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    Lowe's Companies Inc (LOW)

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    Lowe's Companies, Inc. is a leading home improvement retailer operating 1,746 stores in the United States as of February 2, 2024, focusing on providing a comprehensive range of products and services for both professional customers and individual homeowners . The company offers a wide array of products across several categories, including Appliances, Seasonal & Outdoor Living, Lumber, Lawn & Garden, Kitchens & Bath, Hardware, Building Materials, Millwork, Paint, Rough Plumbing, Tools, Electrical, Flooring, and Décor . Lowe's emphasizes its Total Home strategy, aiming to provide a one-stop solution for home improvement needs, catering to both DIY and professional customers .

    1. Home Décor - Offers a variety of products including Appliances, Décor, Flooring, Kitchens & Bath, and Paint, catering to aesthetic and functional home improvement needs.
    2. Building Products - Provides essential materials such as Lumber, Building Materials, and Millwork for construction and renovation projects.
    3. Hardlines - Supplies Tools, Hardware, Electrical, and Rough Plumbing products for both professional and DIY projects.
    4. Seasonal & Outdoor Living - Features products for outdoor spaces, including Lawn & Garden equipment and seasonal items to enhance outdoor living areas.
    Initial Price$227.37May 1, 2024
    Final Price$241.36August 1, 2024
    Price Change$13.99
    % Change+6.15%

    What went well

    • Lowe's is gaining market share in the Pro segment, delivering mid-single-digit positive Pro comps despite a challenging macro environment. This growth is driven by investments in brands, inventory, and services tailored to Pro customers.
    • The company is effectively managing inventory, with inventories declining faster than sales, demonstrating operational efficiency and cost control. This positions Lowe's well to support growth in Pro and manage in a cautious demand environment.
    • Lowe's is investing in technology and innovation to enhance capabilities, such as converting distribution centers for better inventory flow and preparing for market recovery. This strategy positions the company to take market share when the DIY market improves.

    What went wrong

    • Lowe's has had negative comparable sales for three consecutive years, and if this trend continues into 2025, there is a risk that deleveraging could accelerate due to the fixed cost nature of their business model.
    • Weakness in DIY big-ticket discretionary purchases is disproportionately impacting Lowe's, given that approximately 75% of their sales are from DIY customers, leading to potential market share losses in the DIY segment.
    • Increased competition in rural markets from major e-commerce players offering faster delivery times could negatively affect Lowe's rural store performance and market share.

    Q&A Summary

    1. Guidance Cut and Market Outlook
      Q: What's behind the guidance cut?
      A: Management adjusted guidance due to caution over the macro environment and DIY customer sentiment, especially around big-ticket discretionary spending. Elevated interest rates and inflation have DIY customers on the sidelines. They can't predict when the inflection will happen but felt it prudent to adjust guidance.

    2. Margin Outlook and Impacts
      Q: Why is margin conversion weaker in H2?
      A: The updated full-year operating margin outlook is consistent with their rule of thumb: 14 basis points of contraction for every point of comp decline. Second-half differences are due to timing of merchandise PPI initiatives and lapping over prior-year incentive compensation. Gross margins are expected to be roughly flat for the full year.

    3. Pro vs. DIY Performance
      Q: Is Lowe's taking share in Pro and losing in DIY?
      A: Pro business is growing, and they believe they're taking share. In DIY, sales are concentrated in big-ticket discretionary purchases, which were soft. They don't believe they're losing share in DIY; it's more due to macro dynamics affecting big-ticket projects. They feel confident in their assortment, pricing, and marketing.

    4. Impact of Interest Rates on Demand
      Q: At what rate level will demand improve?
      A: It's difficult to know at what interest rate consumers will fully engage or how long demand will lag rate cuts. They see pent-up demand but note that consumer sentiment remains weak. They're hopeful that lower rates will relieve pressure and drive existing home sales activity, but many homeowners have mortgages at 4% or less, so even with decreases, reluctance may remain.

    5. Inventory Management
      Q: How are you managing inventory amid cautious demand?
      A: Inventory declined 3.3% year-over-year, outpacing the sales decline. They focus on Pro depth and brands, maintain strong in-stock levels, and manage seasonal inventory based on trends. They've converted distribution centers to be more flow-through, improving turns and overall inventory position.

    6. PPI Initiatives and Expense Management
      Q: How much room is left in PPI initiatives?
      A: They are proud of progress but only in the middle innings of the productivity journey, with much runway ahead. PPI initiatives are offsetting over $500 million in associate wages, inflationary pressures, and strategic investments. The roadmap covers all aspects of the company, and they continue to maintain discipline and drive efficiencies.

    7. Gross Margin Expectations
      Q: Is gross margin expected to decrease in Q3?
      A: Gross margin is expected to be up in both Q3 and Q4. For the year, they expect it to be roughly flat. PPI initiatives will continue to benefit, accelerating in Q3 and Q4, turning into 2025. Transportation costs continue to be favorable.

    8. Risk of Promotions Impacting Industry
      Q: Do you see pricing and promotions as a risk?
      A: Promotional activity remains stable. Seasonal offers are standard, and appliance promotions are back to normal. The ticket increase is due to strength in Pro business, not pricing. The pricing environment remains largely stable, and the industry continues to be disciplined and rational.

    9. Long-Term Margin Outlook
      Q: Is 14.5% operating margin still achievable long term?
      A: The framework still holds, though recent years have been worse than original expectations. They're not calling the turn but believe there's pent-up demand. When they return to mid-single-digit comp growth, they believe they can outpace that with initiatives.

    10. Rural Store Performance
      Q: Any changes in rural store performance?
      A: Rural markets are performing to expectations. They're piloting unique initiatives, including workwear, pet products, and ATV-related offerings. They feel good about serving all customers with same-day and next-day fulfillment. Rural is a significant part of their growth strategy.

    11. Potential Downside Risks Before Rate Relief
      Q: Where could the business get weaker before rate relief?
      A: Consumer sentiment, existing home sales, and housing affordability remain concerns. Consumers prefer services over goods, especially in home improvement. Improvement in macro trends should drive a sustained increase in DIY traffic, particularly in big-ticket categories.

    12. Clarification on Q3 Trends
      Q: How are comps expected to trend in Q3?
      A: Comps are expected to be relatively evenly split between Q3 and Q4. Unfavorable weather in Q2 pressured sales. Current trends are very much in line with guidance for Q3. They tend not to be precise with monthly trends but feel confident current trends reflect guidance.

    13. Earnings Algorithm and Deleveraging
      Q: If comps stay negative in '25, will deleverage accelerate?
      A: The operating margin framework still holds. They expect their rule of thumb to hold: 14 basis points of contraction for every point of comp decline. It's not a natural output but reflects work done across the portfolio.

    14. Incentive Compensation Impacts
      Q: Did changes in incentive comp impact results?
      A: Incentive compensation is largely consistent. The only notable item was the $140 million in discretionary bonuses paid in Q4 last year. Nothing that would significantly change or need to be factored in.

    NamePositionStart DateShort Bio
    Marvin R. EllisonChairman, President, and Chief Executive OfficerMay 2021Marvin R. Ellison has been serving as the Chairman, President, and CEO of Lowe's since May 2021. He joined Lowe's as President and CEO in July 2018. Previously, he held leadership roles at J.C. Penney and The Home Depot .
    William P. BoltzExecutive Vice President, MerchandisingAugust 2018William P. Boltz has been EVP, Merchandising at Lowe's since August 2018. Before Lowe's, he was President and CEO of Chervon North America and held senior positions at The Home Depot .
    Janice M. DupréExecutive Vice President, Human ResourcesJune 2020Janice M. Dupré has been EVP, Human Resources at Lowe's since June 2020. She was previously SVP, Talent Management & Diversity at Lowe's and held leadership roles at McKesson Corporation .
    Seemantini GodboleExecutive Vice President, Chief Digital and Information OfficerSeptember 2022Seemantini Godbole is EVP, Chief Digital and Information Officer at Lowe's since September 2022. She was previously EVP, Chief Information Officer at Lowe's and held senior roles at Target Corporation .
    Joseph M. McFarland IIIExecutive Vice President, StoresAugust 2018Joseph M. McFarland III has been EVP, Stores at Lowe's since August 2018. He was previously EVP and Chief Customer Officer at J.C. Penney and held leadership roles at The Home Depot .
    Juliette W. PryorExecutive Vice President, Chief Legal Officer, and Corporate SecretaryMay 3, 2023Juliette W. Pryor serves as EVP, Chief Legal Officer, and Corporate Secretary at Lowe's since May 3, 2023. She previously held executive legal positions at Albertsons Companies and Cox Enterprises .
    Brandon J. SinkExecutive Vice President, Chief Financial OfficerApril 2022Brandon J. Sink has been EVP, Chief Financial Officer of Lowe's since April 2022. He previously held various finance positions at Lowe's, including SVP of Retail Finance and VP of Merchandising Finance .
    Margrethe R. VagellExecutive Vice President, Supply ChainMarch 2024Margrethe R. Vagell is EVP, Supply Chain at Lowe's, starting in March 2024. She was previously SVP, Supply Chain and held other senior positions at Lowe's .
    Quonta D. VanceExecutive Vice President, Pro and Home ServicesJune 2023Quonta D. Vance is EVP, Pro and Home Services at Lowe's since June 2023. She was previously SVP, Transportation and Final Mile at Lowe's and held leadership roles at The Home Depot .
    1. Given the continued softness in DIY discretionary demand, particularly in big-ticket categories, what specific strategies are you implementing to stimulate DIY sales and mitigate the impact on overall comparable sales?

    2. Unfavorable weather has pressured traditional spring seasonal categories; how are you adjusting your inventory and merchandising strategies to better align with consumer demand and reduce the risk of excess inventory in these areas?

    3. With major e-commerce players enhancing delivery times in rural markets, how do you plan to address potential competitive pressures from faster delivery options, especially in rural areas where you've been testing unique initiatives?

    4. While you've delivered positive comps in Pro, the DIY segment appears to be underperforming; what measures are you taking to improve DIY performance and ensure you are not losing market share in this key segment?

    5. Considering the current interest rate environment and its dampening effect on big-ticket discretionary projects, how are you planning to navigate these macroeconomic challenges, and what contingencies are in place if the anticipated recovery in DIY demand is delayed?

    Program DetailsProgram 1
    Approval DateDecember 7, 2022
    End Date/DurationN/A
    Total additional amount$15.0 billion
    Remaining authorization amount$12.2 billion
    DetailsThe program allows for share repurchases in the open market or through private transactions. Shares repurchased are retired and returned to authorized and unissued status. The timing and amount of repurchases depend on market conditions and other factors.

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2024
      • Sales: $84 billion to $85 billion .
      • Comparable Sales Decline: 2% to 3% .
      • Operating Margin: 12.6% to 12.7% .
      • Earnings Per Share (EPS): $12 to $12.30 .
      • Gross Margin: Roughly flat compared to 2023 .
      • Capital Expenditures: Approximately $2 billion .
      • Dividend Payout Ratio: Targeted at 35% .
      • Debt Repayment: Plan to repay a $450 million bond maturity .
      • Share Repurchases: Excess cash will be returned to shareholders through share repurchases .
      • First Half Comp Sales: Expected to remain under pressure, with first quarter comp sales approximately 300 basis points below the bottom of the full-year guide .
      • First Quarter Operating Margin Rate: Expected to be approximately 200 basis points below the prior year adjusted rate .

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2024
      • Sales: $84 billion to $85 billion .
      • Comparable Sales: Down 2% to 3%, with Pro sales outpacing DIY .
      • Operating Margin: 12.6% to 12.7% .
      • Earnings Per Share (EPS): $12 to $12.30 .
      • Second Quarter Comparable Sales: Expected to be roughly in line with the first quarter and anticipate improvement in the second half of the year .

    Q2 2025 Earnings Call

    • Issued Period: Q2 2025
    • Guided Period: FY 2024
      • Sales: $82.7 billion to $83.2 billion .
      • Comparable Sales: Down 3.5% to 4% .
      • Adjusted Operating Margin: 12.4% to 12.5% .
      • Net Interest Expense: Approximately $1.4 billion .
      • Capital Expenditures: Approximately $2 billion .
      • Adjusted Effective Income Tax Rate: Approximately 24.5% .
      • Adjusted Diluted Earnings Per Share: $11.70 to $11.90 .
      • Third and Fourth Quarter Comparable Sales: Expected to be roughly 200 basis points better than the second quarter results .
      • Operating Margin Rate for the Second Half: Expected to be roughly in line with the prior year, with Q3 approximately 70 basis points below the prior year rate and Q4 approximately 50 basis points above the prior year rate .

    Q3 2025 Earnings Call

    • Issued Period: Q3 2025
    • Guided Period: N/A
      • The documents do not provide information about the guidance from the Q3 2025 earnings call for Lowe's (LOW). The available information is from the Q2 2025 earnings call.

    Competitors mentioned in the company's latest 10K filing.

    • National and regional home improvement warehouse chains and lumber yards
    • Traditional hardware, plumbing, electrical, and home supply retailers
    • Paint stores, lumber yards, garden centers, and maintenance and repair organizations
    • General merchandise retailers, home goods specialty stores, warehouse clubs, online retailers, and other specialty retailers
    • Providers of equipment and tool rental, service providers that install home improvement products, and wholesalers that provide home-related products and services to homeowners, renters, businesses, and the government
    • Online and omnichannel retailers with similar product or service offerings

    Recent developments and announcements about LOW.

    Financial Reporting

      Earnings Report

      ·
      Nov 19, 2024, 8:10 PM

      Lowe's Companies, Inc. Q3 2024 Earnings Results

      Date of Release: November 19, 2024

      Key Financial Metrics:

      • Net Earnings: $1.7 billion
      • Diluted EPS: $2.99
      • Adjusted Diluted EPS: $2.89
      • Total Sales: $20.2 billion
      • Comparable Sales: Decreased by 1.1%

      Significant Trends and Insights:

      • The decrease in comparable sales was primarily due to continued softness in DIY bigger-ticket discretionary demand, although this was partly offset by storm-related sales and positive comparable sales in Pro and online sectors .
      • The company experienced high-single-digit positive comps in Pro sales and strong online sales, driven by improvements in traffic and conversion .
      • Lowe's updated its full-year 2024 outlook, expecting total sales between $83.0 to $83.5 billion and adjusted diluted EPS of approximately $11.80 to $11.90 .

      Capital Allocation:

      • Lowe's repurchased approximately 2.9 million shares for $758 million and paid $654 million in dividends during the quarter .

      CEO Statement: Marvin R. Ellison, Lowe's chairman, president, and CEO, noted that the results were modestly better than expected, driven by strong Pro and online sales, and expressed sympathy for those affected by Hurricanes Helene and Milton .

      Outlook:

      • Lowe's anticipates modest storm-related demand in the fourth quarter and has adjusted its outlook for the full year 2024 accordingly .

      For more detailed financial data and non-GAAP reconciliations, please refer to the full earnings release and accompanying documents .