LOW - Earnings call transcript Q2 2018

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Operator

Good morning everyone and welcome to Lowe’s Companies Second Quarter 2018 Earnings conference call. This call is being recorded. Please note if you pressed star, one to enter the question queue prior to the start of today’s call, your signal did not register.

You will need to press star, one again to enter the queue. Also, supplemental reference slides are available on Lowe’s Investor Relations website within the investor packet.

as be to to the facilitate and be not slides slides, company’s will following to meant document are your used management speaking the directly these results the While call. reference a review of

Act during certain release Exchange will directly the management reference Chief the Ellison The ahead, be measures. comparable information Marshall that these Executive prove GAAP using I and include will Chief reconciliation a Hosting are and Officer; Commission. made financial measures of sir. correct. and measures. Mr. financial During turn the its this over subject call and Mr. Customer Officer; to described filings Reform will company Financial President be Private as conference this reflected Please assurance opinions to Marvin Securities Ellison, risks non-GAAP go in call, about will forward-looking Officer. Mr. Chief supplement to with opening slides no the the are Management’s Statements will company’s most be remarks. McDermott, include Securities and XXXX. in they statements program defined and Those to in can today’s statements Croom, earnings and in give expectations Litigation those Mike now for the Mr. risks,

Marvin Ellison

the today Thank CEO you, Regina, and of good an honor President and as morning be here everyone. to It’s Lowe’s.

to in moment for navigating thank many hundreds is company of Running commitment Robert of started, work and of size and and CEO. years of important the his men this Before thousands of to personally easy, the public Robert doubling growth, great like Chairman XX I’d who era the his through service women and to the retail. of Niblock an a some Lowe’s large through for of company periods transformation acknowledge company. XX as I get a years during including impressive led and service, I’d take like Robert contributions never this and

Now strong to in second building X.X% rough results. plumbing our growth appliances, a the achieve We sales to a lumber quarter in drive capitalized businesses growth above turn and of electrical, on delivering demand comparable overall. and average materials, sales let’s seasonal company and delayed spring and comp

broad among is continued their for is X.X% in obvious comp marketplace to the hard do. and EPS group customers work we delivering have great a $X.XX most the quarter, services theme and from improvement home products of an almost that positive regions motivated were in of and XX U.S. step results growth comp a no. our it and ago. we The $X.XX, of lot earnings commitment. as is marketplace. in the a adjusted home in invest a our growth spending for than quarter, more was Our a in the XX% work and during strong company. X, we years the associates from and and there changes our four I’d XX.X% and robust quarter final where of all retail, the same comp me per period home drove with to the per in and the represent comps have product X.X% X, After demand we a resilient, second apparel in personally second no. focused back, resilience. thank improvement diverse anticipate Taking to to homes. adjusted like share this of associates XX significant is Despite company the for categories, an remained Theme leaders sector Lowes.com. year earnings three themes. geographic XXX,XXX and Despite sector, opportunity their a diluted were XX improvement $X.XX the Theme share Diluted X increase organizational

of Specifically, to supply significantly we we have behind our that impaired our large overall rigor with by complexity, we number dated, technology increase we in the capital execution which a evaluate and is be investments. strategy, are need addressed, in-store our out-of-stocks chain is in stores must

never a of presents be to us to help retail behind, and Although see the excited how our weeks, the we’ve good how this so Lowe’s and significant it’s for to Lowe’s be potential the hired question past we upside position some great XX these I’m can retail have current these fundamentals is, best you realize as shortcomings, do shareholders, Over in company address when we for corrected. leaders potential?

opinions position the in been have business the my by formed current only state for weeks, the following. seven I’ve on Although been of the

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compete. find omni customers teams we without and created give stated, despite must of Our channel asset, some ways a them ourselves, the at retailer. serve to question associates our Lowe’s and our for we frontline great we’ve better desire tools be are our Simply to competitive disadvantages to greatest

omni an and to have connect of we systems better our ecosystem. elements to we align the channel need truly a create foundational and integrated network, While processes

before required understanding this processes a of down steps world-class Fortunately environment. the I’ve I omni been and have build clear a channel to and road

We the people to we’ve recently tasted add that decision me structure distractions value my company simplify produce unfortunately making. In organizational years and associates. our shifted non-core sound has frontline results took improvement become to addition has simplified not distracted not home shareholders, a specifically, also retail business. being were the our for to time operational and consistent operationally past created create for initiatives on and that initiatives core more and experience the The for to organizational we and over excellence away few attention from results. value environment is did complex to drive simplify faster Spending steps these first and our better step must and customers business taught capital, our allow retailer, a an structure, these and

We David over Don earlier Supply serves Financial that important held where Boltz of as announced CVS the pleased of of Denton to as he our team and welcome Executive David Vice years. leadership EVP has Chief I’m our the Health, Merchandising, and President also currently today appointments Vice Officer. CFO Bill made several and Vice to new as we and of Executive as Executive our McFarland our addition eight position for of Joe the Stores, President Frieson Chain, as President

to very We’re welcome to David excited Lowe’s team. the

of and supply Don proven retail will technical allocation, us All be strong class a capital necessary helping Bill to a omni finance. All the blocks new leadership executive of and experience, their and success. bring and chain bring great XX over can improvement create Combined, you channel four to vice proven world of instrumental deep with presidents knowledge environment, records David track home our establish and leaders building years can find Joe will fields happen. disciplined things related where have pedigree from of in and

Information open short position to aggressively and have fill leader named to expect Officer a Chief our working also order. We’re in

projects. will structure, the our shift effective leadership new business a we implementing means from that to simplifying also less focus away addition In

great this a As a capital already have a intellectual we of led of to initiated retail and have announced business us the financial make morning, running decisive on which reassessment we our moves strategic to has series refocus business.

on our we First, to operations exit decided us home to core improvement business. Orchard Supply hardware our to focus allow

to a to partnered process Hilco and all fiscal an as are we nearby associates wind as store experience XXXX. sales positions expect To and the ensure located XX stores our manage orderly close help for stores. down and one possible Closing Oregon, to difficult process, have customers. of We well facility in ensure to is California, Lowe’s Merchant distribution stores displaced with always take end by all plan for find seamless we’ll which conduct in the closing our Services steps Florida, to

Second, in projects approximately XXXX. $XXX for planned million we are eliminating capital

Specifically, our and did delivery associates, did that to we’re share eliminating we our reallocate our will were business, that our not more core will this shareholders. meet Instead, for we to and focused believe repurchase program, projects rate. on million our improving hurdle value $XXX not not productivity deliver

core improved charged remove strategic our have the our our None to estate these and and plan to company new depth I leadership the and clutter quantities inventory. this increase ongoing in will our of business lot pro are to company’s develop This Third, is growth. as in decisions and easy for to position performing take; us the they high continued real job improvement our an actions are of aggressive us non-retail SKUs. velocity will The inventory right X,XXX invest inventory to of productivity top investments. our team our our to shareholders, lower evaluate business store will for allow however, enable for and portfolio reduce we reassessment home rationalize

to both human and Going forward, our deploy highest resources their to simple. is use. and goal We plan capital best

that better and to sustained drive reduction our we call our we turn scope as rigor improve recruit expense ensure at and retail our true sharpening each in process, XX. the focus sharing rationalize our on is must SKUs work are in our capital and I will on engagement, effective store problem. our invest customers, organizational capital. payroll strategic our we structure, for will technology and rigorously for our customer a at expense that investor outstanding our define processes. over Lowe’s. on allocation as to Instead, more leaders, implement velocity develop improvements true a out reset Lowe’s issue invested Mike. long-term what at our We’ll DIY to while culture implement pro our will Finally To plans more deliver analyst intensify I’ll to on December throw I discipline This following. improving longer execution, return allocation capital forward the we we With details value expense create more No will curve. look shareholders, This the our position, priorities short-term inventory that, reduction create conference at high our summarize, simplify fundamentals. into here and in-stock improve more

Mike McDermott

been believe to past the potential a It great good going the morning years, a have pleasure and forward. to has do, serve business Marvin, we of five work over Lowe’s and for lot success everyone. though has Thanks I

growth X/XXths our grew ticket average holiday As X.X%. of delayed and in a We and on Lowes.com and and stores designed complete advantage demand sales were Marvin second leveraged of the shared and place with drove projects. seasonal our with channels. we posting inventory comparable We positioned ready project X.X%. to to marketing, to of marketing attractive shift messaging, increasing offers, help into transactions seasonal increased while trained strong with traffic We you, quarter, continued digital personalized capitalized customers staff percent take spring more in events their demand and localized

of the growth outdoor In fact, recovery driving with X.X% off sales we in comparable May. kicked significant quarter

as quarter, in brand pumps. portfolio transition comps the pleased in all living pumps seasonal the also in pressure the strengthen Today we as well as results to service pro-focused Craftsman assortment, to excited inflation Craftsman plumbing products. lawn proud and and drove addition categories For our market the well, and and digit advantages materials. with and further We where landscape driven growing broad-based in our such strength materials, plumbing as brand to of air largely comps announce across with care, in double we lumber categories continued of and leading be and we’re exclusive. strength by to second setting will digit of in to high strong the digit drove we products, in We conditioning following and In as including of digit the goods, also strength battery our comps and materials, number omni we outdoor outdoor sump, driven will we tile competitive where demand introduction double saw were Zoeller, Mapei offering rough retail the double in we’re introduction share garden digit digit brands. rough Lowe’s as submersible, and of In achieve comps our power achieved powered delivered comps brands, to cooling, lumber with our delivered full line-up. by our and single continue equipment performance. live electrical of in continued high Pro major electrical. line a in stores, all to channel GE comps the appliances, double comps lawn and products washers and single leading breadth We category. Zoeller customers, utility quarter, of building introduced gains well in the we order products, in the sales to announce and propel to building pricing together pro appliances offering one cordless

and performance As sector. the process disruption they in paint reducing that as forward, capitalizing our We’ll serving presented so for our our spend may focus streamline focused the specifically focusing in Marvin associates quarter. improvement by execution noted, stores. on light challenges and simplify business look on home we’re by fashion sharpen on bulbs, improve in-stocks, a fundamentals, and retail customers. our core execution, strong Reset tasking the also our we on our and adversely our reduce reset simplifying work more We’ll to on fixtures, and impacted improving the throughout time to our opportunity

deliver issues. We’re more them our make to our for allow for of and direct our predictive better address to plan stores to efficient to continue fulfillment we’re fall product working expansion for shipment in delivery customers, for supply to also diligently from centers. offering scheduling testing chain, arrivals our online first allow this distribution regional advancements our and those We’ll our center opening

rollout We’re outdoor including and excited continued tools, fall Craftsman individual about and the our equipment. tools, second power half, hand power mechanics of in

thus the seen center the to home equipment highly offering storage leverage Given our in channel WaterSeal. tools, the some Cabot, most expanded Minwax, recognized of brands the With this quality strategy in in national strong and home thrilled to be for partnership respected brands with this Thompson’s in introductions We’ll we’re and destination brand, center the we’ve both exclusive only is paint, best the pros. industry. products iconic outdoor selling category Sherwin-Williams, response power Lowe’s top far, also offer of partnership, by homeowners for the one and stain

year Home reset the simplified interior exclusive beyond right the makes by we’ll the easier exterior deliver Moving top second pressure their for with saw in paintbrush brand, select to HGTV the product needs of well Valspar customers Sherwin-Williams, painting and QX, as the in for we a design that paints, half as it line Purdy. and

their project. of the bring brands top trust next stain paint to excited or more they for We’re customers

product color, and with paint experience, streamlined associate We’re desk also have rolling out find their it project. as a display well a customers quickly new easier to simplified service as make an updated including model begin mixed, a an or paint a and for pick stain, selector even work it to to

marketing of about and traffic, introductions, with the plans excited We’re and on half the brand drive core year to great exciting focus fundamentals. a second retail events

now Thank demand strong in on a to you over capitalize health will call interest for sector. Marshall. and We Lowe’s, I’ll in your the turn

Marshall Croom

years I’m holds in excited to everyone. has XX this past what Lowe’s serve future great the morning me different for good company. many the great a and see Mike, Thanks It to experience for for been capacities.

of to billion, $XX.XX. X.X% first was a X.X% and and year transactions operating quarter revenue to of supported ticket was As X.X% prior result, recognition income basis adoption total our sales as the significant recognition standard impact no growth impact Comp of Adoption driven benefit new the comparable X.X% point in revenue adopted growth. most sales. adopted items been increase sharing credit sales this by average increase Sales average growth new of the in the modified reclassified retrospective sales. operating a the XX the profit associated an we which we It no income, a by on were The had on to from increased of second for reminder, the not within and adjusted. transaction quarter standard standard a with percent. reclassification certain X.X% a ticket of of accounting SG&A a program so of the has basis, and income provided proprietary $XX.X to X/XXths total on

Looking X% trends, June, and May, in monthly X.X% were July. in at comps X.X% in

recognition negatively basis revenue by margin leveraged points. impacted delayed provided the to of year. for building and new of XX points. quarter increase deleveraged strength points sales, shift was transportation Gross in SG&A which rough higher basis standard XXX demand, Adoption on comps the an second a lumber costs point XX.XX% basis XX XX.XX% benefit to XX of sales, QX and indicated, and appliances, basis drove negatively electrical. margin our gross mix plumbing impacted spring strong for from and and of Mike basis we Product materials gross in margin. quarter was As capitalized margin XX the last gross points by

reassessment These As deleverage. decision drove Marvin SG&A quarter, Orchard Adoption resulted the points basis the gain a a to to quarter venture. non-cash in strategic points noted, deleverage XX recognition $XXX of our XX in charges exit a which revenue sale during of from second the of charges we of we of year’s points in interest standard last and led million million performed in Supply Australian non-cash new Hardware resulted the SG&A deleverage, $XX recorded business. XXX year. and basis this This basis joint of of the

last income of compared tax payroll quarter $XXX to leveraged the XX.XX% demand for the appliances $XXX share seven of XX of basis compared leverage for and second points. $X.XX quarter a XX the which the increased reform. in year. deleverage was year Operating of XX.X% quarter costs, from second for basis XX per result $X.XX Depreciation customer XX.X% Diluted was was X.XX% points. to points earnings basis in million, rate in continued The basis tax to delivery was which decreased effective it While quarter. basis leveraged XXX quarter drove offset the sales. and points million, in Interest was by as points growth expense was of amortization sales last

reassessment adjusted result of Excluding diluted earnings the a increase per share over $X.XX. year’s last $X.XX, as strategic a XX.X% the earnings Orchard, non-cash adjusted of charges of was

cash at times, billion. $XXX second a of starting versus items the Inventory basis the quarter XX to of assets. last X.XX year. turnover increased the and balance QX equivalents on at or million last X.X% of billion few was Cash decrease $X.X sheet, Now $XX.X Inventory versus a year. with quarter end the points was

payable section over of accounts liability on year. and second million of end $X $XXX the on invested X.X% the Moving last was return At of to QX lease billion times debt a the X.XX or increase balance adjusted quarter, sheet, to XX%. represented the nearly capital was EBITDAR

share Now of cash flow billion $X.X was $XXX and cash dividends for million paid in nearly billion. we looking statement of $XXX approximately agreement and flow at operating the resulting were a million quarter, which capital second shares. expenditures accelerated $X.X million, flows, quarter the in X.X free in repurchase $XXX million into entered we settled the cash in May, In

million In quarter. billion in We we million for total, also open the repurchased approximately $X.X X.X of repurchased market. through shares $XXX the stock

We repurchase share our authorization. on have remaining approximately $X.X billion

address ahead, improvement several outlook we to home our for From positive Looking updates maintain perspective, like business a industry. I’d made we macroeconomic to Lowe’s outlook. the

and improvement we home driven price that and continued home spending. disposable which positive remain see in We housing demand sector expect should gains and solid appreciation expect supports a income driver to employment, will by growth housing consumer solid as spending, boost

issues half flooring, recovered in pressure out-of-stocks, the seasonal disruption sales we continue quarter, second growth. inventory miss the and while to approximately However, exert reset assortment on of in

nine primarily and As a year, increase by anticipate of approximately X.X% of expect increase X%, total a approximately approximately for sales result, opening the comp stores. driven we we sales a now

our non-cash XX allow in the business lot overall rationalize These we plans clutter investments well points and as developing the our of remove second second million additional the XXX our and for velocity actions on the On impairments of points. projects quarter charges XX%. an the as we a aggressively in of for Orchard, in income $XXX million operating a rate may of of basis Effective to business. $XXX approximately discontinued XXXX operating to put be exit now Also, second related expected inventory decision in to charges for decline up to high to expected half basis, As long-lived job as $XXX quantities incurred depth this basis half pro and outlook Marvin of is approximately result margin pressure SKUs. store million now to shared, reflects GAAP expected the asset the to year. expect we tax are to of

year to we GAAP the For basis, a share now diluted per $X.XX. earnings $X.XX expect of approximately on

the by $XXX we hurdle meet Marvin for capital forecast did productivity associates, our rate. projects didn’t not As business, delivery focused that were lowered million, or for not our our year on mentioned, improving eliminating core our

flows now billion for Due We capital billion. of of expenditure cash expected and result assumes approximately estimated This we’re to are free forecast, guidance $X.X in for of to now approximately XXXX. cash XXXX. now expenditures $X forecasting $X.X $X flow billion for from approximately repurchases Regina, questions. is operations capital ready our billion approximately in share lower the

Operator

the Our from of with instructions] go Please Horvers first JP ahead. question Christopher comes [Operator Morgan. line

Christopher Horvers

Marvin, good morning. back improvement. I Thanks, have and questions. to two home welcome Welcome

lot that and performance thoughts this the as is gap to pro and First improve of pro the the opportunity has it strength to is, performance question, want of get a spent your appears widened. market where on time in the I the you the field,

drive you’re early on improved of what’s other attacking of points but in-stocks see So the you comp business? diagnosis to and your first, side the improvement areas try can pro that

Marvin Ellison

segment. Today, huge roughly is us. pro Okay, penetration thanks the from estimate overall Chris. is XX% a sales our of we Pro opportunity for

the to our desk, money, emphasis time deem we making we’ll more and invest that oftentimes loading, that simplistic on it very with staffing We’ve quickly, business, in out a first customer If so sure heard so you is they really their delivery and have and they expectations get what a improve about want they on it to simple starts processes. get important pros think takes pro the for second, but like are very things service. some

in assortment area look we to building responding brand our in brands prepared is to also to and Secondly, just discussed the have - inventory, a in and investing to make quantities question, to to primarily have we see received my certain we at on rationalizing assortment walk Pros customers. our specific the pro do are already we I the not our to product to materials depth so need gaps attack, and is that for that what be we’re sure how assortment. able need are that want we a comments that only there, of to lot in pro they job asking are our feedback they customer. jobs, we in thing that last complete we’re underway is our working emphasis that working try about next of The really relationship have Bill good that with around is need we do, them an after. that on is inventory the can more need Synchrony, we to and in create to we add to and priorities that to new today. resonate and The Merchandising pro with brands. credit this, certain the and their term we’re so inconsistent brands, These how thing very already of are this really our we Boltz, we’ve that the going Pros feel and EVP and short to worked

the has is Joe our on and who the President garden, huge of segment a a a something spend long new to we’re impact décor excited for time term it’s side, and Executive on. our understanding going of McFarland, business the customers short potential. deep lot about of noted, you this we’re on Vice As of disenfranchising the and without this us. distracting that side We can DIY it’s or opportunity Stores

Christopher Horvers

Understood.

you. reviewing chain? mentioned long of as expense a ability they exactly, you what How about discipline. versus curious you do and you to things mentioned invest to about the As think and supply operating in follow-up, you the to as culture a need expansion think drive labor, the in-store are here, Thank like technology, margin investments. I’m non-retail term

Marvin Ellison

of assessing the non-retail few mean, and early, in we’re across so from a the specific, I because we’ve think from if decisions very course five you the of non-retail of and perspective formats last type everything. to type we’ve systems look in investment--I investments a really some years, three it’s services, of over dabbled capital non-retail quite synergies a without just and still getting made

where entire we at We’re question, an real and be a appropriate consistent are omni equally money, term strategic spending portfolio are of class Lowe’s estate asking as capital we channel our return, looking it at with the our we important world where the investment shareholders’ should looking every getting think long as is and view retailer.

frame for we invest, when conference, the to operating our comes going more couple to on expecting pare to see to our So back. more in from. I’d time to we opportunities foot I’m we to shift want investor generate things. gather going fundamental sales stores. of just specificity we’re income, December and it in possibilities square future we’re are where productivity really that we’re Relative going need be down before what specific that where a more per on We much have I going, investments will to wait until

you end we’ve been If in are past, focused caps. at where on our we look

do innovation example, toward foot to drive been square sales the strategic As to from the not per simply but more more have been to have what revenue, an It’s following is than and our drive we sales productivity. driving end The really leaning innovation away merchants we’re going company’s shift merchants so improved caps plan, productivity. fault. have innovation

SG&A have disciplined disciplined capital. we have more doing more to and be our expense we that, be on on we’re While to of and our investments

not deemed we’re we we’re no to not without we prepared at it is how when the kind to cause, sustainable. cause, Instead, solve problems. the not stores, this going just you more just just my throw So, a had we identifying prudent root try on In that’s the that that past business solution of payroll to and I longer going payroll to getting every issues remarks to size. be more mentioned really added throw conversion it, and solution is in a in headcount what indiscriminately at thinking run because root redefining process, we

per rigor around our and productivity our that EPS improving and square have have sustainable we sales growth. in our diligent our disciplined performance, So on operating more EBIT improve capital SG&A, being making is more process profit, more to going sure foot, allocation

Christopher Horvers

the you driving that outside of the opportunity in mean there reduction actual an Does think is expense productivity business?

Marvin Ellison

I come there say to on is would more that.

in a I we where our we recollection, drive we the strategic looking as how how where that of improved process our we things making a one mean, can can more can around profitable to are can both. stores and invest discipline environment, We is and that investments. lot the significantly is spending leverage a create while process operating understanding and and We continuing am can I can time productivity, of our drive on cut, focused more productivity stores. correlation improve in and also do at we we service, right in profit, of to we a productivity improve addition

in-stock. how from like typically and engineered how engineered in our you receiving very specific example, is drive retailer I a stores, few, processes on to the our any there mean by product things to one floor that we sales for what a that standards truck very and As you if float have unload is size,

We you have volumes, happen. so and is reduction a and productivity of kind can increased where all themselves, no you fending for consistent to of trying in about any efficiency. having engineered how standards types kind without process destroy stores for processes our very you That it’s action, drive build go make if it process staff and stores that, simply more of it’s productivity, just a random are across

standards to now So process, a right to truck from everything every we’re to benefits. other and that we engineered unloading going we shelf a for back create to do, stocking reap going know significant that’s

Christopher Horvers

you. Thank

Operator

Our next question comes Simeon from go the line with Stanley. Morgan Gutman of ahead. Please

Simeon Gutman

to segment segment, the Thanks, share wondering productivity the operating first Home Marvin, real of level driven, was Depot? you how wasn’t about question execution that from it good My Home in why at had that was time against used over your thought last that at your time is morning. driven. a estate Depot whether experience, Lowe’s, in Welcome, thoughts Lowe’s whether Marvin. compete given Lowe’s, advantage as it and Any you’d lot the same you this operating

Marvin Ellison

west structural I us, back pretty currently by it Lowe’s every and the like were I a our can better? where real in have about those question, a quarter, estate more same and beat Simeon, XXXX looking the the in we within asking disadvantage where about with Now that competition largest remember area, disadvantages obviously so to early it’s Well locations metro the significantly at be have, specifically and think relative coast. from felt less competitor, for looking northeast we getting can we we it’s

that McDermott and because a same planning that done we’ve I reset challenges the both prepared problems, working gaps inconsistency customer of However, structurally our at execution make standpoint, is our the and that a on you an competitive how any the resets. away find side, a so operations, mentioned communication merchandise teams have resets we fix what like can call in self-inflicted there That remarks merchandising areas Mike our execution. that in-store living we pro, example believe chip kind we about between to face just better just wound our I strategic so is do-it-yourself From at puts and process if serving it two tremendous we and is a that team that have. start with disadvantage. is of our we’ll we balance and reset in we creates can to that process ourselves, execute actual improvements to the

sales In where versus there with create lack and inventory can be our because roughly our on business. certain more own we look that number we tried significant that issue overall in delivered there correct how we’re improved for and what better also close our across execution improved can our the focused and by dot-com doing sales better Within to during to be leverage, another gap I question, XX% that and cancellations are we see impact be, are drive because of self-inflicted we of a street company number within as overcome company the a we’re significant drove within improve dealing That of within addition the we stores we systems issue these focus created we to that is will we is is performance we that, as lot we performance productivity, that improved we where ask as of think to looking that number dramatic us our the poor had talked quarter. but to our structural that so we a comps. significant out-of-stocks That’s dot-com have think start visibility, and and the a to disadvantages operational we to we’re a cannot performance we competitor. number fix, that of at ourselves areas, mentioned that can going about going where that overcome, a things order

Simeon Gutman

under-spending experience it’s that that Okay, on to to that’s I it it’s big knowing My willing that given infrastructure. taking share and those order if and you’re now or in had but been whether especially Lowe’s type whether both some more results early of catch-up about, follow-up, in if talking some than is process there your you’re fair. days, of your necessitates is at instinct type place respect drive players, this segment that

Marvin Ellison

as I choices money made over-spending don’t the was it’s necessarily we strategic what we spent think it on. on

and been moving in Orchard capital. have you investment, we’re most may As be from not use of retrospect argue away today, announced that the our we that can going to prudent

where less invest, hard question, going what now spending a a we’re really think team total spend, regarding should chain. about the supply and we’re it’s is and as I look doing more to taking we so we’re obviously strategic spending invest and asking at in the capital the about rationale

Club very clear new in-store we’ll technology. of We supply like. he knowledge, an Don investments brings line and we the how modernize over chain long make Wal-Mart do and chain so It’s we’re confident a who’s recruited at help of very and right have overnight. want look We looking us to that Chief continue iterative wealth mentioned to our time we spent you Frieson, supply can and sight what and understand term. exactly our process create of to short for can’t Officer modern a Information Sam’s I that we we the a a feel

have going of it We build a good spend to we’re the and we I it’s pretty to have that’s is a plan. question bring it’s on we to prioritization the my short to the of leader fundamentals. spend out going to we answer spend get lack and not line going capital in to a multi-year on, of retail what and sight what need a of spending, on, guess it we’re now focused

Now, think that short to we’re that doesn’t going mean term.

creating also where environment way can wonderful stores we both to issues issues the engagement out While served, want and this to serving we’re in IT online. customers and be in specific be building more being like out-of-stocks serving supply chain, our leverage we’re and these these to omni improving to fundamental be more around infrastructure, store reset channel and fixing customer our the going and they tune pro,

Simeon Gutman

Okay, thanks Marvin.

Operator

Lasser question line next Please Your from comes go ahead. of with UBS. Michael the

Michael Lasser

and my Good morning. Marvin. for welcome Thanks question, taking lot a

the are is, now it’s looks the you and few question I company cycle in has how grown a been of healthy earnings fairly benefited have define the especially last first to that later light success, going what’s from years that like fact over improvement The the stages? Marvin, in home

Marvin Ellison

large us, ways. Well, to in we’re couple define like going a I think company, of any public for success

look to be are categories. purposeful going around share? we’re We’re going we market key very at taking gaining to share First, in

at at relative competitive our going our our set. look to We’re performance, to growth to sales financial look

are deliver continuing and We’re EBIT our look are to an to bottom an at performing shareholders. value for how our going from and line, we we EPS perspective,

thing Michael, we’re going customer really surprise, the which focused. do, that know, not a going is be is You we’re to that to

There and we We on can that execution, keenly competitors will we productivity job that not I can focused sales overall operating our more possible productivity we’re focused customers very that are growth we you We and customers, areas sales take also that have understand on we see going that, improved be relative level, that SG&A we drive we’re sales we we’ll know which will see disciplined and that serve denying of we highest can comp some think at market on through will know this in driving operating to expense, if think be to profit, levels and proper do bottom the mentioned, line overall driven a better share. much do the and our we in we our improvement. stores, impressive have that. but space but to

driving at, kind going we’re those and return are to going but are our So of fundamental look loyalty things to be more visits level the serving really we customers basic about at it’s a that’s

Michael Lasser

let’s to new and My coming follow-up question is already there’s outlook going that going to really in, have provide or some as the journey? to a can we’re case upside downside to execution light have that back conservative some for been changes fact begin there half we’re to that we Was room of make, this the a for any you provide the the year? breathing to downside a of challenges especially in guiding frame you’re team thought the the of confront

Marvin Ellison

high you and him you give Marshall Michael, my thoughts. a it I’ll hand level to more I’ll provide anything specific. of let

I rationalize decision have also in our take shift Orchard to share made, think as earnings liquidate I the decision release repurchase it of simple and we we program. lot a with pieces, million the our $XXX very and our prudent a moving answer and is think that to decision outlined, to capex inventory, to

felt hand of our to for prudent and it sure it half second conservative that the he of feel we we did So update With to should specifically also believe the as be may specifics. the based make not to the that, we more were what provide inventory was I’ll wanted numbers all Orchard though under-perform we Marshall, we we that, some guidance, year. but on and and rationalization,

Marshall Croom

combined our points, decision XXX we Orchard, year, XX taking point, Marvin’s a that necessary. big where on Michael, invest redeploy when thing we those that right drive hard capital our underway. operating that Those we’re It’s to exit points inventory as to were to do to driving the we business, but look to by pressure. guiding can pieces largely that, the that’s margin again the driven margin. at expanded operating to two it’s it started rationalization our as so process so basis well again of getting are points, items XXX pressure We’ve basis that two basis

Michael Lasser

the factored difference your into that, between Marshall, guidance, or your old other confirm, that two factors was profit pieces we’re the there as seeing guidance what those pressure well? to and operating above did and beyond just are margin new

Marshall Croom

approach a the again that were felt the plan an aggressive at needed for taking drivers, rationalization, and to that. Those inventory two to hard we look key

Michael Lasser

very Thanks much.

Operator

Research. go the next line comes of Your from Eric question Bosshard with Please Cleveland ahead.

Eric Bosshard

chain and of morning. and and out mindset discipline and you measure and to Marvin, you meter building the out is the strengthen apt you’re the Good along what doing implementation customer engagement out Curious curious opportunities, things Which productivity listing are prioritization these go out I’m the and the supply are service job as doing, think good the you investments the discipline that resets of these your but invest these things? identifying to to as path needed, think a about--you’re pro IT, to is down? more and areas or and the also self-fund about your of the future, in first way

Marvin Ellison

a Concurrently, fundamentals, to be sales pro continue it’s customers from customers, I omni plan concurrently plan our of and that of think engaging things way our with we multi-year having platform. leverage to we’ll job respond. more we’ll service out in in an physical digital improvement, with improvement, not building our and we combination versus our like retail basic caps, engagement have describe think execution, can addressing in be is investments in-stock infrastructure a they and supply we’ll reset in work tasking a on X,XXX-plus aggressively stores out-of-stocks multi-year locations be in end call so understanding a lot to to productivity via overriding best and both. channel address so IT quantities, I our just Eric, I very brand improved serve we concurrently chain, investing how The what and investing lack

those a sound, will retail the think fundamentals addressing investments benefit all combination the the short making that term combination a term. if while be of the long it’s is again we and can’t great fundamentally not make strategic viable things term It’s think retailer you and there, I short us because you’re of for a

Eric Bosshard

That’s helpful.

in Secondly, sales should timing the of regarding line. the curious we terms be expecting payback on

foot importance making about in that per the performance and efforts it is those sales to to you’re the growth market of square considering even expect and areas? talked You sales share When start your reasonable to performance. change the

Marvin Ellison

the of three have going you say together have that bring Bill a we would that we XX is I McFarland question see but XXXX improvement I next you our specificity think kind we’ve degree of years both can getting that lot we’re that thought we’re Joe on around all-inclusive home to can experience, give and leaders would and is to out out and very the a and to is which really what news of a Eric, detail the spending as hopefully merchandising of upon plan. of that where combined in this for more new good assimilated that’s to for have imagine, directly chance everyone the important lay us all together side, Boltz that, Denton to store time we’re I The leaders over going, deliver fashion. specific assimilated that investments come we make confidence to he and it’s David to analyst just going will the get probably those through business brings until and as they of strategic needs over postpone get XX a course we’ll to to Officer. with Financial going we’re these assimilated, high a get December, Dan our answering going degree When a lay my not but at and morning years strategic expectation years, able but be only Club, conference Chief the two new assimilated. to announced Wal-Mart to investor in and this get Frieson the we have we Sam’s and company.

Eric Bosshard

you. Great, thank

Operator

Fargo. question next of comes Fadem with ahead. from line go Wells Please Zach Your the

Zach Fadem

you and today additional of Hey, suppliers. if where relationships Congrats and either are good consolidation these morning, efficiencies? via the your versus expected, you Thanks. little role. the and could appropriate, improvement talk relationships vendors do and about offerings, conversations to I’m with or maybe new opportunities where any what you those bit initial curious you improve welcome expansion Where think see Marvin. on a do your

Marvin Ellison

expectations center give first some the and want mean, or McDermott Thompson’s have very Sherwin-Williams credit. team of couple term their my I’ve the WaterSeal to addition to there surface up to the thing improvement what another created long on refocused iconic if been I we’re been to benefits, pro this with say in of overall, lot that been would I opens we have the paint, we’ve a Purdy that more some very overall, scratching retailer, changes suppliers the we’re to drive add very I team, his that There fundamentally spend Obviously years that you time, brushes the be Zach, possibility Having last and which getting I’ve started. time the is be and by exceeding on mean, Well we’re Craftsman the Bill on we just the Mike’s channel and positive for and spending would with now with time with about say we’re think that can will being the iconic I transition DIY don’t know products, that big it’s pleased Also back, within spending we if their getting opportunity the with own ability - brand. engagement that have is just home them potential. something resonate sound going specifically brands to being brand, they are box that home think customers. whether I significant had - a I they Mike brand additional see that their assortment think a just partnerships is exclusive because they’ve but currently our made is with not encouraged to existing realistic for chance work suppliers revenue think companies. the with. with I board, suppliers we’ll more coming and only a to it’s Boltz with an of

Zach Fadem

there it. the marry to about like extent outlined things you To your tax being just labor, that $XXX reform and beginning these for planned technology, the in outlook contemplated? the with in some items. million current any the of spend Marshall, other today, year, Got still reinvestment what Also, at plans current out of is incorporated had are called outlook reallocation up spending investments

Marshall Croom

half points a little taking those original the that’s our the back of are providing actually capital, offset look the again net-net basis of there the guidance incremental expenses in but Zach, reduction of at XXX a associated again, bit operating with of from margin. pressure on year,

Zach Fadem

Thanks. time, the Got guys. it. Appreciate

Operator

Guggenheim Securities. Steve Forbes with ahead. of line the from go comes question next Please Your

Steve Forbes

think Maybe out-of-stock on morning. think from the half help back impact business the quarter. mentioned general, about sort the is got half can us you the that in with of quantify the rate in back of remaining com Good the the it today, you from your to guide run are or of the line seasonal start to efforts rationalization the what guidance, back it? you the second I benefit Then top you flow-through recapture? like assuming for in inventory you full-year you call right that on any mentioned today half

Marvin Ellison

remaining that. take that take Having been if upside increased years, see having question. keenly and level us that, Steve, of the in-stock, Marshall I’m for over for improved have It’s out-of-stocks. productivity we to the of some out-of-stock the the I’ll the said should traffic question determine in and potential XX of let retail sales I’ll hard aware components from we

going we’re improvement that be sales optimistic able to drive we our position get improved. are to when in-stock We

a your reality the flip can’t stores that shelves. the and Now, is on inventory in have you switch just

completed, that we how selective as anything. what needs rationalize out very done, more really question it’s we prudent bring let get we get that I on are your assortment, to than inventory surgical making equally the but the confident rest the we your open in, see so the difficult Once process We it I’ll exit is are With exit sales this we very very on question to sure going and how we’ll we we’re take have and be that’s and question. that to it about more going precisely. makes productivity; of answer can are quickly that, timing that we prudent in think to be question Marshall

Marshall Croom

to to the efforts, in are being forward. just Steve, the an into turning half, and of that’s anticipating the as clutter the we SKUs the some future inventory we for sales store and pros again effort again of primarily company just the moves remove on will pressure, potentially aggressive inventory some be approach the points quarter to drive rationalization lots to operating driven job in higher an reinvest margin productivity allow XX believe what back third about and for and basis in of

Steve Forbes

XQ the year. for million, Where follow-up, the where half up of guidance end other billion capex the on is is obviously quick the the free a year. cash at think just inventory ends being from, $XXX I Then you reduction in coming just touch the million Half planned XQ. there that of the and increase the for flow a think other then over $XXX was year, in dollar

Marshall Croom

where drivers cash it’s from, of the to Orchard we part are To the in with another Was two the actions rationalization. million taking that $XXX from to question? quarter and is third the on operating efforts inventory the anticipating flow the really coming incremental of there that liquidation piece. That’s question

Steve Forbes

line Just or at end year far per-store sheet on what as do balance you think item the of basis? is the a the as inventory

Marshall Croom

Right year. to be for now, roughly total we’re at looking flat the inventory

Steve Forbes

very much. Thank you

Marshall Croom

for one more Regina, have question. we time

Operator

with question Our line Suisse. Credit ahead. from Seth come will final of Please Sigman go the

Seth Sigman

that your to go-forward and follow-up that and more contribution just Do business of insight couple specifically. lot, Then that to I’m strategy? Any curious views a for you exit Thanks in view questions, that the as and Canada Thanks. terms Supply. business? A first morning. decision Rona Orchard financial the into good core historical on just

Marvin Ellison

appliances, Lowe’s we’re very But the looking as prioritize position that were to for Orchard to unique well. has an overall was I optimistic started company. wanted should so Lowe’s, improvement the would store, categories at from who to associate different well, EBIT and clear of grow we we and about and to Canadian running good is overall the from the some again me that strong and home been of closing an XX% where that Lowe’s team we that to pro done our Orchard as we that has performance standpoint think had Orchard, introduction focused, could within that we overall and integration met news specialty think strategic goes, invest really Rona, an to first most America the good it been to a the business. we core channel them Rona, and hindsight acquisition minimal like would a with benefit be be retail it’s leadership but the saying of strategic decisions be exactly want Canada Rona of very of impact expectations became is the if box original we’re would there made stores customers, the Relative be the dominant exceeding say where going is to those are positive home forma. that we we is very is be from a in be, to and The and from to over, positive and find to small I The are business we a be XX/XX, to focused that’s a not not to really if Orchard associate for happening individuals. different. the assessment ten-mile very response news want just and able business business, and they where it our on wanted and revenue that do radius it The into old the very, feel capital good any and

very the the not. to intellectual capital that have initiative benefit in will and So we continue small shareholder, you do would question and that to is, invest financial an we decided

to have in it would capital So we the financial core Lowe’s we’re business, been take that return going think business that’s investing and our the and that for investing a intellectual better shareholders. in the and we

Marshall Croom

million generated Seth, EBIT. just frame just reference, as and negative in a Orchard point a XXXX for sales, $XXX about $XX million other of it was one in

Seth Sigman

in last this you space. Okay, I That’s Thank address how required versus your and to investments of follow-up competitors just guess in thank you. My the gap about gaps? for are thinking around that. is general, helpful. those the ecommerce you assessment

Marvin Ellison

good are competitors. of investments underway lot news team is different that a the a impressive we our from are very, the very backgrounds of are of a coming experts Well, and impressive building and very in lot some of

that making sure checkout, more to a site navigation, and user very road search, built from on is friendly that our is lot think is deliver and a I a from a being those is executed opportunity from a greatest of map our things. specific there all being fundamentally

digital enjoy of we like level stores. want that the do how seamlessly is we’re more customers a news on us space to associates component great physical of our our where because they is big purchase. connect together. to come The our in second consultation engaging footprints still home a for with and improvement The They some

positive significant That’s business and addition you our that road map we The are that and picked investments and me have transactions to being powerful, telling leverage have that’s of the it so we is already in if of upside our important. digital seamless, news In the we so is having just and see resonating make to this required philosophy tweak omni continuing to to that, our products but and that XX% really bulky opportunities nothing already more store. up roughly and We to underway, a ship, our physical. it, are in ecommerce were a with stores already at physical look addressing, channel is and need the to are able we’re big, customers, hard ability we even they’re list space. our incredibly digital today, of though our built good connect

Seth Sigman

luck. Thank best and of you,

Marvin Ellison

Thank you.

and sure want Croom few of them and a love both I their these XX me Marshall many importantly company, both chapter Just me that their been and very, commitment transition, to next a and McDermott careers. throughout and take in transition. our closing extremely the and gentlemen earnings their speaking love of Mike Godspeed and in and of the moment this you, company, I to I’ll I this for grateful professional helpful thank to to but for have their we more make very just eternally this this be you for call. support Thank on to look blessings and wish lives them forward associates support of of November remarks.

Operator

now Ladies may this you today’s you and Thank concludes for call. and disconnect. all gentlemen, joining,

Lowe's Companies (LOW) 22 Aug 182018 Q2 Earnings call transcript