Release Date: May 21, 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 first quarter sales of $21.4 billion, with better-than-expected spring seasonal sales.
- The company saw positive growth in Pro and online sales, reflecting the success of their total home strategy.
- Lowe's Companies Inc (LOW) launched a successful SpringFest campaign, which resonated well with customers, especially in smaller ticket lawn and garden projects.
- The introduction of new brands like Toro and the expansion of existing brands like Klein Tools have strengthened Lowe's Companies Inc (LOW)'s product portfolio.
- The company rolled out a new DIY loyalty program, MyLowe's Rewards, which has seen early positive customer adoption and engagement.
Negative Points
- Comparable sales were down 4.1% from the same period last year, indicating a decline in overall sales performance.
- There was continued pressure in DIY bigger ticket discretionary spending, impacting overall sales.
- Gross margin decreased by 49 basis points from last year, driven by ongoing supply chain investments and early spring traffic-driving promotions.
- SG&A expenses were up, driven by sales deleverage and the cycling of a favorable legal settlement.
- The outlook for lower mortgage rates and improved housing turnover remains uncertain, affecting the home improvement demand.
Q & A Highlights
Q: Could you help us understand some of the drivers behind the gross margin and how it should phase over the year?
A: Brandon J. Sink, EVP & CFO: We expect gross margins to be flat for the year, with improvements mainly from PPI initiatives in the back half. Headwinds include ongoing supply chain investments and spring promotions. Tailwinds include private brands and pricing initiatives. Vendor clawbacks are progressing, and we expect benefits from lower transportation costs and managing credit pressures.
Q: How would you disaggregate big ticket trends between remodeling-oriented categories and others like seasonal and appliances?
A: Brandon J. Sink, EVP & CFO: Big ticket categories continue to see pressure, particularly in DIY. Seasonal items like patio and grills, as well as appliances, are under pressure. Pro growth helps offset some of this. We expect average ticket to be roughly flat for the full year.
Q: Can you update us on the ROI of the front-end transformation and its impact on comps?
A: Joseph Michael McFarland, EVP of Stores: We are 1/3 of the way through the transformation and seeing benefits like higher sales, lower payroll costs, and improved customer experience. We won't specify the comp lift but are pleased with the progress.
Q: What are you expecting from the consumer in terms of engagement and conversion with the new promotional strategy in appliances?
A: William P. Boltz, EVP of Merchandising: Consumers are shifting from buying multiple pieces to single items, especially in the duress market. We are focusing on meeting this demand and driving unit share. Innovation in products is also driving consumer response.
Q: Are you seeing any signs of normalization in the home improvement market?
A: Brandon J. Sink, EVP & CFO: We need to see consumers reengage in discretionary bigger ticket projects. Currently, consumers remain on the sidelines due to monetary tightening and housing affordability challenges. We expect comp improvement in the second half due to easier year-over-year comparisons, not an improving macro environment.
Q: How are you balancing driving sales and market share versus sacrificing gross margin?
A: Marvin R. Ellison, President, CEO & Chairman: We focus on meeting the customer where they are, emphasizing value. We believe in winning the customer early in the season to drive multiple shopping occasions. We expect to recover any gross margin decrement in the back half of the year.
Q: What has been the lift from the DIY loyalty program, and what do you expect over the course of the year?
A: Marvin R. Ellison, President, CEO & Chairman: The program launched in March, focusing on enrollment and engagement. We aim to use data to serve customers better and drive additional trips. It's early, but we are pleased with the results.
Q: How should we think about the impact of the DIY loyalty program on the P&L longer term?
A: Brandon J. Sink, EVP & CFO: The goal is to create stickiness with DIY customers, driving repeat visits and spend. We target one more trip annually from DIY customers. The program builds on our 5% credit offer, which we believe is best-in-class.
Q: How are you planning your go-to-market strategy for the balance of the year?
A: William P. Boltz, EVP of Merchandising: The promotional environment remains stable. We will be seasonally relevant with events like Labor Day, Halloween, and holiday promotions. We aim to be relevant without making drastic changes.
Q: Are you seeing regional variability in performance, particularly in the West?
A: Joseph Michael McFarland, EVP of Stores: The West was our best-performing region in Q1. Pro performance was strong across all regions, while DIY big-ticket discretionary categories saw uniform pressure.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
