Bobs Discount Furniture, Inc. 2026 Q2 Earnings Call

Good morning, everyone. Thank you for joining us to discuss our second quarter 2026 financial results. On the call with me today are Bill Barton, President and Chief Executive Officer, and Carl Lukach, Executive Vice President and Chief Financial Officer. After Bill and Carl have made their formal remarks, we'll open the call to questions. As a reminder, the language on forward-looking statements included in the earnings release also applies to the comments made during the call. The release can be found on the website at ir.mybobs.com, along with a reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. I'll now turn the call over to Bill.

Thanks, Eddie. Good morning. Thank you for joining us today to discuss our second quarter earnings. As always, I'd like to start by thanking our exceptional teams across the company. Their focus and discipline helped us deliver a solid second quarter. Against a challenging macro backdrop and strong prior year comparison, I'm very pleased with our performance in the second quarter and the way we executed across the business. Total net sales increased 9%, driven by new store expansion and comparable sales growth of 2.3%. We opened four new stores in Q2 as we continue to execute on our white space growth model. For the quarter, we generated an adjusted EBITDA margin of 9.8%. These results reflect the resilience of the Bob's business model and the operating rigor of our teams as we continue to navigate softer industry traffic.

Expanding on comparable sales, our 2.3% comp increase in the quarter was driven primarily by higher average order value, reflecting continued mix shift from good into better and best categories, along with some incremental targeted pricing actions taken in Q2. We also saw improvement in conversion, which contributed positively to comp. Together, these factors more than offset lower traffic trends. While industry store traffic remains a headwind, we continue to perform well by leaning into our unique business model, which has proven effective across economic and business cycles. Importantly, store traffic does not fully capture customer demand as more customers engage with Bob's across digital and omni-channel touchpoints. As we like to say at Bob's, value is always in vogue. Customers continue to respond to Bob's value without compromise promise, quality, stylish furniture at everyday low prices delivered through a friendly, non-intrusive shopping experience.

That proposition, together with our operating discipline and differentiated approach, is helping us gain share. Encouragingly, demand trends have remained healthy through the early part of the third quarter, and our momentum continues to track in line with our long-term algorithm. Let me now spend a few minutes updating you on the underlying drivers of our second quarter performance. Starting with merchandising, our narrow and deep assortment, everyday low pricing, and strong in-stock position continue to resonate with customers. As you know, unlike many of our competitors, we don't rely on promotional activity at Bob's. Our everyday low price model is designed to maintain a 20%-25% price advantage versus our competitors' listed prices. Even during more aggressive promotional periods, as we saw in the second quarter, we remained on average approximately 10% below their lowest advertised prices.

We also continue to see healthy trade-up in our product mix from our good tier into our better tier with particular strength in motion upholstery and dining. Two core categories have long resonated with our customers. This mix shift is a result of the deliberate and effective work our merchants have done over the last several quarters to strengthen our product architecture. By creating greater differentiation across tiers and introducing products with compelling feature and style upgrades, we've made it easier for customers to see the value in trading up. The mix benefits we're realizing today support average order value growth and help to mitigate cost pressures while also reinforcing our value proposition to the customer. Importantly, we're seeing broad-based customer adoption of these better-featured products, demonstrating that customers continue to recognize and respond to compelling value.

Looking to the remainder of the year, we're executing our proven playbook to offset anticipated fuel and tariff pressures while protecting our value leadership. For example, as a retailer that doesn't sell third-party brands, we have significant flexibility across our sourcing network. Our merchants have been actively working across several areas, including sourcing, product development, and assortment optimization, and we're beginning to see the benefit of those efforts. Through a combination of cost discipline, new product introductions, and a continued focus on margin-enhancing product architecture, we remain well-positioned to deliver compelling value for our customers while supporting the overall profitability of the business. Moving to our omnichannel capabilities. At Bob's, we continue to build out our omnichannel business.

With 218 stores, a growing retail footprint, an e-commerce platform, omnicart, and digital selling tools, we're making it easier for customers to shop with us and easier for our teams to convert demand efficiently, both in store and online. Importantly, our omnicart penetration continues to grow as customers increasingly use the platform to move seamlessly across channels. This is driving stronger store to digital synergies and supporting higher cross-channel conversion and AOV, and enhancing the overall experience for our customer. Omnichannel conversion was a positive comp driver in the second quarter and remains an important contributor to driving our performance on top of the double-digit comp growth we saw in Q2 last year. Within e-commerce, sales increased nearly 25% year-over-year, with penetration increasing more than 200 basis points to 17.3% of total sales for the quarter. Our omnichannel capabilities are increasingly supporting conversion with more store-originated omnicarts completed online.

That said, as the lines between digital and physical retail continue to blur, we believe seamless integration matters most. Our goal is to meet customers wherever they choose to engage with Bob's and make the experience consistent, convenient, and easy to complete. To that end, we're also leveraging AI in new ways across the customer journey, including AI-enabled scheduling to improve manager and staff efficiency in our stores, as well as to provide immediate opportunities for associate performance tracking and training. AI-powered product recommendations are another important part of that effort, helping customers discover relevant products faster, supporting higher quality engagement, and ultimately improving conversion across the journey. Finally, from a marketing perspective, we're building stronger brand visibility and awareness through impactful storytelling and sharper customer targeting.

On the targeting front, we continue to leverage our rapidly expanding file of first-party customer information, combined with trusted third-party data to identify specific customers and prospects with a high likelihood to shop at Bob's. Once we've identified those profiles, we're using AI-driven insights to craft the right message to deliver to that specific target customer when they are most likely to engage. A competitive differentiator for Bob's is that our value proposition resonates across a wide range of income levels. It's always started with great furniture at everyday low price. Today, we are seeing more customers recognize that value can also mean style, quality, and a better overall shopping experience. That's helping us build momentum with higher income households, including those earning over $100,000 and $150,000 while staying true to the value promise that has made Bob's successful.

While these higher income customers buy a slightly higher mix of better and best products, our good category still has the largest share of their baskets, underscoring the broad appeal of value across demographic segments. Our marketing efforts are focused on clearly communicating Bob's compelling value proposition. Customers are increasingly discerning in their purchase decisions, and it is more important than ever to showcase the value available across our assortment every day. From opening price points like our $399 sofas and $599 dining sets with the differentiated features, style, and quality available in our better and best categories. Finally, as we approach our 35th anniversary, we plan to use our Labor Day campaign as an opportunity to reinforce how enduring Bob's values are and create excitement with both new and existing customers.

Looking ahead, we remain focused on executing against our long-term growth algorithm, which is driven by three key objectives. Growing our store base across new and existing markets, driving comparable sales, and expanding margins by leveraging our scale to improve efficiency. I'll give you a brief update on how we're executing against each of these objectives. When it comes to real estate and development, we have a saying at Bob's, "We don't open units, we develop markets." Our new store performance validates the strength of that strategy. During the second quarter, we opened four stores, bringing year-to-date openings to nine. These openings included our first two stores in South Carolina, marking our entry into an attractive new market and our 27th state. We also opened two stores in the Charlotte area, increasing our North Carolina footprint to eight locations with another store planned for the back half of the year.

This expansion reflects our disciplined market development approach, establishing a presence in key markets and then building density through targeted infill opportunities. Across the portfolio, our new stores are performing at or ahead of expectations. We continue to see strong results from the 2025 cohort as those stores move beyond their first anniversaries, and our newer openings are off to a solid start. Importantly, our new infill locations are performing particularly well, helping us capture market share and drive incremental profitability with lower marketing requirements and attractive cash-on-cash returns. Looking ahead, our development pipeline remains on track with a number of openings planned around Labor Day, including our entry into Tennessee with four new stores. As we did with our most recent Southeast expansion, we will leverage strong awareness-driving media, local messaging, and partnerships that feel native to Nashville and the broader Tennessee customer for these openings.

The goal is not simply to open stores, but to enter each market with a smarter, more efficient media mix that builds brand affinity from day one and positions Bob's to capture share over time. On comparable store sales, while the operating environment remains dynamic, we are pleased with the healthy demand we're seeing across the business. Initiatives such as our good, better, best product architecture and omnicart technology are helping us improve conversion, support average order value, and gain share despite a challenging traffic backdrop. We're also continuing to advance the operational initiatives that support our long-term growth. Our Midwest regional fulfillment center is now fully operational, and construction continues on our Georgia distribution center, which is expected to be completed in early 2027 to support our Southeast expansion. Separately, we successfully completed our transition to Synchrony as our primary financing partner.