year, yes, that did play into it to some extent. I mean, we know that we're going to lap some of the volatility in the spring. And we also know we didn't have the volatility of the spring on our radar screen this time last year. Things do happen all the time, all around the world. And so we just got to be prepared to deliver in light of that. I just keep going back to the well. The one thing I'd reiterate to everybody is the fact that things happen in cycles, things happen differently in different geographies, and the diversity that we've got sets us up very well to be able to withstand volatility. And the fact that we're guiding to a normalized yield increase of 3%, I think, is very good. And I'd just remind you that if you remember, what we've talked about with respect to the volatility last spring, it was really having an impact on the second half of '25 into the first half of '26, which is what's been built in exactly to our to our forecast. So as always, we're going to try to exceed everything. That's always the goal, but this is our guess at this time. Best guess. Matthew Boss: Great. It's great color. And then, David, just relative to your 3.25 net cruise cost outlook for the full year, what have you embedded if anything, as it relates to cost management? Last 2 quarters, you've shown really nice results on the cost side. I think you cited hundreds of items that you found to leverage scale as potential offsets the transitory cost headwinds. What have you embedded on the cost management side that could be potential offsets to the cost headwinds that are in your forecast, if anything? David Bernstein: Yes. So no, as I mentioned in my prepared remarks, we did put in about 1.1% of cost mitigation from efficiencies and other initiatives, sourcing, which leverage our scale, et cetera. So we put in a substantial amount, which offset inflation. Operator: Our next question comes from the line of Steven Wieczynski with Stifel. Steven Wieczynski: Happy holidays to all you guys. So Josh, I want to dig into the Caribbean a little bit more. And I know it's a topic you probably haven't been asked about a lot recently. But if we think about 2026, can you maybe give us some color on what you're seeing right now in terms of demand for your Caribbean products? And maybe that's not the right way to ask it, and maybe a better way to ask that is your ability to take pricing action right now in the Caribbean? And then maybe how you're thinking about pure Caribbean yields in '26 relative to your overall 2.5% yield guidance? Josh Weinstein: Yes. I mean just -- I guess I'm going to broken record myself, right? I mean, we're managing the business as we think is appropriate. I'm not going to comment on our competitors on any type of individual basis. I can just tell you our profile is 4% growth over the last 2 years between '25 and 2026. I will tell you that when the industry -- when you back us out is growing as much as it has, it's -- yes, that's just the backdrop, but we feel good about what we've been able to accomplish and how we put it into the forecast. So I'm not sure if you want to try to take it from a different angle, but we feel good about the way we've been tackling our business. Steven Wieczynski: Let me ask it this way then. Caribbean yields will be positive in 2026? Josh Weinstein: Caribbean yields will absolutely help support the momentum of this business. And we look forward to talking at the end of the year when we find out what happens. Steven Wieczynski: Okay. I thought I tried to ask it that way. Okay. Second question is probably going to be a David question. Obviously, we have the first quarter guidance. Wondering, David, if you could help us think a little bit more about the cadence over the last 3 quarters in terms of both yields and costs and anything we should think about in terms of timing of both of those metrics as we update our models. David Bernstein: Yes. So as far as cost is concerned, the first quarter was, as you saw, higher than the full year. So when you start thinking about the second, third and fourth quarter, I do believe that there will probably be all 3 quarters less than the full year. However, keep in mind there's a lot of decisions left to be made on particular items and exact spending and advertising, repair and maintenance and other things. So the seasonalization between the quarters, as I've said before, it's a tough thing to forecast. Judge us on the full year and not the quarters, but I think it will be probably less than the full year. As far as the revenue is concerned, you saw the first quarter. I mean, the prior year first half has much more difficult comparisons, higher yield increases than the back half. So relatively speaking, I would expect to see on a year-over-year basis, higher yield increases in the back half of this year than the first half. Operator: Our next question comes from the line of Ben Chaiken with Mizuho Securities. Benjamin Chaiken: For '26, on the cost side, it sounds like the 2.5 normalized cost has 0.6 point for dry docks in it with more OpEx versus CapEx, to your point, David. I guess what's the more typical allocation as we think about the future, is it the '25 version of the '26 version, if that makes sense, assuming I understood you properly. David Bernstein: Yes. It's really difficult to depict here because, remember, we're talking about a very small movement on a large number, maybe 4% or 5% on over $1 billion. So as a result of that, it is very difficult to project what will happen in 2027. This has been going on for a long time. One is -- and it has swung both ways. I mean, one of the things that I used to -- that I've always said many times is the fact that not every dry dock day is created equal, and this is what I was referring to. Now I'm just getting to a little bit more detail of the split between CapEx and OpEx. But we're really talking about a small movement, and as we plan through 2027, we'll get better visibility into that. But on the margin, it's kind of small. So it's a handful of percent difference between the two pieces. Benjamin Chaiken: Okay. Got it. And then on the fuel side, there was -- there's some rounding, so it's not like perfect math, but it seems like there was quite a step-up in the emission allowance tax. I could be mistaken, but I think it's around $160 million for you in '26. Is there any way to... David Bernstein: The increase was about $0.06 a share or about call it, roughly $80 million. Remember, in '26, we went from -- we went to the full 100% versus '25 where we were -- it was 70% of the emissions allowances. So because of the step up, there was an increase, plus there was a slight increase in the projected cost of the EU allowances as well. Benjamin Chaiken: Totally. No, I got you. I was just think is there a smart way to think about the out years? Like are we -- is clearly -- is that step function over and now it just grows by what you guys do on a... David Bernstein: Yes, the step functions over because we're at 100%. Operator: Our next question comes from the line of James Hardiman with Citi. James Hardiman: So circling back to the Caribbean conversation. As we think about -- obviously, there's some one-timers in the first quarter, the Arabian Gulf deployment changes. But sort of your like-for-like numbers that you've given us, right, 2.4% for Q1 relative to 3% for the year. Is that delta primarily just the outsized mix of the Caribbean in Q1? And then to Steve's question, as we think about the shape of the year, do you ultimately feel better as we move into the year about that Caribbean piece. I think the Caribbean is a much larger chunk of Q4 as well, but it seems like based on the answer to the previous question that you feel pretty good. The Q4 yields, if anything, are probably going to be better than the full year? So just trying to understand the Caribbean dynamic in the context of all that. Josh Weinstein: Yes. James, so I think you've heard pieces of this throughout. So first of all, if you look at the first quarter versus the first half versus the second half, the comps are a lot different when it comes to the yields that we're lapping. We have the impact of the volatility in the spring, which is having the outsized impact now, not for the second half of 2026. Overall, we feel good about the business. There are some specific drivers for Q1 that we've talked about. And we'll hopefully continue to, like I said, ride the momentum and keep improving the business. James Hardiman: Got it. And then I guess moving to the other side of the pond. Obviously, as we think about global capacity growth for 2026, it's in a very good spot, right? The issue is that a lot of that capacity is moving from Europe into the Caribbean, I would think that given your relative exposure to some of your peers in Europe that maybe that's a net benefit to you guys? Maybe speak to that dynamic and whether or not you feel like you're sort of uniquely positioned there. Josh Weinstein: Yes. So I'd say, yes, I love it. Keep clearing out of Europe. That will be fine with us. At the end of the day, with our strategy and our approach, when you have P&O Cruises, which is the biggest investment in the U.K. and AIDA, which is the biggest and the best in Germany. And then we've got cost. It's really servicing the Southern European countries. Our European strategy, we think, is very, very effective over the long term, as we've been saying for a long time. And we also, frankly, see strength in our North American Brands European program. So we're very happy with, a, where we're sourcing; and b, where we're deploying. And so we'll continue to stick to our strategy. Operator: Our next question comes from the line of Lizzie Dove with Goldman Sachs. Elizabeth Dove: I wanted to get a higher level and just on the strategy that you've taken, you have fewer ships launching than some of your peers, yet you're seeing, clearly, congrats on a great yield growth. Can you maybe talk more about what you think is driving that same-ship yield growth from here? How much of that is maybe brand improvements and some of the brands that have been lagging, maybe more exposure to new to cruise? Just anything you could share, that would be helpful. Josh Weinstein: Lizzie, so I think it is our brand is getting better and better at their commercial execution up and down that silo, right, is everything from how we do the revenue management and the tools we use and the capabilities that we have. It's the performance marketing. It's the better and clearer brand messaging that's really speaking to why you shouldn't just want to take a vacation with us or cruise with us, but you want to take a cruise with that brand, that's when we know we're doing it right. And that's what we've been focused on. And of course, I always say I talk about this as the lease only because we're really so good at it. We're always trying to figure out how do we make the experience on board, meet and exceed expectations of our guests. And as you've heard me say, we have a tremendously ridiculous price to experience ratio gap between what we give to our guests and what you can get in land-based alternatives. And that value proposition, I think, is getting clearer and clearer when it comes to how we can market and talk about this. Now because we don't have capacity growth in the next couple of years to speak of any real size. We don't have the situation where we're trying to figure out how do we get more people on to our ships. We have actually got pretty maximum capacity on our ships. So newcomers are welcome as are our loyal guests who we love, as are folks who have cruised on others and want to try one of ours. And so we're trying to appeal to as broad an audience as we can for the limited space that we have, which is a good recipe for being able to improve our revenue. Elizabeth Dove: Great. And then I know you get asked this every quarter, but I'll ask it again, especially in the context of contribution to your net yield guidance this year. Celebration Key has been open a number of months now. I think you've had 1 million guests you said go there. I think we all make our own estimates of ticket yield contribution on board. Anything you can share it just participation rate, spend rate, what you are seeing on uplift and what you're expecting on the go forward and as you kind of develop RelaxAway more? Josh Weinstein: Thanks for asking again. So I'd say we celebrated just yesterday, the 1 millionth guest coming to Celebration Key, which we were ecstatic to be able to celebrate. And it will give you the same answer, which is we're getting the ticket premium that we anticipated. The output from the onboard shore operations is in line and the fuel consumption is too. So it's proceeding pretty much as we had planned. We'll continue to learn and adopt over time as we should. And we'll certainly factoring in, as you said, order some lessons learned that could be translatable to Half Moon RelaxAway. But I would say we're trying to make them very distinct and different experiences. And I think our guests are going to be delighted with that, and we can't wait to show them both for much of our capacity on the same itinerary. So we're looking forward to that. Operator: Our next question comes from the line of David Katz with Jeffries. David Katz: David, could you just help us a bit with fixed versus variable costs within where you're at today? I know we're not going to be able to predict the future necessarily, but we'd love to get a sense for how we might find leverage in the model, should it turn out to be a better year than anticipated. David Bernstein: So it's a difficult question to answer because we do operate at full capacity and essentially sell every cabin. So once you have that basic premise in the business. What you're basically saying is a ship size, most of your costs are fixed. However, that doesn't mean that you can find better ways and optimize the business by doing things differently, which is whether it's been using AI or other things in order to improve your cost structure. We're doing that shore side as well. Shore side, you find that obviously, somebody could say, your advertising expense is variable. But in the long run, it really isn't. So what we have to do and what we focus on continually is being most efficient with every single dollar we spend and find ways to do more with less. David Katz: Understood. And just my follow-up, one more for you, David. Sorry, Josh. So on the listing, presume that there could be a couple of bucks of cost savings upfront and ongoing, thinking a few million dollars upfront and maybe a few million as an ongoing, every little bit helps. Is that the neighborhood, David? David Bernstein: Yes, that's the neighborhood. And so -- and the payback on this is very quick. It's just less than 2 years. And so we feel very good about the situation, and it also streamlines reporting and simplifies governance and other things for us. So we're -- we feel very good about the decision and we finally got to it. Operator: Our next question comes from the line of Jaime Katz with Morningstar. Jaime Katz: Nice quarter guys. Can I ask a little bit about consumer demand. I think you guys did a nice job of dissecting demand by geography, but maybe can you talk a little bit about the behavior of consumers between income levels because we've been hearing a lot about this K-shaped demand patterns and how they've differentiated. Are we seeing things like seaborne consumers being more resilient [indiscernible] than Carnival consumers or vice versa? Is there any way to parse that out to a better degree for us? Josh Weinstein: Yes, sure. So when you look at the segments, you got contemporary premium and luxury. We're not seeing any meaningful difference across the segments, I would say. And this has been asked before when you think about our U.S. consumer across the big brands that we've got in the U.S., excluding seaborne, the range of our of our household income is something in the $100,000 to $150,000 range. So it's certainly in the middle class. And now having said that, our guests don't live in a vacuum. They live in the same world as every other consumer does, and they see the headlines. And they're looking, I think, in a lot of cases, to figure out how do they get more value for what they're spending. That's been a pretty constant theme for a long time, and it certainly was in the fall, as you heard, not only us and people in the cruise space talk. But I think as you hear retailers talk and as we've been getting into the holiday season. Some people are looking to make sure that they are getting the most they can get for the money that they spend. And they're specifically looking to preserve and protect things that are dearly important to them like spending time with their friends and family on holidays. And when you put all of that together, that is a very nice tailwind for what we have to offer because we are an amazing value, we give an amazing experience, and we can help you make your money go further than what the land-based alternatives are. And so we feel good about the positioning. I'm happy to always have a gap to land and always be a value and close the gap over time and always have a gap and be a value. I think that's a great thing that we can provide to our guests. Jaime Katz: Okay. And then I think there was a comment on always sailing full, but can you talk a little bit about how you guys are thinking about managing occupancy in 2026 just relative to the past, given that prices are at an all-time high and maybe the experience improves with fewer people on the ship? So maybe how is the occupancy being optimized in the year ahead? Josh Weinstein: Sure. And I think that's a fair call out. We are not mandating -- I am not mandating to my teams you better say full to the last decimal point going 3 places over, right? At the end of the day, we want people to maximize revenue. And that's why we could miss an occupancy by a little bit, and we still end up with more revenue than what our forecast was because we're managing and our teams are managing that balance, and I think doing it the right way. And so there's always going to be opportunity to figure out on the fringes whether it's worth getting the last few people on board or it's not and keep a little bit more price integrity overall and generate more in the long run. So we give our brands rightly so the leeway to do that, and they have been doing it. And I expect that, that will continue. Operator: Our next question comes from the line of Conor Cunningham with Melius Research. Conor Cunningham: Just on the balance sheet, you've obviously done a tremendous amount of work. I think you're targeting, I think you said sub-3, David. Just -- why is that the right level? And is there a desire to go above and beyond the $2.6 billion, I think, that you have naturally coming due this year in general? David Bernstein: Sure. So overall, if you calculate using our guidance where we'll wind up the year, we will wind up less than 3. We wind up at about 2.8x. So we are moving in the right direction and feel very good about that. I would say we had said sub-3. But overall, we're probably targeting something in the range of 2.75, that should get us around a BBB rating, and we feel that, that is strong at this point in time for a company like ours. Conor Cunningham: Okay. And then I know there's been a lot of talk about the Caribbean, but like the -- it's pretty normal in this industry to have big swings in supply from time to time. I think one -- I mean, not too long ago, I think we were talking about Alaska as having too much supply at one point, but it normalize pretty quickly. So can you just -- and I know you talked a little bit about this, Josh, but just on core pricing versus occupancy, like what the biggest change to me seems to be that Carnival is less willing to discount to fill. So I mean, I know you've talked about maximizing revenue. But if you could just talk like holistically, how that's changed versus history, I think, would be helpful just given I think that's a big deal here? Josh Weinstein: Sure. And I think that's a great intro. I mean, first of all, let me just say real clearly, the Caribbean is and it always will be a fantastic market for us. And we have successfully absorbed elevated supply in the Caribbean before and in Europe and Alaska many times over the last many decades, and it comes and it goes and it gets absorbed, and we move along. And I don't feel any different about the long term in light of what this particular instance is because we do that very well. With respect to the philosophy, look, I think it is Fair to say that we are thinking and acting, I think, in a rational basis in a way that we want to maintain price integrity in the market for us. And at the same time, making sure we get folks on board that are happy and spending money not only in the ticket and -- but the onboard. And because we have evolved over the last several years and we'll continue to with bundled pricing and packages, it does change the dynamic about how we can position ourselves in the market and do things and make folks think that and understand that it's a great value. We have been -- like I said before, we've been doing this over the last couple of years, and our yields are up 17%. It's part of the arsenal to put out promotions to make people interested in what we have to offer and get our base of business and hopefully generate as much revenue as we can on as much happy guests as we can. So no specific formula to give you, but I think it's fair to say that that's the approach. Operator, I think we've got time for one more. Operator: Our final question will come from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I wanted to ask about marketing because clearly, you had a lot of success with increasing your marketing spend, and I think that was called out at someday you will increase more in '26. Can you talk about where you ended with marketing as a percent of sales in '25, how do you think about that for '26? And then there's a lot of talk about the way to get to consumers kind of changing with maybe SEO and things like that being less effective. I mean how do you think about targeting consumers as the way to get to them, maybe shifting, particularly in the digital landscape? Josh Weinstein: Yes. Well, so I'll talk about the last part first. You're 100% correct. It is one of the fastest changing areas of our business when it comes to technology use of AI tools, not only by us but by the consumer and how are we marrying all of that up. And so there are lots of things that are already in place because not surprisingly, there are third-party companies that have tools already available that we're taking advantage of to make sure that we're keeping pace with the way that consumers are changing how they go about looking for not just the vacation, but frankly anything now it is. So that is -- I think that's just going to be a common theme as we move ahead over the next several years, and we've got to be -- we have to be nimble, and we have to be really thoughtful about the fact that the world is going to change dramatically, I think, over the next 5 years, and we just -- we need to make sure we're keeping pace. So that -- so we are reallocating dollars as we talk with our operators about how they need to spend differently to adjust to that. I think it's fair to say, though, there will still be top of funnel things that we are always going to want to do to get into the consideration set. And we're talking about how do we optimize once you get below that to make sure that we're being put the right way in front of the right guest or potential guests to close the booking. As far as how we're seeing the advertising, it's not like it's spiking dramatically over -- as a percentage of revenue. We're just trying to do what we think is, is the right thing for our brands and our business. It's about 3.5%, give or take. That's -- it's a metric we look at, but it's not the metric that end the discussion about how much people should be spending on advertising because as you can probably appreciate, there's a lot behind it as we develop and change those plans real time. Thank you very much. So for everybody, I would just say thank you. Happy holidays, and thank you again for all the support that we have had as a corporation and for all of our guests and all of our trade partners, thank you very much for everything you do for us and for the team. Well deserved -- well-deserved break next week. So thanks very much, and happy holidays. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Antje Kelbert: Good morning, and welcome to our Q3 and 9-month update call for HORNBACH Holding. My name is Antje Kelbert, Head of Investor Relations. Earlier today, at 7:00 a.m., we published our financial results for the first 9 months of fiscal year 2025-'26, covering the period from 1st of March until the end of November 2025. During today's call, we would like to give you additional insight into our final financial figures following our pre-release on 5th of December. I extend my warmest welcome to our CFO, Dr. Joanna Kowalska, who will be your host today, presenting our latest set of numbers. After the presentation, we will take your questions. Please note that this conference call, including the Q&A session will be recorded and made available along with a transcript on our company website. Kindly also take note of the disclaimer, which applies to the entire presentation and the Q&A session. [Operator Instructions]. With that, I'm delighted to hand over to Joanna to walk us through the key developments of our first 9 months of this year. Over to you, Joanna. Joanna Kowalska: Good morning, everyone, and thank you, Antje, for the kind introduction and warm welcome. It's a pleasure to be here again talking to you about our results. Before we get to the details, I'd just like to take a moment to talk about the context of the macro environment and retail background to these quarterly figures. Customer sentiment has been dense all year, especially in Germany, but also in other regions. At times, GDP growth rates and expectations remain moderate to low. And against this backdrop, we have stayed focused on creating value for our shareholders. Overall, we believe the last 9 months has been positive against the challenging customer environment I have outlined. So to the results, which I'm sure you have all seen, HORNBACH Group net sales reached EUR 5.1 billion, an increase of 3.8% from last year. Our Baumarkt subgroup grew sales by 4%, gaining market share in Germany and across Europe. This was driven by higher customer footfall. We continue to outperform the DIY sector in terms of like-for-like sales growth. The DIY sector in Germany saw significantly weaker figures from January to November compared to our results. This is based on data of the industry association, BHB. Additional market research data proved that also in other countries, we at least match or beat the overall sector performance. We opened 4 new stores and continue to invest in future growth. We remain committed to our expansion plans. And as a consequence, higher CapEx is reflected in our free cash flow. Gross profit increased by 4.1% or EUR 72 million. This resulted in a stable gross margin of 34.7%. Adjusted EBIT for 9 months was about EUR 300 million, matching last year's level. And now let's have a look at our Q3 performance. Here, net sales increased by 2.2%, and we were hoping for a stronger top line and consequently a higher quarterly result. However, against the current environment with subdued customer sentiment, we managed to outperform the DIY industry also in Q3. Once again, it helped us gain market share. While we achieved top line growth and maintain a satisfying gross margin, we are not able to fully offset increased costs and thus, adjusted EBIT came in EUR 7.3 million below last year's numbers. Looking at the remainder of this year, the full-year outlook remains unchanged, and we expect adjusted EBIT to be at the level of the previous year. Before we dive deeper into financials, let me highlight some operational achievements which underline our strategy to deliver organic growth. Looking back at the past 9 months, we have achieved remarkable expansion progress. We opened 4 new stores, representing around 70,000 square meters of selling space. In March, we enlarged our German store network. Our great flagship store in Duisburg showcases state-of-the-art home improvement retail. Over the course of the third quarter, we continued our international expansion and opened 3 new mega stores, 2 in Romania and 1 in Austria. In addition, there has been the opening of the new specialist store in November. We transformed an existing HORNBACH store in Mainz-Kastel in Germany into BODENHAUS concept. Located at the prime location, the third BODENHAUS store offered an outstanding selection of hard flooring products to our customers. Our expansion comes along with 400 new colleagues in these stores and being a big box player, additional stores are also related with an uptick in inventory. I will refer to the increase of personnel and other costs later in the presentation. These recent openings are part of HORNBACH's strong track record of organic growth. As you might already know, we have entered a new market in Serbia. Before we go into those details, let's have a look at our consistent expansion. Starting in 1968, we opened the first integrated DIY store in West Germany. Besides entering former East Germany, we also grew international expansion and laid the foundation of today's European footprint. Between 1996 and 2007, 8 countries throughout Europe became HORNBACH region. After that, we rolled out our online shops in all regions. We have always been willing to take bold steps and innovate while honoring our tradition. Our approach is clear. First, we identify markets with strong home improvement potential. Then we secure attractive location with synergy potential and large catchment area. And finally, we build a network of project-oriented DIY stores and online shops. This strategy has made us successful in the past, and we believe that is our recipe for the success also in the future. And by entering Serbia, we aim to unlock attractive growth opportunities. The Serbia DIY market has similar characteristics to our existing market and provides us with good opportunities for growth. Our proven strategy will guide us. Clear focus on large state-of-the-art DIY stores with a project-based approach. We see here potential for 6 to 8 large store formats. And as you see on the slide, we believe the country offers excellent conditions for our concepts. This creates an opportunity for us to gain significant market share. We have already secured attractive locations. And for each location, we plan to invest between EUR 25 million and EUR 40 million. We expect the first store to open no earlier than the end of 2027. We are very excited to follow our expansion path and continue our success story in this new HORNBACH region. And now let us have a look at the recent figures for the reporting period. As already mentioned, group sales rose by 3.8% in the first 9 months. This was supported by a strong spring, a solid summer and followed by a mixed third quarter. The HORNBACH Baumarkt subgroup grew by 4%. Germany delivered 2.1% growth, while international operation achieved 5.8%. Customer frequency increased by 2.8%, and the average ticket also saw a slight rise. As you can see, after 2 years of weaker sales development, we have now returned to growth. Considering the challenging customer climate and weak industry trends, we are pleased with this result. Let's briefly review the HORNBACH Baustoff Union, our subgroup focused on professional construction customers. Here, as you can see, sales declined slightly by 1.4%. However, we believe the construction sector in Germany will pick up again next year. Recent official statistics show a modest improvement in order intake and building permits. How is the regional split of our sales? More than half of the sales now come from the European countries outside Germany. This represents an increase of about 1 percentage point year-on-year. Let's now have a look at like-for-like sales development. So for the first 9 months, like-for-like sales rose by 2.6%, exceeding last year's results. Germany recorded 0.7% growth. Here, we outperformed the German DIY sector in every single month. Other European countries grew 4.3% on a like-for-like basis. The Netherlands and Sweden were strong with nearly 10% and 4% growth, respectively. Q3, on the other hand, showed a mixed performance. Regions such as Netherlands, Sweden, Switzerland and Luxembourg have remained on a growth path. Other regions faced challenges. This includes, for example, extreme weather conditions or purchasing power decreases. Group-wide, we have seen a calendar effect of roughly 1 business day less in the last 9 months. In Q3, there were no differences in business days. Overall, we were mostly matching or even outperforming the DIY sector as confirmed by BHB and GfK data. Moving on to market share. We are focused on strengthening our position across Europe. Throughout the year, we expanded our footprint in all HORNBACH countries with available market share data. Let's have a look at the map. In Germany, our largest market, our share rose to 15.7%, up 0.6 percentage points from last year, a great result in a highly competitive market. In the Netherlands, positive footfall helped to bring our market share to 29.1%. In Czechia, we increased our market share to almost 40%, maintaining strong momentum. Also, Austria and Switzerland also experienced growth, a strong track record that underlines our position and strategy. With our assortment competency, outstanding prices and service offerings, we can best serve our customers. And a big thank you to all our colleagues on the sales floor who help make this happen. And now to our e-commerce business, which again performed well. Customer engagement on our integrated platforms continues to grow. This confirms their status as established key sales channels. E-commerce accounted for 12.9% of total sales in the last 9 months and is growing. Sales rose by 8.1%, driven by strong growth in the first 6 months and a solid performance in Q3. Both Direct delivery and Click & Collect grew by about 8% each. Let's now have a look at our P&L. Gross margin was slightly higher than last year and amounted to 34.7%. Our gross margin rose by 4.1%, slightly ahead of the net sales growth of 3.8%. This was supported by a profitable product mix and innovative assortment and positive purchase price effects. Let us now turn to expenses development. As you can see on the right side of the slide, selling and store expenses rose in absolute terms, but the expense ratio was nearly stable despite higher wages and new stores. Preopening costs increased by EUR 6 million due to our expansion activities. We also worked on our IT infrastructure, which resulted in higher costs. This is important for future proofing the business. Our efforts will contribute to overall efficiency and improved working capital management. It's also reflected in our general and administrative expenses. They went up by 0.2 percentage points as a share of sales, mainly due to wage increases and IT improvements. Personnel costs for the first 9 months totaled EUR 871 million, an increase of 4.9%. This increase was in line with our expectations and driven by wage increases, but also staff for new stores. We partially mitigated this cost increase by adjusting headcount in our current store base. In Q3, personnel costs rose by around 3% as expected and communicated during our half year call. For Q4, we expect a similar development. All these factors led to a stable development of our adjusted EBIT, which we will see on the next slide. Adjusted EBIT after 9 months was at last year's level. As you may know, we had a very strong spring season and therefore, excellent results in Q1. Q2 was solid, but influenced by an increase of personnel costs. In Q3, the gross profit growth did not fully offset higher costs. Therefore, adjusted EBIT was about EUR 7 million below the prior year's quarter. As you can see on the right side of the slide, countries outside Germany delivered 68% of adjusted EBIT, a 5 percentage point increase year-over-year. There were no significant nonoperating items or adjustments in the first 9 months of 2025. So we maintain our original guidance for the full year adjusted EBIT to be on the last year level. Now let's review the cash flow statement. Operating cash flow increased year-on-year. This was mainly driven by lower cash outflow from working capital. We reduced the use of our reverse factoring program. Funds from operations remained steady compared to last year. Capital expenditure reached EUR 167 million, up from EUR 107 million last year. This reflects our strong commitment to organic growth. 57% of CapEx was invested in land and real estate, mainly for the new store development. The rest went into store conversions, equipment and software. Free cash flow after net CapEx and dividend came in at EUR 105 million, down from EUR 150 million last year, which reflects our consistent ongoing investments in expansion. So let's move on to the balance sheet, which is still strong. Total assets remained steady at EUR 4.6 billion compared to the year-end results in February. I would just like to share some comments on liabilities. In September, new promissory note loans were issued at the holding level. This replaced existing loans of Baumarkt level. The equity ratio rose to 47.1%, highlighting our solid financial standing. Net financial debt was lower than in February. As a result, the net financial debt-to-EBITDA ratio improved to x 2.5. Our balance sheet figures demonstrate the strength of our financial base and the resilience of our business model. Let us now have a look at our guidance. We confirm our guidance issued in May 2025. We continue to expect net sales to be at or slightly above the level of 2024-'25. Adjusted EBIT is expected to remain at the previous year's level. Reflecting our ongoing expansion strategy, we expect CapEx to reach up to EUR 230 million for this year. So solid growth, increased market share and stable EBIT despite the challenging conditions. And before moving to Q&A, I would just like to emphasize the long-term opportunities we see for HORNBACH. We are committed to price leadership and being a trusted partner for our customers. We're also committed to target investment in expansion and efficiency to help us maintain and grow our leading market positions in Europe. Therefore, we stay focused on creating value for our shareholders. And despite economic challenges, we see medium- and long-term growth opportunities in home improvement. We are pleased with the results in the first 9 months of the year, and I would like to thank all our teams who have made this achievement possible. Antje Kelbert: So thank you, Joanna. [Operator Instructions]. I now hand over to Elba, our operator, to explain the technicalities of our Q&A session. Please go ahead. Operator: [Operator Instructions] Our first question comes from Ben Thielmann from Berenberg. Benjamin Thielmann: This is Ben from Berenberg. Can you hear me? Joanna Kowalska: Ben, we can hear you. Benjamin Thielmann: Okay. Perfect. Maybe one question from my side on the like-for-like growth you guys have seen in Europe, excluding Germany. I mean the first 9 months in Q3 was pretty strong. I mean, you grew by 1.3% in Q3. Last year, you did 3.5% already like-for-like. I was just wondering, can you give us some color what regions in Europe, excluding Germany, did particularly well? I remember that historically, Romania was particularly strong. Is there any big difference between the countries? Maybe some color what regions drove the growth in the first 9 months or in Q3? Joanna Kowalska: Okay. Thank you, Ben, for your question. I'm happy to answer. So as you mentioned, we had some decreases in the Q3 in some countries. It was Romania. And we had there some budgetary adjustments in Romania, which affected the purchase power of the consumers. This was the reason why we had not so good performance in Romania in Q3. Nevertheless, it was really a temporary effect. It was just 1 quarter, and we are happy with the overall development in the 9 months, because we have then already increased our sales like-for-like in 9 months by 1.9%. Also other countries, as you can see on our slide, yes, with the like-for-like sales performance, you see Czech with 3.2%, yes. This was really also a onetime effect just in comparison to the last year, because in September 2024, we have flood in Czechia, which impacted our sales last year. And now, of course, we are happy that we have no flood in the country. But of course, it had impact on our sales in this quarter. Nevertheless, also Czechia, we are very satisfied with the development in the country. And as you can see, in the 9-month period, also Czechia is growing sales. And comparing also to the competitors, we increased our market share and the customers trust us. Benjamin Thielmann: Okay. Perfect. And maybe one more question, if I may, would be on competitive landscape in Germany. I'm reading a lot about one of your competitors, the CEO had a newspaper statement 2 weeks ago, they're expanding a lot via new markets. You guys are opening 4 markets. But then I see one of your competitor, Hellweg, which is publicly disclosed, is closing roughly 20 stores in '25 and '26. And I was just wondering, is there any chance that this could be a positive tailwind for you guys? I mean the customers that usually go into those stores, the demand is not gone, they need to go into different stores when they are closing down. And I understand that the locations of your competitor stores are not necessarily the right location for you guys. But I was wondering, do you expect any positive market share development from your competitors further consolidating in the next 12 months? Is there maybe even a chance that you would take over some of their markets? I know you did it with Praktiker back then when they went bankrupt, which was a special situation, but any color on this dynamic would be very helpful. Joanna Kowalska: Thank you, Ben, for your question. And it's a good one. Of course, we are tracking developments in our competitive landscape based on public knowledge and media coverage, of course. And as you mentioned, there are 2 issues on that. So we are always looking at opportunities to expand our store network. Also in Germany, we see chances there, especially because of the current market situation. But to be honest, currently, we are focusing on our expansion strategy. And as I explained during my presentation, we are willing to expand. Whether it will come from Hellweg or other, we have no plans at the moment. But nevertheless, we're continuously expanding and looking for the right locations. The second issue what you have mentioned today was the sales, which we can maybe use for us. And here, it's very difficult to judge. But obviously, we could take over somehow the sales and the customers. And we hope we will double, especially in the regions where we are not -- we have some white spots and -- yes, we hope. And movements in the market may also provide opportunities. And also our online store, which is growing and the customer trusts us. I hope, yes, we will try to use the opportunities. Benjamin Thielmann: Okay. Perfect. I have a few more questions, but I'm going back into the line and giving some time for my colleagues. Operator: The next question comes from Volker Bosse from Baader Bank. Volker Bosse: I would have 2 questions, and I would like to start with Serbia, the new expansion country. If I got it right, for clarification, you said 6 to 8 stores is the potential which you see for your format in Serbia with the first store opening then in '27. How many store locations do you have already secured? You said something in the call, but I did not get it right, but perhaps you add that one by one? Joanna Kowalska: Volker, thank you for the question. Serbia, we are happy about our entering in this market. We are highly optimistic about the prospect for the strong business development in Serbia and primarily for the reasons outlined in our presentation. And coming back to your questions, as I mentioned, we plan with 6 to 8 locations there. What we secured already now are 3, 4 stores at the moment. We see the potential is for 6 to 8, because it's really a great country with, yes, a lot of opportunities for us. And as you saw in my presentation, yes, there are really, yes, good chances for us, especially homeownership. Volker Bosse: This brings me to the second question and a bit of outlook to '26. Of course, it's too early to give already concrete guidance on '26. It's more a general question. I would like to ask, first of all, number of store openings we can expect. I mean, there is a kind of lead time. So you have already started the project, which will be finalized next year, obviously. And also related to '26, how do you look at the consumer sentiment for '26 in general, especially also in the light of the infrastructure program, which is about to come in Germany. Do you expect this to change the mood for the overall building industry, construction industry, but also for the private households to spend more in renovation, et cetera, inspired by the infrastructure perhaps? Joanna Kowalska: We are currently still in our planning phase. Therefore, we will release guidance for the upcoming fiscal year with our annual report as we have done this in the past. So far, we have seen a good start into the fourth quarter with a positive footfall development in most regions. However, of course, 1 month may not reflect the full quarter and especially not reflect the outlook for the next year. But we are of the opinion that for the building, the pickup is expected. So we see upward trend in the building permits about 15%, which is positive, and which is really something new considering the last year's development. So the 15%, yes, it's a good basis for us. And therefore, we look positive to the next year. Volker Bosse: Okay. The 15% was on Germany, building permits increase in Germany year-over-year? Joanna Kowalska: Yes, 15% in Germany, yes. Operator: The next question comes from Thomas Maul from DZ Bank. Thomas Maul: I've got 2. The first one, can you provide some information on the development of average basket size and footfall in your stores in Q3? And the second question, maybe you can comment a bit on your cost development. Have you actually started any measures to limit or to cut your cost base? Joanna Kowalska: Thank you, Thomas, for the question. I will start with the first one about the customer footfall. And in Q3, we have increased our footfall by 1.7%. And also, we have what we said so was the slight higher average ticket, which is very good for us, of course. And the footfall increase in 9 months was about plus 2.8%, yes. And also there, the average ticket, having in mind the 9 months, we had slight average ticket growth. And your second question was about the cost. And I can understand where you are coming from, of course, especially having in mind our Q3 development. As I mentioned, yes, we are performing very good on the top line, and we saw the higher costs, especially in personnel costs. And of course, we always aim to reduce the costs and to manage this. But to be honest, these cost increases are in line with HORNBACH's strategy and growth agenda as well as the need to recruit and retain high-quality team members across our existing and new stores. Nearly 60% of our costs are personnel costs and the rise in expenses reflects here 2 elements. The first one is wage increases. This ensures our employees' incomes keep pace with inflation. In Q3, it was 3%. But also, and this is important, let's remember, we had the headcount growth, which is a natural consequence of our ongoing expansion program as we open new stores. And investing in our people is key to scaling our customer reach and continuing to deliver best-in-class service at every location to be committed to striking the right balance between invest and maintaining cost discipline. And for example, you're asking for a measure and how we manage this. So our investments in IT infrastructure, including the deployment of state-of-the-art software solution and AI are designated to unlock meaningful efficiency gains going forward. Of course, there is no directly impact in the next months. But nevertheless, our investments in this area will bring us bigger efficiency gains in the future. So the cost discipline is always our priority. Operator: The next question comes from Miro Zuzak from JMS Invest. Miro Zuzak: It's Miro from JMS Invest. I have a question regarding the store openings, the envisaged ones in Serbia. You mentioned EUR 25 million to EUR 40 million of CapEx per store. I understood if you want to open 7 to 8 stores in the upcoming future, can you please give us some picture on the CapEx level that we should put in our models then going forward, the annual CapEx figure? Would that go up? Joanna Kowalska: Miro, thank you for the question. So as you can see already now, yes, we have higher CapEx this year, which results from our expansion. And the higher CapEx, of course, reflects our investment in the future growth strategy. And until now, we have only a small portion in this year for Serbia there. And in the next years, obviously, we will have an impact from Serbia. And in the next year, we will not open the stores, but we will have the first CapEx for Serbia there. As I mentioned, we secured 3 locations and some of the cost will be at the balance sheet already and some in the cost. As I mentioned in my presentation, we expect CapEx for each store amounting by EUR 25 million to EUR 40 million. But we have -- actually now, because of we only secured 3, 4 locations in the next years, I cannot really give you a very detailed information split for the next years. Miro Zuzak: Can you maybe -- I mean you opened 4 stores this year already, leading to a higher CapEx versus last year. Would it first go down before it goes up again? Or will it remain at these elevated levels? Joanna Kowalska: So regarding the run rate CapEx, we anticipate CapEx remaining elevated in the coming years as we continue to pursue our expansion strategy. And so this is not only about Serbia, but also, yes, we will expand also in the other countries. So the CapEx will not go down in the next year. It will be higher. Antje Kelbert: Yes, Miro, you also see -- sorry, to add, so you also see things reflected in our CapEx, which is not directly converting into stores the year after or even 2 years after. There are a lot of changes in the line. You're securing your land banking things, you're looking for property. And until you start then really constructing and then it gets also in our preparation for a new store, it needs time. So there are a lot of different mixed things in our CapEx numbers that are not purely only Serbia, but in general, filling all those 5 gaps as Joanna has outlined. Miro Zuzak: Okay. And a connected question to this one, because obviously, your stock is typically what people would consider a value stock. I mean it's like very low valuation, high free cash flow yield and so on. And if you put so much capital at work, probably there rise questions about economic value added and capital efficiency. Can you please elaborate your thinking about that? What's the level of cash returns or like returns on invested capital that you require to see from allocation in your planning at least in order to give a green light for a new project? And how do you think about that? What is your thinking about capital allocation and economic value added? Antje Kelbert: Yes. So you know that on the one hand side, we stick to our dividend policy. This is one part of the allocation of our capital. We have there laid out a dividend policy. I'm pretty sure you know that we are at least on the level of last year, and we'll stick to that. And this is also part of our capital allocation. However, I think we also outlined that taking the opportunity of growth, especially entering a new market is something that does not occur each and every year. So we will have to take this opportunity. However, we are checking each and every of those locations. So you can be sure that we have calculation models that we calculate. And as a hurdle rate, we have our weighted average cost of capital that the stores should earn and contribute to the overall growth. Joanna Kowalska: I think the important thing here is, of course, we expand, we invest in the new stores. And also, as you mentioned, of course, it brings the increase in inventories. But nevertheless, the important thing here is that we will continue to follow our dividend policy. So this means we will continue to pay the dividend each year at the last or on previous year's level. Miro Zuzak: Okay. I have more questions, but I'll step back in the line and maybe come back later. Operator: The next question comes from Ben Thielmann from Berenberg. Benjamin Thielmann: This is Ben again. Maybe a follow-up on Miro's question on free cash flow. I was just wondering, there was a certain inventory ramp-up related to the new stores that you guys opened. And I was wondering whether you could guide us a little bit on Q4 in terms of inventory development. Was it something like a one-off effect that we have seen in the last couple of months related to the new stores, and working capital is going to normalize in Q4? And then maybe the same thing in terms of CapEx. You mentioned EUR 25 million to EUR 40 million per store. This is excluding inventories, right? These would be my 2 questions. Joanna Kowalska: Thank you, Ben, for your question. I come to the last one. So it was all in, yes. Benjamin Thielmann: Okay. Joanna Kowalska: And coming back to your first question, yes, in our inventory amount, you see the new stores. And of course, if we open 4 stores, yes, the inventories, there is a rise there. Coming back to your question about the Q4 trend. Here, we do not open any store more. But nevertheless, we have to consider that we are preparing for the season. So the Q3 is usually connected to increase in inventories, yes, because then our spring season starts and we will build up the inventories for this season. Benjamin Thielmann: Okay. And then maybe one last question, if I may, and then I'm going back into the line as well. I was just wondering, has there been any significant change in customer behavior, if I split them into, let's say, retail, that's me going into the store and then the professionals. Has there been any data points that you have seen in terms of frequencies or basket sizes that are encouraging, that maybe demand for your professionals indeed is picking up next year? Joanna Kowalska: Ben, so we see -- the customer footfall, as I mentioned, is increasing. And also we see the slight average ticket is growing, and both in stores and also online, which help us in the top line. Sales from professional customers has been also growing stronger, even stronger than overall sales with the strongest growth in the building materials category. And the strongest customer growth has been in property management, building renovation, electrical installation and also general construction. Pro customers represent approximately 20% of our sales. And if they are growing, yes, it brings positive effect to our overall sales in the group. What may be also important for you to know, also our installation service sales performed well. This installation services still represent a small share of our total sales, but nevertheless, they show double-digit growth, which makes us happy. Benjamin Thielmann: Okay. That is clear. And maybe one last question, if I may. One of your competitors, Obi, has announced that to improve the efficacies of their Click & Collect and Direct Delivery revenues, they're installing what they call electronic shelf labels, which is like an ESL, as we call it, and it's basically a digital price tag or like an automated price tag you put instead of a paper price tag. And I was wondering because if I look at the German industry, it's like you two and maybe Bauhaus that are doing particularly well in Click & Collect and in online revenues. And I was just wondering if you're doing any investments in that regard, that you're trying to fasten up delivery times? Is there anything that you have tested something like digital shelf labels as well? There are different types of store digitalization measures I read in the industry in the last 2 years. Any color on that would be very helpful. Antje Kelbert: Yes. So I can take the one on the digital shelf labels. I think we have also done some pilots on that. And we came to the conclusion that, yes, it's not -- in each and every area, we cannot bring that. We have also a lot of selling space that is outside, so very cold or wet. So for our testing, we stick to the situation we currently have. But I think this is not that directly connected with the Click & Collect, because you know that online and offline we have the same prices. So this always has been the case, and we'll manage that, yes, the whole time, even without those digital labels. And I think we have outperformed when it comes to the Click & Collect. And in our interconnected retail, we did a very good job. We showed that we have increased there now once again, and we are pretty happy on that. There are always things you can optimize in those processes. We invest in being more digital in general. We invest in being more efficient. But I think the state-of-the-art is currently very good, but there's always a job to be done and you can always improve. Operator: The following question comes from Miro Zuzak from JMS Invest. Miro Zuzak: Just 2 quick ones. The first one regarding your adjustments. There have been very little adjustments this year so far like last year. In last year, in Q4, the adjustments were around EUR 17 million. From today's perspective, as we are already now in the fourth quarter, probably you have more visibility on that. What is the level of adjustments that we should envisage for the current year? Joanna Kowalska: So the adjustments are non-operative effects from non-realization of expansion projects. And they were until now there, as you mentioned, only in a very small amount. And we have, at the moment, non-operative adjustments there. But what we have to consider for the Q4 as the impairment test. As you know, at the end of the year, we have to perform the impairment test, and this is not yet done, but we do not guide the figures. Antje Kelbert: That's why we also focus on the adjusted number of the EBIT, because this is what we are adjusting in general. It's the biggest part. Miro Zuzak: Okay. And the second one would be on the minorities. Typically, they were around 3% of the adjusted Baumarkt EBIT. And in Q3, it was really 0. Was it more like -- did you change anything in the ownership? So is there any change in minorities? Antje Kelbert: No. We have -- there has been no changes. Joanna Kowalska: No. No, no. Antje Kelbert: Perhaps we can take that afterwards if this is a specific thing, because I'm not quite sure what you're pointing to. But just we take it after the call, Miro. Thank you. Yes. So I think it looks as if we have taken all the questions, and the one remaining we will take afterwards. So with that, I thank you, Joanna, for the valuable contribution today and for the call. For the new year, we have already scheduled some participation in capital market conferences, and we are hoping to see you there also in person and engage in a personal conversation with you. In addition, we will provide an initial glimpse on our full year figures, provide with more information then in our trading state in March on the 25th of March, and all our upcoming events and dates can be found on our Investor Relations website. And yes, as usual, if anything comes up afterwards, please do not hesitate to reach us out. So thank you very much for your interest this morning, and have a blessed Christmas season for all of you celebrating Christmas and a happy New Year. Thank you very much. Bye-bye.
Antje Kelbert: Good morning, and welcome to our Q3 and 9-month update call for HORNBACH Holding. My name is Antje Kelbert, Head of Investor Relations. Earlier today, at 7:00 a.m., we published our financial results for the first 9 months of fiscal year 2025-'26, covering the period from 1st of March until the end of November 2025. During today's call, we would like to give you additional insight into our final financial figures following our pre-release on 5th of December. I extend my warmest welcome to our CFO, Dr. Joanna Kowalska, who will be your host today, presenting our latest set of numbers. After the presentation, we will take your questions. Please note that this conference call, including the Q&A session will be recorded and made available along with a transcript on our company website. Kindly also take note of the disclaimer, which applies to the entire presentation and the Q&A session. [Operator Instructions]. With that, I'm delighted to hand over to Joanna to walk us through the key developments of our first 9 months of this year. Over to you, Joanna. Joanna Kowalska: Good morning, everyone, and thank you, Antje, for the kind introduction and warm welcome. It's a pleasure to be here again talking to you about our results. Before we get to the details, I'd just like to take a moment to talk about the context of the macro environment and retail background to these quarterly figures. Customer sentiment has been dense all year, especially in Germany, but also in other regions. At times, GDP growth rates and expectations remain moderate to low. And against this backdrop, we have stayed focused on creating value for our shareholders. Overall, we believe the last 9 months has been positive against the challenging customer environment I have outlined. So to the results, which I'm sure you have all seen, HORNBACH Group net sales reached EUR 5.1 billion, an increase of 3.8% from last year. Our Baumarkt subgroup grew sales by 4%, gaining market share in Germany and across Europe. This was driven by higher customer footfall. We continue to outperform the DIY sector in terms of like-for-like sales growth. The DIY sector in Germany saw significantly weaker figures from January to November compared to our results. This is based on data of the industry association, BHB. Additional market research data proved that also in other countries, we at least match or beat the overall sector performance. We opened 4 new stores and continue to invest in future growth. We remain committed to our expansion plans. And as a consequence, higher CapEx is reflected in our free cash flow. Gross profit increased by 4.1% or EUR 72 million. This resulted in a stable gross margin of 34.7%. Adjusted EBIT for 9 months was about EUR 300 million, matching last year's level. And now let's have a look at our Q3 performance. Here, net sales increased by 2.2%, and we were hoping for a stronger top line and consequently a higher quarterly result. However, against the current environment with subdued customer sentiment, we managed to outperform the DIY industry also in Q3. Once again, it helped us gain market share. While we achieved top line growth and maintain a satisfying gross margin, we are not able to fully offset increased costs and thus, adjusted EBIT came in EUR 7.3 million below last year's numbers. Looking at the remainder of this year, the full-year outlook remains unchanged, and we expect adjusted EBIT to be at the level of the previous year. Before we dive deeper into financials, let me highlight some operational achievements which underline our strategy to deliver organic growth. Looking back at the past 9 months, we have achieved remarkable expansion progress. We opened 4 new stores, representing around 70,000 square meters of selling space. In March, we enlarged our German store network. Our great flagship store in Duisburg showcases state-of-the-art home improvement retail. Over the course of the third quarter, we continued our international expansion and opened 3 new mega stores, 2 in Romania and 1 in Austria. In addition, there has been the opening of the new specialist store in November. We transformed an existing HORNBACH store in Mainz-Kastel in Germany into BODENHAUS concept. Located at the prime location, the third BODENHAUS store offered an outstanding selection of hard flooring products to our customers. Our expansion comes along with 400 new colleagues in these stores and being a big box player, additional stores are also related with an uptick in inventory. I will refer to the increase of personnel and other costs later in the presentation. These recent openings are part of HORNBACH's strong track record of organic growth. As you might already know, we have entered a new market in Serbia. Before we go into those details, let's have a look at our consistent expansion. Starting in 1968, we opened the first integrated DIY store in West Germany. Besides entering former East Germany, we also grew international expansion and laid the foundation of today's European footprint. Between 1996 and 2007, 8 countries throughout Europe became HORNBACH region. After that, we rolled out our online shops in all regions. We have always been willing to take bold steps and innovate while honoring our tradition. Our approach is clear. First, we identify markets with strong home improvement potential. Then we secure attractive location with synergy potential and large catchment area. And finally, we build a network of project-oriented DIY stores and online shops. This strategy has made us successful in the past, and we believe that is our recipe for the success also in the future. And by entering Serbia, we aim to unlock attractive growth opportunities. The Serbia DIY market has similar characteristics to our existing market and provides us with good opportunities for growth. Our proven strategy will guide us. Clear focus on large state-of-the-art DIY stores with a project-based approach. We see here potential for 6 to 8 large store formats. And as you see on the slide, we believe the country offers excellent conditions for our concepts. This creates an opportunity for us to gain significant market share. We have already secured attractive locations. And for each location, we plan to invest between EUR 25 million and EUR 40 million. We expect the first store to open no earlier than the end of 2027. We are very excited to follow our expansion path and continue our success story in this new HORNBACH region. And now let us have a look at the recent figures for the reporting period. As already mentioned, group sales rose by 3.8% in the first 9 months. This was supported by a strong spring, a solid summer and followed by a mixed third quarter. The HORNBACH Baumarkt subgroup grew by 4%. Germany delivered 2.1% growth, while international operation achieved 5.8%. Customer frequency increased by 2.8%, and the average ticket also saw a slight rise. As you can see, after 2 years of weaker sales development, we have now returned to growth. Considering the challenging customer climate and weak industry trends, we are pleased with this result. Let's briefly review the HORNBACH Baustoff Union, our subgroup focused on professional construction customers. Here, as you can see, sales declined slightly by 1.4%. However, we believe the construction sector in Germany will pick up again next year. Recent official statistics show a modest improvement in order intake and building permits. How is the regional split of our sales? More than half of the sales now come from the European countries outside Germany. This represents an increase of about 1 percentage point year-on-year. Let's now have a look at like-for-like sales development. So for the first 9 months, like-for-like sales rose by 2.6%, exceeding last year's results. Germany recorded 0.7% growth. Here, we outperformed the German DIY sector in every single month. Other European countries grew 4.3% on a like-for-like basis. The Netherlands and Sweden were strong with nearly 10% and 4% growth, respectively. Q3, on the other hand, showed a mixed performance. Regions such as Netherlands, Sweden, Switzerland and Luxembourg have remained on a growth path. Other regions faced challenges. This includes, for example, extreme weather conditions or purchasing power decreases. Group-wide, we have seen a calendar effect of roughly 1 business day less in the last 9 months. In Q3, there were no differences in business days. Overall, we were mostly matching or even outperforming the DIY sector as confirmed by BHB and GfK data. Moving on to market share. We are focused on strengthening our position across Europe. Throughout the year, we expanded our footprint in all HORNBACH countries with available market share data. Let's have a look at the map. In Germany, our largest market, our share rose to 15.7%, up 0.6 percentage points from last year, a great result in a highly competitive market. In the Netherlands, positive footfall helped to bring our market share to 29.1%. In Czechia, we increased our market share to almost 40%, maintaining strong momentum. Also, Austria and Switzerland also experienced growth, a strong track record that underlines our position and strategy. With our assortment competency, outstanding prices and service offerings, we can best serve our customers. And a big thank you to all our colleagues on the sales floor who help make this happen. And now to our e-commerce business, which again performed well. Customer engagement on our integrated platforms continues to grow. This confirms their status as established key sales channels. E-commerce accounted for 12.9% of total sales in the last 9 months and is growing. Sales rose by 8.1%, driven by strong growth in the first 6 months and a solid performance in Q3. Both Direct delivery and Click & Collect grew by about 8% each. Let's now have a look at our P&L. Gross margin was slightly higher than last year and amounted to 34.7%. Our gross margin rose by 4.1%, slightly ahead of the net sales growth of 3.8%. This was supported by a profitable product mix and innovative assortment and positive purchase price effects. Let us now turn to expenses development. As you can see on the right side of the slide, selling and store expenses rose in absolute terms, but the expense ratio was nearly stable despite higher wages and new stores. Preopening costs increased by EUR 6 million due to our expansion activities. We also worked on our IT infrastructure, which resulted in higher costs. This is important for future proofing the business. Our efforts will contribute to overall efficiency and improved working capital management. It's also reflected in our general and administrative expenses. They went up by 0.2 percentage points as a share of sales, mainly due to wage increases and IT improvements. Personnel costs for the first 9 months totaled EUR 871 million, an increase of 4.9%. This increase was in line with our expectations and driven by wage increases, but also staff for new stores. We partially mitigated this cost increase by adjusting headcount in our current store base. In Q3, personnel costs rose by around 3% as expected and communicated during our half year call. For Q4, we expect a similar development. All these factors led to a stable development of our adjusted EBIT, which we will see on the next slide. Adjusted EBIT after 9 months was at last year's level. As you may know, we had a very strong spring season and therefore, excellent results in Q1. Q2 was solid, but influenced by an increase of personnel costs. In Q3, the gross profit growth did not fully offset higher costs. Therefore, adjusted EBIT was about EUR 7 million below the prior year's quarter. As you can see on the right side of the slide, countries outside Germany delivered 68% of adjusted EBIT, a 5 percentage point increase year-over-year. There were no significant nonoperating items or adjustments in the first 9 months of 2025. So we maintain our original guidance for the full year adjusted EBIT to be on the last year level. Now let's review the cash flow statement. Operating cash flow increased year-on-year. This was mainly driven by lower cash outflow from working capital. We reduced the use of our reverse factoring program. Funds from operations remained steady compared to last year. Capital expenditure reached EUR 167 million, up from EUR 107 million last year. This reflects our strong commitment to organic growth. 57% of CapEx was invested in land and real estate, mainly for the new store development. The rest went into store conversions, equipment and software. Free cash flow after net CapEx and dividend came in at EUR 105 million, down from EUR 150 million last year, which reflects our consistent ongoing investments in expansion. So let's move on to the balance sheet, which is still strong. Total assets remained steady at EUR 4.6 billion compared to the year-end results in February. I would just like to share some comments on liabilities. In September, new promissory note loans were issued at the holding level. This replaced existing loans of Baumarkt level. The equity ratio rose to 47.1%, highlighting our solid financial standing. Net financial debt was lower than in February. As a result, the net financial debt-to-EBITDA ratio improved to x 2.5. Our balance sheet figures demonstrate the strength of our financial base and the resilience of our business model. Let us now have a look at our guidance. We confirm our guidance issued in May 2025. We continue to expect net sales to be at or slightly above the level of 2024-'25. Adjusted EBIT is expected to remain at the previous year's level. Reflecting our ongoing expansion strategy, we expect CapEx to reach up to EUR 230 million for this year. So solid growth, increased market share and stable EBIT despite the challenging conditions. And before moving to Q&A, I would just like to emphasize the long-term opportunities we see for HORNBACH. We are committed to price leadership and being a trusted partner for our customers. We're also committed to target investment in expansion and efficiency to help us maintain and grow our leading market positions in Europe. Therefore, we stay focused on creating value for our shareholders. And despite economic challenges, we see medium- and long-term growth opportunities in home improvement. We are pleased with the results in the first 9 months of the year, and I would like to thank all our teams who have made this achievement possible. Antje Kelbert: So thank you, Joanna. [Operator Instructions]. I now hand over to Elba, our operator, to explain the technicalities of our Q&A session. Please go ahead. Operator: [Operator Instructions] Our first question comes from Ben Thielmann from Berenberg. Benjamin Thielmann: This is Ben from Berenberg. Can you hear me? Joanna Kowalska: Ben, we can hear you. Benjamin Thielmann: Okay. Perfect. Maybe one question from my side on the like-for-like growth you guys have seen in Europe, excluding Germany. I mean the first 9 months in Q3 was pretty strong. I mean, you grew by 1.3% in Q3. Last year, you did 3.5% already like-for-like. I was just wondering, can you give us some color what regions in Europe, excluding Germany, did particularly well? I remember that historically, Romania was particularly strong. Is there any big difference between the countries? Maybe some color what regions drove the growth in the first 9 months or in Q3? Joanna Kowalska: Okay. Thank you, Ben, for your question. I'm happy to answer. So as you mentioned, we had some decreases in the Q3 in some countries. It was Romania. And we had there some budgetary adjustments in Romania, which affected the purchase power of the consumers. This was the reason why we had not so good performance in Romania in Q3. Nevertheless, it was really a temporary effect. It was just 1 quarter, and we are happy with the overall development in the 9 months, because we have then already increased our sales like-for-like in 9 months by 1.9%. Also other countries, as you can see on our slide, yes, with the like-for-like sales performance, you see Czech with 3.2%, yes. This was really also a onetime effect just in comparison to the last year, because in September 2024, we have flood in Czechia, which impacted our sales last year. And now, of course, we are happy that we have no flood in the country. But of course, it had impact on our sales in this quarter. Nevertheless, also Czechia, we are very satisfied with the development in the country. And as you can see, in the 9-month period, also Czechia is growing sales. And comparing also to the competitors, we increased our market share and the customers trust us. Benjamin Thielmann: Okay. Perfect. And maybe one more question, if I may, would be on competitive landscape in Germany. I'm reading a lot about one of your competitors, the CEO had a newspaper statement 2 weeks ago, they're expanding a lot via new markets. You guys are opening 4 markets. But then I see one of your competitor, Hellweg, which is publicly disclosed, is closing roughly 20 stores in '25 and '26. And I was just wondering, is there any chance that this could be a positive tailwind for you guys? I mean the customers that usually go into those stores, the demand is not gone, they need to go into different stores when they are closing down. And I understand that the locations of your competitor stores are not necessarily the right location for you guys. But I was wondering, do you expect any positive market share development from your competitors further consolidating in the next 12 months? Is there maybe even a chance that you would take over some of their markets? I know you did it with Praktiker back then when they went bankrupt, which was a special situation, but any color on this dynamic would be very helpful. Joanna Kowalska: Thank you, Ben, for your question. And it's a good one. Of course, we are tracking developments in our competitive landscape based on public knowledge and media coverage, of course. And as you mentioned, there are 2 issues on that. So we are always looking at opportunities to expand our store network. Also in Germany, we see chances there, especially because of the current market situation. But to be honest, currently, we are focusing on our expansion strategy. And as I explained during my presentation, we are willing to expand. Whether it will come from Hellweg or other, we have no plans at the moment. But nevertheless, we're continuously expanding and looking for the right locations. The second issue what you have mentioned today was the sales, which we can maybe use for us. And here, it's very difficult to judge. But obviously, we could take over somehow the sales and the customers. And we hope we will double, especially in the regions where we are not -- we have some white spots and -- yes, we hope. And movements in the market may also provide opportunities. And also our online store, which is growing and the customer trusts us. I hope, yes, we will try to use the opportunities. Benjamin Thielmann: Okay. Perfect. I have a few more questions, but I'm going back into the line and giving some time for my colleagues. Operator: The next question comes from Volker Bosse from Baader Bank. Volker Bosse: I would have 2 questions, and I would like to start with Serbia, the new expansion country. If I got it right, for clarification, you said 6 to 8 stores is the potential which you see for your format in Serbia with the first store opening then in '27. How many store locations do you have already secured? You said something in the call, but I did not get it right, but perhaps you add that one by one? Joanna Kowalska: Volker, thank you for the question. Serbia, we are happy about our entering in this market. We are highly optimistic about the prospect for the strong business development in Serbia and primarily for the reasons outlined in our presentation. And coming back to your questions, as I mentioned, we plan with 6 to 8 locations there. What we secured already now are 3, 4 stores at the moment. We see the potential is for 6 to 8, because it's really a great country with, yes, a lot of opportunities for us. And as you saw in my presentation, yes, there are really, yes, good chances for us, especially homeownership. Volker Bosse: This brings me to the second question and a bit of outlook to '26. Of course, it's too early to give already concrete guidance on '26. It's more a general question. I would like to ask, first of all, number of store openings we can expect. I mean, there is a kind of lead time. So you have already started the project, which will be finalized next year, obviously. And also related to '26, how do you look at the consumer sentiment for '26 in general, especially also in the light of the infrastructure program, which is about to come in Germany. Do you expect this to change the mood for the overall building industry, construction industry, but also for the private households to spend more in renovation, et cetera, inspired by the infrastructure perhaps? Joanna Kowalska: We are currently still in our planning phase. Therefore, we will release guidance for the upcoming fiscal year with our annual report as we have done this in the past. So far, we have seen a good start into the fourth quarter with a positive footfall development in most regions. However, of course, 1 month may not reflect the full quarter and especially not reflect the outlook for the next year. But we are of the opinion that for the building, the pickup is expected. So we see upward trend in the building permits about 15%, which is positive, and which is really something new considering the last year's development. So the 15%, yes, it's a good basis for us. And therefore, we look positive to the next year. Volker Bosse: Okay. The 15% was on Germany, building permits increase in Germany year-over-year? Joanna Kowalska: Yes, 15% in Germany, yes. Operator: The next question comes from Thomas Maul from DZ Bank. Thomas Maul: I've got 2. The first one, can you provide some information on the development of average basket size and footfall in your stores in Q3? And the second question, maybe you can comment a bit on your cost development. Have you actually started any measures to limit or to cut your cost base? Joanna Kowalska: Thank you, Thomas, for the question. I will start with the first one about the customer footfall. And in Q3, we have increased our footfall by 1.7%. And also, we have what we said so was the slight higher average ticket, which is very good for us, of course. And the footfall increase in 9 months was about plus 2.8%, yes. And also there, the average ticket, having in mind the 9 months, we had slight average ticket growth. And your second question was about the cost. And I can understand where you are coming from, of course, especially having in mind our Q3 development. As I mentioned, yes, we are performing very good on the top line, and we saw the higher costs, especially in personnel costs. And of course, we always aim to reduce the costs and to manage this. But to be honest, these cost increases are in line with HORNBACH's strategy and growth agenda as well as the need to recruit and retain high-quality team members across our existing and new stores. Nearly 60% of our costs are personnel costs and the rise in expenses reflects here 2 elements. The first one is wage increases. This ensures our employees' incomes keep pace with inflation. In Q3, it was 3%. But also, and this is important, let's remember, we had the headcount growth, which is a natural consequence of our ongoing expansion program as we open new stores. And investing in our people is key to scaling our customer reach and continuing to deliver best-in-class service at every location to be committed to striking the right balance between invest and maintaining cost discipline. And for example, you're asking for a measure and how we manage this. So our investments in IT infrastructure, including the deployment of state-of-the-art software solution and AI are designated to unlock meaningful efficiency gains going forward. Of course, there is no directly impact in the next months. But nevertheless, our investments in this area will bring us bigger efficiency gains in the future. So the cost discipline is always our priority. Operator: The next question comes from Miro Zuzak from JMS Invest. Miro Zuzak: It's Miro from JMS Invest. I have a question regarding the store openings, the envisaged ones in Serbia. You mentioned EUR 25 million to EUR 40 million of CapEx per store. I understood if you want to open 7 to 8 stores in the upcoming future, can you please give us some picture on the CapEx level that we should put in our models then going forward, the annual CapEx figure? Would that go up? Joanna Kowalska: Miro, thank you for the question. So as you can see already now, yes, we have higher CapEx this year, which results from our expansion. And the higher CapEx, of course, reflects our investment in the future growth strategy. And until now, we have only a small portion in this year for Serbia there. And in the next years, obviously, we will have an impact from Serbia. And in the next year, we will not open the stores, but we will have the first CapEx for Serbia there. As I mentioned, we secured 3 locations and some of the cost will be at the balance sheet already and some in the cost. As I mentioned in my presentation, we expect CapEx for each store amounting by EUR 25 million to EUR 40 million. But we have -- actually now, because of we only secured 3, 4 locations in the next years, I cannot really give you a very detailed information split for the next years. Miro Zuzak: Can you maybe -- I mean you opened 4 stores this year already, leading to a higher CapEx versus last year. Would it first go down before it goes up again? Or will it remain at these elevated levels? Joanna Kowalska: So regarding the run rate CapEx, we anticipate CapEx remaining elevated in the coming years as we continue to pursue our expansion strategy. And so this is not only about Serbia, but also, yes, we will expand also in the other countries. So the CapEx will not go down in the next year. It will be higher. Antje Kelbert: Yes, Miro, you also see -- sorry, to add, so you also see things reflected in our CapEx, which is not directly converting into stores the year after or even 2 years after. There are a lot of changes in the line. You're securing your land banking things, you're looking for property. And until you start then really constructing and then it gets also in our preparation for a new store, it needs time. So there are a lot of different mixed things in our CapEx numbers that are not purely only Serbia, but in general, filling all those 5 gaps as Joanna has outlined. Miro Zuzak: Okay. And a connected question to this one, because obviously, your stock is typically what people would consider a value stock. I mean it's like very low valuation, high free cash flow yield and so on. And if you put so much capital at work, probably there rise questions about economic value added and capital efficiency. Can you please elaborate your thinking about that? What's the level of cash returns or like returns on invested capital that you require to see from allocation in your planning at least in order to give a green light for a new project? And how do you think about that? What is your thinking about capital allocation and economic value added? Antje Kelbert: Yes. So you know that on the one hand side, we stick to our dividend policy. This is one part of the allocation of our capital. We have there laid out a dividend policy. I'm pretty sure you know that we are at least on the level of last year, and we'll stick to that. And this is also part of our capital allocation. However, I think we also outlined that taking the opportunity of growth, especially entering a new market is something that does not occur each and every year. So we will have to take this opportunity. However, we are checking each and every of those locations. So you can be sure that we have calculation models that we calculate. And as a hurdle rate, we have our weighted average cost of capital that the stores should earn and contribute to the overall growth. Joanna Kowalska: I think the important thing here is, of course, we expand, we invest in the new stores. And also, as you mentioned, of course, it brings the increase in inventories. But nevertheless, the important thing here is that we will continue to follow our dividend policy. So this means we will continue to pay the dividend each year at the last or on previous year's level. Miro Zuzak: Okay. I have more questions, but I'll step back in the line and maybe come back later. Operator: The next question comes from Ben Thielmann from Berenberg. Benjamin Thielmann: This is Ben again. Maybe a follow-up on Miro's question on free cash flow. I was just wondering, there was a certain inventory ramp-up related to the new stores that you guys opened. And I was wondering whether you could guide us a little bit on Q4 in terms of inventory development. Was it something like a one-off effect that we have seen in the last couple of months related to the new stores, and working capital is going to normalize in Q4? And then maybe the same thing in terms of CapEx. You mentioned EUR 25 million to EUR 40 million per store. This is excluding inventories, right? These would be my 2 questions. Joanna Kowalska: Thank you, Ben, for your question. I come to the last one. So it was all in, yes. Benjamin Thielmann: Okay. Joanna Kowalska: And coming back to your first question, yes, in our inventory amount, you see the new stores. And of course, if we open 4 stores, yes, the inventories, there is a rise there. Coming back to your question about the Q4 trend. Here, we do not open any store more. But nevertheless, we have to consider that we are preparing for the season. So the Q3 is usually connected to increase in inventories, yes, because then our spring season starts and we will build up the inventories for this season. Benjamin Thielmann: Okay. And then maybe one last question, if I may, and then I'm going back into the line as well. I was just wondering, has there been any significant change in customer behavior, if I split them into, let's say, retail, that's me going into the store and then the professionals. Has there been any data points that you have seen in terms of frequencies or basket sizes that are encouraging, that maybe demand for your professionals indeed is picking up next year? Joanna Kowalska: Ben, so we see -- the customer footfall, as I mentioned, is increasing. And also we see the slight average ticket is growing, and both in stores and also online, which help us in the top line. Sales from professional customers has been also growing stronger, even stronger than overall sales with the strongest growth in the building materials category. And the strongest customer growth has been in property management, building renovation, electrical installation and also general construction. Pro customers represent approximately 20% of our sales. And if they are growing, yes, it brings positive effect to our overall sales in the group. What may be also important for you to know, also our installation service sales performed well. This installation services still represent a small share of our total sales, but nevertheless, they show double-digit growth, which makes us happy. Benjamin Thielmann: Okay. That is clear. And maybe one last question, if I may. One of your competitors, Obi, has announced that to improve the efficacies of their Click & Collect and Direct Delivery revenues, they're installing what they call electronic shelf labels, which is like an ESL, as we call it, and it's basically a digital price tag or like an automated price tag you put instead of a paper price tag. And I was wondering because if I look at the German industry, it's like you two and maybe Bauhaus that are doing particularly well in Click & Collect and in online revenues. And I was just wondering if you're doing any investments in that regard, that you're trying to fasten up delivery times? Is there anything that you have tested something like digital shelf labels as well? There are different types of store digitalization measures I read in the industry in the last 2 years. Any color on that would be very helpful. Antje Kelbert: Yes. So I can take the one on the digital shelf labels. I think we have also done some pilots on that. And we came to the conclusion that, yes, it's not -- in each and every area, we cannot bring that. We have also a lot of selling space that is outside, so very cold or wet. So for our testing, we stick to the situation we currently have. But I think this is not that directly connected with the Click & Collect, because you know that online and offline we have the same prices. So this always has been the case, and we'll manage that, yes, the whole time, even without those digital labels. And I think we have outperformed when it comes to the Click & Collect. And in our interconnected retail, we did a very good job. We showed that we have increased there now once again, and we are pretty happy on that. There are always things you can optimize in those processes. We invest in being more digital in general. We invest in being more efficient. But I think the state-of-the-art is currently very good, but there's always a job to be done and you can always improve. Operator: The following question comes from Miro Zuzak from JMS Invest. Miro Zuzak: Just 2 quick ones. The first one regarding your adjustments. There have been very little adjustments this year so far like last year. In last year, in Q4, the adjustments were around EUR 17 million. From today's perspective, as we are already now in the fourth quarter, probably you have more visibility on that. What is the level of adjustments that we should envisage for the current year? Joanna Kowalska: So the adjustments are non-operative effects from non-realization of expansion projects. And they were until now there, as you mentioned, only in a very small amount. And we have, at the moment, non-operative adjustments there. But what we have to consider for the Q4 as the impairment test. As you know, at the end of the year, we have to perform the impairment test, and this is not yet done, but we do not guide the figures. Antje Kelbert: That's why we also focus on the adjusted number of the EBIT, because this is what we are adjusting in general. It's the biggest part. Miro Zuzak: Okay. And the second one would be on the minorities. Typically, they were around 3% of the adjusted Baumarkt EBIT. And in Q3, it was really 0. Was it more like -- did you change anything in the ownership? So is there any change in minorities? Antje Kelbert: No. We have -- there has been no changes. Joanna Kowalska: No. No, no. Antje Kelbert: Perhaps we can take that afterwards if this is a specific thing, because I'm not quite sure what you're pointing to. But just we take it after the call, Miro. Thank you. Yes. So I think it looks as if we have taken all the questions, and the one remaining we will take afterwards. So with that, I thank you, Joanna, for the valuable contribution today and for the call. For the new year, we have already scheduled some participation in capital market conferences, and we are hoping to see you there also in person and engage in a personal conversation with you. In addition, we will provide an initial glimpse on our full year figures, provide with more information then in our trading state in March on the 25th of March, and all our upcoming events and dates can be found on our Investor Relations website. And yes, as usual, if anything comes up afterwards, please do not hesitate to reach us out. So thank you very much for your interest this morning, and have a blessed Christmas season for all of you celebrating Christmas and a happy New Year. Thank you very much. Bye-bye.
Antje Kelbert: Good morning, and welcome to our Q3 and 9-month update call for HORNBACH Holding. My name is Antje Kelbert, Head of Investor Relations. Earlier today, at 7:00 a.m., we published our financial results for the first 9 months of fiscal year 2025-'26, covering the period from 1st of March until the end of November 2025. During today's call, we would like to give you additional insight into our final financial figures following our pre-release on 5th of December. I extend my warmest welcome to our CFO, Dr. Joanna Kowalska, who will be your host today, presenting our latest set of numbers. After the presentation, we will take your questions. Please note that this conference call, including the Q&A session will be recorded and made available along with a transcript on our company website. Kindly also take note of the disclaimer, which applies to the entire presentation and the Q&A session. [Operator Instructions]. With that, I'm delighted to hand over to Joanna to walk us through the key developments of our first 9 months of this year. Over to you, Joanna. Joanna Kowalska: Good morning, everyone, and thank you, Antje, for the kind introduction and warm welcome. It's a pleasure to be here again talking to you about our results. Before we get to the details, I'd just like to take a moment to talk about the context of the macro environment and retail background to these quarterly figures. Customer sentiment has been dense all year, especially in Germany, but also in other regions. At times, GDP growth rates and expectations remain moderate to low. And against this backdrop, we have stayed focused on creating value for our shareholders. Overall, we believe the last 9 months has been positive against the challenging customer environment I have outlined. So to the results, which I'm sure you have all seen, HORNBACH Group net sales reached EUR 5.1 billion, an increase of 3.8% from last year. Our Baumarkt subgroup grew sales by 4%, gaining market share in Germany and across Europe. This was driven by higher customer footfall. We continue to outperform the DIY sector in terms of like-for-like sales growth. The DIY sector in Germany saw significantly weaker figures from January to November compared to our results. This is based on data of the industry association, BHB. Additional market research data proved that also in other countries, we at least match or beat the overall sector performance. We opened 4 new stores and continue to invest in future growth. We remain committed to our expansion plans. And as a consequence, higher CapEx is reflected in our free cash flow. Gross profit increased by 4.1% or EUR 72 million. This resulted in a stable gross margin of 34.7%. Adjusted EBIT for 9 months was about EUR 300 million, matching last year's level. And now let's have a look at our Q3 performance. Here, net sales increased by 2.2%, and we were hoping for a stronger top line and consequently a higher quarterly result. However, against the current environment with subdued customer sentiment, we managed to outperform the DIY industry also in Q3. Once again, it helped us gain market share. While we achieved top line growth and maintain a satisfying gross margin, we are not able to fully offset increased costs and thus, adjusted EBIT came in EUR 7.3 million below last year's numbers. Looking at the remainder of this year, the full-year outlook remains unchanged, and we expect adjusted EBIT to be at the level of the previous year. Before we dive deeper into financials, let me highlight some operational achievements which underline our strategy to deliver organic growth. Looking back at the past 9 months, we have achieved remarkable expansion progress. We opened 4 new stores, representing around 70,000 square meters of selling space. In March, we enlarged our German store network. Our great flagship store in Duisburg showcases state-of-the-art home improvement retail. Over the course of the third quarter, we continued our international expansion and opened 3 new mega stores, 2 in Romania and 1 in Austria. In addition, there has been the opening of the new specialist store in November. We transformed an existing HORNBACH store in Mainz-Kastel in Germany into BODENHAUS concept. Located at the prime location, the third BODENHAUS store offered an outstanding selection of hard flooring products to our customers. Our expansion comes along with 400 new colleagues in these stores and being a big box player, additional stores are also related with an uptick in inventory. I will refer to the increase of personnel and other costs later in the presentation. These recent openings are part of HORNBACH's strong track record of organic growth. As you might already know, we have entered a new market in Serbia. Before we go into those details, let's have a look at our consistent expansion. Starting in 1968, we opened the first integrated DIY store in West Germany. Besides entering former East Germany, we also grew international expansion and laid the foundation of today's European footprint. Between 1996 and 2007, 8 countries throughout Europe became HORNBACH region. After that, we rolled out our online shops in all regions. We have always been willing to take bold steps and innovate while honoring our tradition. Our approach is clear. First, we identify markets with strong home improvement potential. Then we secure attractive location with synergy potential and large catchment area. And finally, we build a network of project-oriented DIY stores and online shops. This strategy has made us successful in the past, and we believe that is our recipe for the success also in the future. And by entering Serbia, we aim to unlock attractive growth opportunities. The Serbia DIY market has similar characteristics to our existing market and provides us with good opportunities for growth. Our proven strategy will guide us. Clear focus on large state-of-the-art DIY stores with a project-based approach. We see here potential for 6 to 8 large store formats. And as you see on the slide, we believe the country offers excellent conditions for our concepts. This creates an opportunity for us to gain significant market share. We have already secured attractive locations. And for each location, we plan to invest between EUR 25 million and EUR 40 million. We expect the first store to open no earlier than the end of 2027. We are very excited to follow our expansion path and continue our success story in this new HORNBACH region. And now let us have a look at the recent figures for the reporting period. As already mentioned, group sales rose by 3.8% in the first 9 months. This was supported by a strong spring, a solid summer and followed by a mixed third quarter. The HORNBACH Baumarkt subgroup grew by 4%. Germany delivered 2.1% growth, while international operation achieved 5.8%. Customer frequency increased by 2.8%, and the average ticket also saw a slight rise. As you can see, after 2 years of weaker sales development, we have now returned to growth. Considering the challenging customer climate and weak industry trends, we are pleased with this result. Let's briefly review the HORNBACH Baustoff Union, our subgroup focused on professional construction customers. Here, as you can see, sales declined slightly by 1.4%. However, we believe the construction sector in Germany will pick up again next year. Recent official statistics show a modest improvement in order intake and building permits. How is the regional split of our sales? More than half of the sales now come from the European countries outside Germany. This represents an increase of about 1 percentage point year-on-year. Let's now have a look at like-for-like sales development. So for the first 9 months, like-for-like sales rose by 2.6%, exceeding last year's results. Germany recorded 0.7% growth. Here, we outperformed the German DIY sector in every single month. Other European countries grew 4.3% on a like-for-like basis. The Netherlands and Sweden were strong with nearly 10% and 4% growth, respectively. Q3, on the other hand, showed a mixed performance. Regions such as Netherlands, Sweden, Switzerland and Luxembourg have remained on a growth path. Other regions faced challenges. This includes, for example, extreme weather conditions or purchasing power decreases. Group-wide, we have seen a calendar effect of roughly 1 business day less in the last 9 months. In Q3, there were no differences in business days. Overall, we were mostly matching or even outperforming the DIY sector as confirmed by BHB and GfK data. Moving on to market share. We are focused on strengthening our position across Europe. Throughout the year, we expanded our footprint in all HORNBACH countries with available market share data. Let's have a look at the map. In Germany, our largest market, our share rose to 15.7%, up 0.6 percentage points from last year, a great result in a highly competitive market. In the Netherlands, positive footfall helped to bring our market share to 29.1%. In Czechia, we increased our market share to almost 40%, maintaining strong momentum. Also, Austria and Switzerland also experienced growth, a strong track record that underlines our position and strategy. With our assortment competency, outstanding prices and service offerings, we can best serve our customers. And a big thank you to all our colleagues on the sales floor who help make this happen. And now to our e-commerce business, which again performed well. Customer engagement on our integrated platforms continues to grow. This confirms their status as established key sales channels. E-commerce accounted for 12.9% of total sales in the last 9 months and is growing. Sales rose by 8.1%, driven by strong growth in the first 6 months and a solid performance in Q3. Both Direct delivery and Click & Collect grew by about 8% each. Let's now have a look at our P&L. Gross margin was slightly higher than last year and amounted to 34.7%. Our gross margin rose by 4.1%, slightly ahead of the net sales growth of 3.8%. This was supported by a profitable product mix and innovative assortment and positive purchase price effects. Let us now turn to expenses development. As you can see on the right side of the slide, selling and store expenses rose in absolute terms, but the expense ratio was nearly stable despite higher wages and new stores. Preopening costs increased by EUR 6 million due to our expansion activities. We also worked on our IT infrastructure, which resulted in higher costs. This is important for future proofing the business. Our efforts will contribute to overall efficiency and improved working capital management. It's also reflected in our general and administrative expenses. They went up by 0.2 percentage points as a share of sales, mainly due to wage increases and IT improvements. Personnel costs for the first 9 months totaled EUR 871 million, an increase of 4.9%. This increase was in line with our expectations and driven by wage increases, but also staff for new stores. We partially mitigated this cost increase by adjusting headcount in our current store base. In Q3, personnel costs rose by around 3% as expected and communicated during our half year call. For Q4, we expect a similar development. All these factors led to a stable development of our adjusted EBIT, which we will see on the next slide. Adjusted EBIT after 9 months was at last year's level. As you may know, we had a very strong spring season and therefore, excellent results in Q1. Q2 was solid, but influenced by an increase of personnel costs. In Q3, the gross profit growth did not fully offset higher costs. Therefore, adjusted EBIT was about EUR 7 million below the prior year's quarter. As you can see on the right side of the slide, countries outside Germany delivered 68% of adjusted EBIT, a 5 percentage point increase year-over-year. There were no significant nonoperating items or adjustments in the first 9 months of 2025. So we maintain our original guidance for the full year adjusted EBIT to be on the last year level. Now let's review the cash flow statement. Operating cash flow increased year-on-year. This was mainly driven by lower cash outflow from working capital. We reduced the use of our reverse factoring program. Funds from operations remained steady compared to last year. Capital expenditure reached EUR 167 million, up from EUR 107 million last year. This reflects our strong commitment to organic growth. 57% of CapEx was invested in land and real estate, mainly for the new store development. The rest went into store conversions, equipment and software. Free cash flow after net CapEx and dividend came in at EUR 105 million, down from EUR 150 million last year, which reflects our consistent ongoing investments in expansion. So let's move on to the balance sheet, which is still strong. Total assets remained steady at EUR 4.6 billion compared to the year-end results in February. I would just like to share some comments on liabilities. In September, new promissory note loans were issued at the holding level. This replaced existing loans of Baumarkt level. The equity ratio rose to 47.1%, highlighting our solid financial standing. Net financial debt was lower than in February. As a result, the net financial debt-to-EBITDA ratio improved to x 2.5. Our balance sheet figures demonstrate the strength of our financial base and the resilience of our business model. Let us now have a look at our guidance. We confirm our guidance issued in May 2025. We continue to expect net sales to be at or slightly above the level of 2024-'25. Adjusted EBIT is expected to remain at the previous year's level. Reflecting our ongoing expansion strategy, we expect CapEx to reach up to EUR 230 million for this year. So solid growth, increased market share and stable EBIT despite the challenging conditions. And before moving to Q&A, I would just like to emphasize the long-term opportunities we see for HORNBACH. We are committed to price leadership and being a trusted partner for our customers. We're also committed to target investment in expansion and efficiency to help us maintain and grow our leading market positions in Europe. Therefore, we stay focused on creating value for our shareholders. And despite economic challenges, we see medium- and long-term growth opportunities in home improvement. We are pleased with the results in the first 9 months of the year, and I would like to thank all our teams who have made this achievement possible. Antje Kelbert: So thank you, Joanna. [Operator Instructions]. I now hand over to Elba, our operator, to explain the technicalities of our Q&A session. Please go ahead. Operator: [Operator Instructions] Our first question comes from Ben Thielmann from Berenberg. Benjamin Thielmann: This is Ben from Berenberg. Can you hear me? Joanna Kowalska: Ben, we can hear you. Benjamin Thielmann: Okay. Perfect. Maybe one question from my side on the like-for-like growth you guys have seen in Europe, excluding Germany. I mean the first 9 months in Q3 was pretty strong. I mean, you grew by 1.3% in Q3. Last year, you did 3.5% already like-for-like. I was just wondering, can you give us some color what regions in Europe, excluding Germany, did particularly well? I remember that historically, Romania was particularly strong. Is there any big difference between the countries? Maybe some color what regions drove the growth in the first 9 months or in Q3? Joanna Kowalska: Okay. Thank you, Ben, for your question. I'm happy to answer. So as you mentioned, we had some decreases in the Q3 in some countries. It was Romania. And we had there some budgetary adjustments in Romania, which affected the purchase power of the consumers. This was the reason why we had not so good performance in Romania in Q3. Nevertheless, it was really a temporary effect. It was just 1 quarter, and we are happy with the overall development in the 9 months, because we have then already increased our sales like-for-like in 9 months by 1.9%. Also other countries, as you can see on our slide, yes, with the like-for-like sales performance, you see Czech with 3.2%, yes. This was really also a onetime effect just in comparison to the last year, because in September 2024, we have flood in Czechia, which impacted our sales last year. And now, of course, we are happy that we have no flood in the country. But of course, it had impact on our sales in this quarter. Nevertheless, also Czechia, we are very satisfied with the development in the country. And as you can see, in the 9-month period, also Czechia is growing sales. And comparing also to the competitors, we increased our market share and the customers trust us. Benjamin Thielmann: Okay. Perfect. And maybe one more question, if I may, would be on competitive landscape in Germany. I'm reading a lot about one of your competitors, the CEO had a newspaper statement 2 weeks ago, they're expanding a lot via new markets. You guys are opening 4 markets. But then I see one of your competitor, Hellweg, which is publicly disclosed, is closing roughly 20 stores in '25 and '26. And I was just wondering, is there any chance that this could be a positive tailwind for you guys? I mean the customers that usually go into those stores, the demand is not gone, they need to go into different stores when they are closing down. And I understand that the locations of your competitor stores are not necessarily the right location for you guys. But I was wondering, do you expect any positive market share development from your competitors further consolidating in the next 12 months? Is there maybe even a chance that you would take over some of their markets? I know you did it with Praktiker back then when they went bankrupt, which was a special situation, but any color on this dynamic would be very helpful. Joanna Kowalska: Thank you, Ben, for your question. And it's a good one. Of course, we are tracking developments in our competitive landscape based on public knowledge and media coverage, of course. And as you mentioned, there are 2 issues on that. So we are always looking at opportunities to expand our store network. Also in Germany, we see chances there, especially because of the current market situation. But to be honest, currently, we are focusing on our expansion strategy. And as I explained during my presentation, we are willing to expand. Whether it will come from Hellweg or other, we have no plans at the moment. But nevertheless, we're continuously expanding and looking for the right locations. The second issue what you have mentioned today was the sales, which we can maybe use for us. And here, it's very difficult to judge. But obviously, we could take over somehow the sales and the customers. And we hope we will double, especially in the regions where we are not -- we have some white spots and -- yes, we hope. And movements in the market may also provide opportunities. And also our online store, which is growing and the customer trusts us. I hope, yes, we will try to use the opportunities. Benjamin Thielmann: Okay. Perfect. I have a few more questions, but I'm going back into the line and giving some time for my colleagues. Operator: The next question comes from Volker Bosse from Baader Bank. Volker Bosse: I would have 2 questions, and I would like to start with Serbia, the new expansion country. If I got it right, for clarification, you said 6 to 8 stores is the potential which you see for your format in Serbia with the first store opening then in '27. How many store locations do you have already secured? You said something in the call, but I did not get it right, but perhaps you add that one by one? Joanna Kowalska: Volker, thank you for the question. Serbia, we are happy about our entering in this market. We are highly optimistic about the prospect for the strong business development in Serbia and primarily for the reasons outlined in our presentation. And coming back to your questions, as I mentioned, we plan with 6 to 8 locations there. What we secured already now are 3, 4 stores at the moment. We see the potential is for 6 to 8, because it's really a great country with, yes, a lot of opportunities for us. And as you saw in my presentation, yes, there are really, yes, good chances for us, especially homeownership. Volker Bosse: This brings me to the second question and a bit of outlook to '26. Of course, it's too early to give already concrete guidance on '26. It's more a general question. I would like to ask, first of all, number of store openings we can expect. I mean, there is a kind of lead time. So you have already started the project, which will be finalized next year, obviously. And also related to '26, how do you look at the consumer sentiment for '26 in general, especially also in the light of the infrastructure program, which is about to come in Germany. Do you expect this to change the mood for the overall building industry, construction industry, but also for the private households to spend more in renovation, et cetera, inspired by the infrastructure perhaps? Joanna Kowalska: We are currently still in our planning phase. Therefore, we will release guidance for the upcoming fiscal year with our annual report as we have done this in the past. So far, we have seen a good start into the fourth quarter with a positive footfall development in most regions. However, of course, 1 month may not reflect the full quarter and especially not reflect the outlook for the next year. But we are of the opinion that for the building, the pickup is expected. So we see upward trend in the building permits about 15%, which is positive, and which is really something new considering the last year's development. So the 15%, yes, it's a good basis for us. And therefore, we look positive to the next year. Volker Bosse: Okay. The 15% was on Germany, building permits increase in Germany year-over-year? Joanna Kowalska: Yes, 15% in Germany, yes. Operator: The next question comes from Thomas Maul from DZ Bank. Thomas Maul: I've got 2. The first one, can you provide some information on the development of average basket size and footfall in your stores in Q3? And the second question, maybe you can comment a bit on your cost development. Have you actually started any measures to limit or to cut your cost base? Joanna Kowalska: Thank you, Thomas, for the question. I will start with the first one about the customer footfall. And in Q3, we have increased our footfall by 1.7%. And also, we have what we said so was the slight higher average ticket, which is very good for us, of course. And the footfall increase in 9 months was about plus 2.8%, yes. And also there, the average ticket, having in mind the 9 months, we had slight average ticket growth. And your second question was about the cost. And I can understand where you are coming from, of course, especially having in mind our Q3 development. As I mentioned, yes, we are performing very good on the top line, and we saw the higher costs, especially in personnel costs. And of course, we always aim to reduce the costs and to manage this. But to be honest, these cost increases are in line with HORNBACH's strategy and growth agenda as well as the need to recruit and retain high-quality team members across our existing and new stores. Nearly 60% of our costs are personnel costs and the rise in expenses reflects here 2 elements. The first one is wage increases. This ensures our employees' incomes keep pace with inflation. In Q3, it was 3%. But also, and this is important, let's remember, we had the headcount growth, which is a natural consequence of our ongoing expansion program as we open new stores. And investing in our people is key to scaling our customer reach and continuing to deliver best-in-class service at every location to be committed to striking the right balance between invest and maintaining cost discipline. And for example, you're asking for a measure and how we manage this. So our investments in IT infrastructure, including the deployment of state-of-the-art software solution and AI are designated to unlock meaningful efficiency gains going forward. Of course, there is no directly impact in the next months. But nevertheless, our investments in this area will bring us bigger efficiency gains in the future. So the cost discipline is always our priority. Operator: The next question comes from Miro Zuzak from JMS Invest. Miro Zuzak: It's Miro from JMS Invest. I have a question regarding the store openings, the envisaged ones in Serbia. You mentioned EUR 25 million to EUR 40 million of CapEx per store. I understood if you want to open 7 to 8 stores in the upcoming future, can you please give us some picture on the CapEx level that we should put in our models then going forward, the annual CapEx figure? Would that go up? Joanna Kowalska: Miro, thank you for the question. So as you can see already now, yes, we have higher CapEx this year, which results from our expansion. And the higher CapEx, of course, reflects our investment in the future growth strategy. And until now, we have only a small portion in this year for Serbia there. And in the next years, obviously, we will have an impact from Serbia. And in the next year, we will not open the stores, but we will have the first CapEx for Serbia there. As I mentioned, we secured 3 locations and some of the cost will be at the balance sheet already and some in the cost. As I mentioned in my presentation, we expect CapEx for each store amounting by EUR 25 million to EUR 40 million. But we have -- actually now, because of we only secured 3, 4 locations in the next years, I cannot really give you a very detailed information split for the next years. Miro Zuzak: Can you maybe -- I mean you opened 4 stores this year already, leading to a higher CapEx versus last year. Would it first go down before it goes up again? Or will it remain at these elevated levels? Joanna Kowalska: So regarding the run rate CapEx, we anticipate CapEx remaining elevated in the coming years as we continue to pursue our expansion strategy. And so this is not only about Serbia, but also, yes, we will expand also in the other countries. So the CapEx will not go down in the next year. It will be higher. Antje Kelbert: Yes, Miro, you also see -- sorry, to add, so you also see things reflected in our CapEx, which is not directly converting into stores the year after or even 2 years after. There are a lot of changes in the line. You're securing your land banking things, you're looking for property. And until you start then really constructing and then it gets also in our preparation for a new store, it needs time. So there are a lot of different mixed things in our CapEx numbers that are not purely only Serbia, but in general, filling all those 5 gaps as Joanna has outlined. Miro Zuzak: Okay. And a connected question to this one, because obviously, your stock is typically what people would consider a value stock. I mean it's like very low valuation, high free cash flow yield and so on. And if you put so much capital at work, probably there rise questions about economic value added and capital efficiency. Can you please elaborate your thinking about that? What's the level of cash returns or like returns on invested capital that you require to see from allocation in your planning at least in order to give a green light for a new project? And how do you think about that? What is your thinking about capital allocation and economic value added? Antje Kelbert: Yes. So you know that on the one hand side, we stick to our dividend policy. This is one part of the allocation of our capital. We have there laid out a dividend policy. I'm pretty sure you know that we are at least on the level of last year, and we'll stick to that. And this is also part of our capital allocation. However, I think we also outlined that taking the opportunity of growth, especially entering a new market is something that does not occur each and every year. So we will have to take this opportunity. However, we are checking each and every of those locations. So you can be sure that we have calculation models that we calculate. And as a hurdle rate, we have our weighted average cost of capital that the stores should earn and contribute to the overall growth. Joanna Kowalska: I think the important thing here is, of course, we expand, we invest in the new stores. And also, as you mentioned, of course, it brings the increase in inventories. But nevertheless, the important thing here is that we will continue to follow our dividend policy. So this means we will continue to pay the dividend each year at the last or on previous year's level. Miro Zuzak: Okay. I have more questions, but I'll step back in the line and maybe come back later. Operator: The next question comes from Ben Thielmann from Berenberg. Benjamin Thielmann: This is Ben again. Maybe a follow-up on Miro's question on free cash flow. I was just wondering, there was a certain inventory ramp-up related to the new stores that you guys opened. And I was wondering whether you could guide us a little bit on Q4 in terms of inventory development. Was it something like a one-off effect that we have seen in the last couple of months related to the new stores, and working capital is going to normalize in Q4? And then maybe the same thing in terms of CapEx. You mentioned EUR 25 million to EUR 40 million per store. This is excluding inventories, right? These would be my 2 questions. Joanna Kowalska: Thank you, Ben, for your question. I come to the last one. So it was all in, yes. Benjamin Thielmann: Okay. Joanna Kowalska: And coming back to your first question, yes, in our inventory amount, you see the new stores. And of course, if we open 4 stores, yes, the inventories, there is a rise there. Coming back to your question about the Q4 trend. Here, we do not open any store more. But nevertheless, we have to consider that we are preparing for the season. So the Q3 is usually connected to increase in inventories, yes, because then our spring season starts and we will build up the inventories for this season. Benjamin Thielmann: Okay. And then maybe one last question, if I may, and then I'm going back into the line as well. I was just wondering, has there been any significant change in customer behavior, if I split them into, let's say, retail, that's me going into the store and then the professionals. Has there been any data points that you have seen in terms of frequencies or basket sizes that are encouraging, that maybe demand for your professionals indeed is picking up next year? Joanna Kowalska: Ben, so we see -- the customer footfall, as I mentioned, is increasing. And also we see the slight average ticket is growing, and both in stores and also online, which help us in the top line. Sales from professional customers has been also growing stronger, even stronger than overall sales with the strongest growth in the building materials category. And the strongest customer growth has been in property management, building renovation, electrical installation and also general construction. Pro customers represent approximately 20% of our sales. And if they are growing, yes, it brings positive effect to our overall sales in the group. What may be also important for you to know, also our installation service sales performed well. This installation services still represent a small share of our total sales, but nevertheless, they show double-digit growth, which makes us happy. Benjamin Thielmann: Okay. That is clear. And maybe one last question, if I may. One of your competitors, Obi, has announced that to improve the efficacies of their Click & Collect and Direct Delivery revenues, they're installing what they call electronic shelf labels, which is like an ESL, as we call it, and it's basically a digital price tag or like an automated price tag you put instead of a paper price tag. And I was wondering because if I look at the German industry, it's like you two and maybe Bauhaus that are doing particularly well in Click & Collect and in online revenues. And I was just wondering if you're doing any investments in that regard, that you're trying to fasten up delivery times? Is there anything that you have tested something like digital shelf labels as well? There are different types of store digitalization measures I read in the industry in the last 2 years. Any color on that would be very helpful. Antje Kelbert: Yes. So I can take the one on the digital shelf labels. I think we have also done some pilots on that. And we came to the conclusion that, yes, it's not -- in each and every area, we cannot bring that. We have also a lot of selling space that is outside, so very cold or wet. So for our testing, we stick to the situation we currently have. But I think this is not that directly connected with the Click & Collect, because you know that online and offline we have the same prices. So this always has been the case, and we'll manage that, yes, the whole time, even without those digital labels. And I think we have outperformed when it comes to the Click & Collect. And in our interconnected retail, we did a very good job. We showed that we have increased there now once again, and we are pretty happy on that. There are always things you can optimize in those processes. We invest in being more digital in general. We invest in being more efficient. But I think the state-of-the-art is currently very good, but there's always a job to be done and you can always improve. Operator: The following question comes from Miro Zuzak from JMS Invest. Miro Zuzak: Just 2 quick ones. The first one regarding your adjustments. There have been very little adjustments this year so far like last year. In last year, in Q4, the adjustments were around EUR 17 million. From today's perspective, as we are already now in the fourth quarter, probably you have more visibility on that. What is the level of adjustments that we should envisage for the current year? Joanna Kowalska: So the adjustments are non-operative effects from non-realization of expansion projects. And they were until now there, as you mentioned, only in a very small amount. And we have, at the moment, non-operative adjustments there. But what we have to consider for the Q4 as the impairment test. As you know, at the end of the year, we have to perform the impairment test, and this is not yet done, but we do not guide the figures. Antje Kelbert: That's why we also focus on the adjusted number of the EBIT, because this is what we are adjusting in general. It's the biggest part. Miro Zuzak: Okay. And the second one would be on the minorities. Typically, they were around 3% of the adjusted Baumarkt EBIT. And in Q3, it was really 0. Was it more like -- did you change anything in the ownership? So is there any change in minorities? Antje Kelbert: No. We have -- there has been no changes. Joanna Kowalska: No. No, no. Antje Kelbert: Perhaps we can take that afterwards if this is a specific thing, because I'm not quite sure what you're pointing to. But just we take it after the call, Miro. Thank you. Yes. So I think it looks as if we have taken all the questions, and the one remaining we will take afterwards. So with that, I thank you, Joanna, for the valuable contribution today and for the call. For the new year, we have already scheduled some participation in capital market conferences, and we are hoping to see you there also in person and engage in a personal conversation with you. In addition, we will provide an initial glimpse on our full year figures, provide with more information then in our trading state in March on the 25th of March, and all our upcoming events and dates can be found on our Investor Relations website. And yes, as usual, if anything comes up afterwards, please do not hesitate to reach us out. So thank you very much for your interest this morning, and have a blessed Christmas season for all of you celebrating Christmas and a happy New Year. Thank you very much. Bye-bye.