Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lowe's Companies Inc (LOW, Financial) reported second-quarter sales of $23.6 billion, with positive comps in Pro and online sales.
- The company delivered mid-single digit positive comps in Pro and 2.9% comparable sales growth online.
- Lowe's Companies Inc (LOW) has successfully implemented its Total Home strategy, gaining traction even in a pressured macro environment.
- The company has expanded its delivery options, adding Uber Eats to its list of partners, which includes DoorDash, Shipt, and Instacart.
- Lowe's Companies Inc (LOW) launched the MyLowe's Rewards loyalty program nationwide in March, which has been well-received and provides valuable customer insights.
Negative Points
- Comparable sales were down 5.1% from the same period last year, indicating a decline in overall sales performance.
- The company continues to face softness in DIY demand, particularly in bigger ticket discretionary projects.
- Unfavorable weather conditions, including cold and wet weather in May followed by intense heat in June and July, pressured sales in seasonal categories.
- Lowe's Companies Inc (LOW) has updated its full-year 2024 outlook, reflecting a cautious approach due to the challenging home improvement backdrop and weak consumer sentiment.
- The company experienced a decline in comparable transactions by 5.9%, driven by lower seasonal transactions and pressure from DIY project spend.
Q & A Highlights
Q: Can you explain the significant spread between DIY and Pro sales, and how it varies across geographies?
A: Marvin Ellison, CEO: Our Pro business is growing, and we believe we're taking share based on our strategic initiatives. DIY sales are more concentrated in bigger ticket discretionary purchases, which saw softness in Q2. We feel confident in our assortment, pricing, and execution, and believe this is a macro issue. When the DIY market recovers, we expect to take overall market share. Brandon Sink, CFO: Performance is consistent across geographies, with no notable differences outside of specific events like hurricanes.
Q: What factors are influencing the margin outlook for the second half of the year?
A: Brandon Sink, CFO: The updated full-year operating margin outlook is consistent with our rule of thumb. The second half differences are driven by the timing of merchandising PPI initiatives and comparisons to prior year incentive compensation. Gross margins are expected to be roughly flat for the full year.
Q: What led to the guidance cut, and does it affect your view on a potential recovery in DIY demand?
A: Marvin Ellison, CEO: The guidance cut is a cautious approach based on the macro environment and customer sentiment, particularly around big ticket DIY discretionary spend. We can't predict when the market will recover, but we felt it was prudent to adjust our guidance. Brandon Sink, CFO: The first half was largely in line with expectations, excluding weather impacts. The second half guide captures ongoing DIY and Pro trends, with continued strength in small to medium Pro.
Q: How are you managing inventory levels in a cautious demand environment?
A: Brandon Sink, CFO: We continue to manage inventory with sales trends, aligning inventory levels with demand while investing in Pro items. We're in a good position on in-stock levels and seasonal inventory. Marvin Ellison, CEO: We've converted our regional distribution centers to flow-through models, improving inventory turns and in-stock positions.
Q: What are the next steps for your Pro customer strategy?
A: Marvin Ellison, CEO: We've focused on improving service levels, product assortment, and inventory for Pro customers. Our loyalty program and CRM platform have created stickiness. Future steps include enhancing job site fulfillment and digital relationships with Pro customers. Quonta Vance, EVP of Pro and Home Services, will discuss our long-term vision at the Analyst and Investor Conference.
Q: How are you addressing potential risks if the business weakens before rate relief?
A: Marvin Ellison, CEO: We're leveraging our balance sheet to invest in technology and innovation, executing our Total Home strategy to gain share in Pro and online. We're preparing for the eventual market recovery by positioning ourselves to take advantage of it when it occurs.
Q: How much room is left for PPI initiatives to manage expenses?
A: Brandon Sink, CFO: We're offsetting over $500 million in associate wages, inflationary pressures, and strategic investments. Joe Mcfarland, EVP of Stores: We're in the middle innings of our productivity journey, with a lot of runway ahead. William Boltz, EVP of Merchandising: We're working on cost with suppliers, private brand opportunities, and retail media network strategies to drive productivity.
Q: How are you managing promotional activity and pricing in a weak demand environment?
A: William Boltz, EVP of Merchandising: Promotional activity remains stable, with seasonally relevant offers. The appliance industry is back to normal promotional activity. Brandon Sink, CFO: Ticket increases are driven by Pro business strength and stable pricing environment since 2022.
Q: What is your outlook for gross margins in the second half of the year?
A: Brandon Sink, CFO: We expect gross margins to be up in both Q3 and Q4, with the full year roughly flat. Factors include supply chain investments, merch and supply chain PPI initiatives, lower transportation costs, and stable credit and shrink expenses.
Q: How are you addressing the potential impact of faster delivery times in rural markets?
A: Marvin Ellison, CEO: Our gig network and online capabilities serve all customers, including rural areas, with same-day and next-day fulfillment. We're piloting unique initiatives in rural stores and are pleased with their performance. Rural markets will be a significant part of our growth strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
