Q2 2020 Lowe's Companies Inc Earnings Call

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Good morning, everyone and welcome to low company second quarter 2020, earning conference call.

My name is Michelle and I'll be your operator for today's call.

As a reminder, this conference is being recorded.

Ill now turn the call over Ticky Perlman, Vice President of Investor Relations. Thank you you may begin. Thank you and good morning, everyone here with me today, our Marvin Ellison, our President and Chief Executive Officer, Bill, both our executive Vice President merchandising, Joe Mcfarland, Our executive Vice President stores, and Dave Denton, Our executive Vice President and Chief.

Financial Officer.

We'd like to remind you that our notice regarding forward looking statements is included in our press release. This morning, which can be found on load Investor Relations website. During this call we will be making comments that are forward looking including our expectations for fiscal Twentytwenty actual results may differ materially from those expressed or implied as a result of various risks uncertainties and important factors.

Including those discussed in the risk factors Mdna and other sections of our annual report on form 10-K, and our other SEC filings.

Additionally, we will be discussing certain non-GAAP financial measures a reconciliation of these items to U.S. GAAP can be found in this mornings press release and on our Investor Relations website with that ill turn the call over to Marvin.

Good morning, everyone I like to start out by thanking our associates for their tremendous actions to support our customers on communities across both of US in Canada. We are grateful for their hard work and ongoing commitment to safety. What our question. This has been the most challenging personal and business environment did any of us of operator.

Throughout all the uncertainty that we face in the second quarter. We never lost focus there are number one priority as a company this protecting the health and wellbeing of our associates and customers the same store environment and shopping experience.

In the second quarter, we continue to prioritize the financial support of our associates on community, while providing the customers with the product and services they need to manage and carefully our homes.

We're pleased in humble that we were first chores for many customers who needed home improvement items for businesses on homes doing is unprecedented Tom.

And I would like to thank those costs from Suntrust.

And for Rediscovering lows.

More specifically during the second quarter, we invested an incremental $460 million and support for frontline associates communities and store safety.

Due to first half of 2020, the company has invested $560 million, an incremental financial support for our associates.

And recognizing that helping people make their homes better extends into our neighborhood communities in country, we've committed $55 million and grants to support minority owned and rule small businesses.

In total doing the cobot 19 pandemic, we've committed $100 million that assistance to those in our community who needed most.

Our financial results this quarter demonstrate that we've experienced unprecedented demand and many of our business categories due to customer spending more time going home doing to covert 19 pandemic.

However, these results could not have been realized without our efforts over the past 18 months to implement our retail fundamental strategy.

Which dramatically improved and modernize our business infrastructure.

These modernization efforts have created technology and operational platforms to meet customer demand and grow our business during these challenging times.

In some of these initiatives include powering home improvement in retail subject matter experts in key leadership roles, which has allowed us to quickly make informed decisions and implement necessary changes during the corporate 19 crisis.

Replatforming lows outcome from a decade old infrastructure to the cloud and developing a top rated mobile out this allowed us to grow online sales triple digits.

Customer centric labor scheduling system, they gave stores to flexibility to align payroll with a unique needs of the customer Andy associate.

Deploying a new price management system to provide our merchants with better data to maintain cost discipline and take more strategic approach to pricing and promotions.

Enhanced pro product and service offerings combined with the new pro loyalty platform that helps us keep holds working an office in a meaningful rewards, while providing us with better customer insights.

And our fuel merchants and merchandise service teams, who play in the central role in helping our stores quickly reconfigured to support social discussing and also respond to the significant increase in demand.

While we still have work to do we're pleased with the progress we've made thus far to modernize our company and we're looking forward to building on this momentum in the back half of 2020 and for years to calm.

Now, let me turn to our second quarter results, we delivered strong sales growth beyond our expectations. We're told company comp sales growing 34.2% over the prior year diluted earnings per share grew 75% to $3.74.

Our us on the Premier comps was 35.1% due to robust project demand from DIY and pro customers that was broad based across channel product categories and geographies.

Overall, we saw sharp acceleration from Q1 demand trends, including significant increases in a number of new pro and DIY and millennial customers.

DIY comps outpace pro comps in the quarter driven by our consumer mindset. There was heavily focused on the home and wallet share shifts away from other activities like dining out vacations and purchasing apparel.

Pro sales were also strong would comps in the mid twentys with demand accelerating in may and remaining strong throughout the quarter.

Our pro performance was supported by the progress we've made would retail fundamentals like job lot quantities and improved service levels.

From a geographic perspective growth was balanced across the U.S store footprint would positive comps of 30% or more in all 15 geographic regions in all three of us divisions.

Importantly, we saw strong sales trends in urban areas in fact comp sales in our urban markets outperform remote or rural markets by over 500 basis points.

This is an important data point because it reflects the success of our business model in all geographic settings, as well as the importance of having a strong pro business as well as an effective omnichannel strategy to compete and urban settings.

Our low stock comp sales grew 135% as pro and DIY customers increasingly shopped online driving online penetration to 8% of sales.

And as I mentioned earlier.

We completed to re platform of lows dotcom to the cloud during the quarter.

This enable us to improve site functionality and sustained triple digit growth without any systems interruptions.

Im very pleased with the work of our CIO some monthly globally and her team to complete this replatforming effort in record time.

And in Canada, we posted positive comps with exceeded 20% driven by similar consumer focus on the home as well as strong execution by our new leadership team.

While we're pleased with their efforts to serve the incremental demand this quarter. Our Canadian team remains focused on the work ahead to improve operating efficiency, while driving sales.

Looking ahead, we are confident it will continue to bill on the momentum that we delivered in the first half.

And then the second half of this year, we're reinvesting into business to elevate our product simplify our store environment and improve our service offerings.

These investments will include store resets to improve product Adjacencies Bay productivity and sales per square feet.

We're also advancing our supply chain infrastructure, what our recent announcement the will opened 50 cross dock delivery terminals seven bulk distribution centers and for ecommerce fulfillment centers over the next 18 months.

Our investments in our stores and investments in our supply chain evolution reinforces our commitment to becoming a world class Omnichannel retailer.

We're making the right investments to drive long term sales growth operating profitability and sustainable shareholder returns.

In closing I'd like to reiterate how incredibly proud I am of our sources and their dedication to supporting customers in our communities. During this time when they need us most and with that I'll turn call over to Joe.

Thanks, Marvin and good morning, everyone over the past 18 months, we've been steadily improving our store operating efficiency and customer service and we remain laser focused on supporting a safe store environment data driven approach based on an analysis of store traffic trends across our portfolio.

As I previously indicated we implemented numerous safety standards in the first quarter in support of social distancing and enhance sanitizing and cleaning we executed these standards in a consistent uniform manner across our stores in the U.S and Canada to protect the health and safety of our team members in the communities we serve.

These standards included removing product to free up space for our customer, adding signage and floor markings, and adding social distancing ambassadors and leveraging technology to monitor store traffic, which helped store managers limit customers based on footprint in line with regulatory requirements.

In the second quarter, we added further safety measures by requiring all frontline associates to wear masks beginning in early may and by adopting a nationwide standard for all customers to wear masks in mid July and supported the standards, we are providing free masks for customers who need them.

And our customers appreciation for these efforts was evident in a significant increase in our brand reputation and engagement scores as we shifted our marketing away from promotional messaging and instead focused on our commitment to our communities.

Im also pleased that we delivered strong customer service for both pro and DIY customers in the second quarter, while maintaining rigorous safety requirements and driving 35% US sales comps. This is a testament to the outstanding work of our frontline associates and our commitment to our customers and communities.

The health and safety Barr associates and customers has always been and will remain our highest priority.

Our strong results this quarter would not have been possible without the extraordinary efforts of our frontline associates and we continue to recognize these efforts with incremental financial assistance, we announced two bonuses for July and August which totaled $230 million full time associates are receiving $300 and.

Part time and seasonal associates are receiving $150 in each payout in fact, each payout was grossed up for taxes. So the company covered the incremental taxes as well.

Combined with the support provided earlier in the year, we have now invested $560 million in cobot related financial support for our frontline Associates and in addition, im really pleased to announce that 100% of our stores earned a record winning together profit sharing bonus this quarter totaling $107 million.

Based on better than expected store performance. This represents an incremental $35 million payout to our front line associates above the target payment level.

And we supported our communities by hiring over 100000 associates for the spring.

We're converting these seasonal associates to permanent positions at a much higher rate than in past years, which will help us meat strong demand that we're continuing to see across our stores. In addition to each of these associates receive telemedicine benefits for themselves and their families. Even if they were not enrolled in lows benefits program.

I'd like to now spent a few moments discussing our initiatives in support of our pro customer.

When the pandemic hit we recognize that we needed to step up our efforts to keep pros working.

On June Onest, we launched job site for pros in partnership with stream.

This is a free augmented video chat service that allows pros to conduct virtual home visits with their clients without entering their homes, which opens up their job opportunities.

This is just another example of how we're innovating to leapfrog the competition.

And to further support their job pipeline, we recently announced a partnership with home advisor for our per loyalty customers. These customers will receive a free one year subscription to home advisor and a credit for an average of 10 free job leads as well as access to Webinars hosted by industry experts on how to grow their business.

Our pro customers know that we got there back and are committed to help keep them working particularly in these uncertain times.

And today, we are thrilled to announce a significant step in the expansion of our product and services offering for the pro we are beginning a multiyear national rollout of lows tool rental program with the Grand opening of our first location at our Central Charlotte store next week.

As over 70% of pros are currently utilizing tool rental programs. This will provide a meaningful opportunity for Louis to deepen our relationship with this customer segment.

After a successful pilot we are launching this program nationwide with a broad product assortment a fully equipped mechanic shop, a large store footprint and importantly, intuitive customer facing technology that creates a vast frictionless process for this time press customer I look forward to updating you on our progress again.

Against this important initiative on future calls.

Turning to our services business installed sales delivered positive comps in Q2 with results improving as we move to the quarter as customers began to feel more comfortable allowing contractors back in their homes and from a store technology perspective. We've also completed the rollout of our intuitive touch screen point of sale system at checkout.

All stores this new interface dramatically reduces associate training time as compared to the cumbersome green screens and multiple interfaces that they were previously using and also improves the customer experience through a shorter checkout process.

We also completed the launch of mobile printing across our store portfolio and installed digital signs in our appliance department.

These initiatives reflect our ongoing efforts to modernize our store environment, while giving our store associates more time and the aisles to serve our customers and move this further towards our goal of allocating 60% of their time to customer service and 40% to completing tasks in closing I'd like to reiterate my appreciation for our frontline associates.

And our continued hard work and commitment to safety and serving customers. Thank you and I will now turn the call over to Bell.

Thanks, Joe and good morning, everyone as Martin mentioned, we posted us home improvement comparable sales growth of 35.1% in the second quarter, driven by broad based outperformance across DIY and pro customers as well as indoor and outdoor product categories.

We delivered indoor comps of 30% driven by strength in indoor categories, such as decor in lighting.

We delivered strong growth across all merchandising departments in fact, all 15 merchandising departments generated positive comps exceeding 20%.

As customers continue to spend more time at home. This quarter, we saw an acceleration in both indoor and outdoor project activity, including core repair and maintenance along with projects to re purpose home space for work in study as well as discretionary indoor and outdoor projects to increased customers enjoyment of their homes.

We also continued to see robust coated related demand for essential cleaning products along with other homes assessing these such as appliances.

During the quarter, we posted comps over 30% in core project categories, such as lumber tools and paint driven largely by extensive indoor and outdoor project activity from both the DIY and pro customer.

Importantly, we saw significant improvement in installation heavy categories, such as flooring, millwork and kitchen and Bath.

In paint we continued to drive strong sales of both interior and exterior paint and stains as well as applicators as our brand offering in service model positioned us to serve increased project demand with our paint products being key components of many home improvement projects.

Lumber benefited from strong unit demand from both pro and DIY customers as well as our investments in job large quantities.

And in tools, we saw strength across all segments of power tools, along with the growth in tool storage and mechanics tools driven by the Craftsman brand as customers took to doing projects at home.

Our lawn and garden and seasonal an outdoor living teams also delivered comps above company average this quarter driven by seasonal demand and customers focused on enjoying their outdoor space.

Our strong execution and powerful brand assortment allowed us to meet the elevated demand.

With brands, such as Weber and Char Broil, the top two brands in outdoor grilling and an outstanding outdoor power equipment lineup, featuring John Deere Craftsman Husqvarna Honda in the Aarons brands.

And today I'm, particularly excited that we're building on our industry, leading portfolio of outdoor power brands with ego, which is the number one brand in battery powered outdoor power equipment.

Flows is already the number one destination and outdoor power equipment and the addition of the Eagle brand to our Arsenal now only reinforces that leading position.

Beginning in December of 2020 lows will be the exclusive nationwide home center to offer egos innovative battery powered mowers trimmers chainsaws and blowers.

In addition, lows will begin offering select skilled battery powered outdoor power equipment in late 2020, which includes mowers leaf blowers and trimmers.

The addition of the Eagle brand furthers, our commitment to expanding our assortment of sustainable products egos battery powered equipment is capable of matching or exceeding the performance of conventional gas items, which supports our corporate sustainability efforts.

In hardware, we continued to expand our pro brand offering with the national launch of Simpson strong tie framing hardware and fasteners this quarter in conjunction with adjust for pros customer acquisition event.

This product offering meets a critical need for the pro in building out their projects. So we're now able to further extend our relationship with the pro customer by helping them fulfill all their hardware needs in one place.

And as Martin mentioned, we're pleased to see higher than expected online sales this quarter, along with a significant increase in downloads of our mobile app as well as improved customer ratings. We have also continue to enhance our omnichannel capabilities in the store with the launch of mobile check in for curbside pickup that occurred in early July.

This is also the customers can now let us know when they're on their way and when they have arrived at the store to pick up their order and we added an internal order picking app to improve our associates speed and accuracy in fulfilling these orders.

We're also focused on other extensions of our omnichannel capabilities with our transition of lows dot com to the cloud now fully complete the teams are working quickly to accelerate the front end work and deliver improved customer facing capabilities in the second half of this year.

Such as online delivery scheduling online order tracking a dynamic customized on page.

Simplified search and navigation and an expanded online product offering to further enhance the customer experience and to continue to grow sales.

As we look add to the second half of the year. We're excited to build on our retail fundamentals foundation consistent with our long term plans, we're continuing with our merchandising investment in our stores with resets to address our product adjacencies that make it easier for the customer to shop, all with a focus on the pro.

This work will be done throughout the back half of the year and we expect to touch the majority of our stores by the ended the fiscal year.

And as we plan for the holiday season, when customers are expected to stay closer to home. This year with a keen focus on home improvement projects, we are prepared and committed to serve their needs for fall preparation projects remodel activity space conversion projects holiday decorating and gifting, along with core repair and maintenance activity in.

In closing I'd be remiss, if I Didnt again express our appreciation for our vendor partners, who again went bub and beyond to help keep our shelf stock despite facing unprecedented demand in their own operational challenges related to covert 19.

Across building products home decor, and our Hardlines businesses. There are a number of standout performances again this quarter.

Thank you and I'll now turn the call over to Dave.

Thank you Bill and good morning, everyone. I'll begin this morning with a few comments on the company's liquidity position and our capital allocation priorities.

Last quarter, we decided to raise some incremental capital in light of the disruption in the global credit markets.

After issuing 4 billion and senior notes in increasing the capacity of our revolving credit facilities by nearly $800 million. We now have a $11.6 billion of cash and cash equivalents on the balance sheet.

Additionally, we have $3 billion, an undrawn capacity on our revolving credit facilities.

So in total we have an immediate access to $14.6 billion in funds and remain confident that we have ample liquidity to navigate any unforeseen circumstances.

At the end of our Q2, our adjusted debt to EBITDA ratio stands at 2.4 times.

During the quarter the company generated $11 billion and free cash flow driven by exceptionally strong operating performance.

And the long term, we remain committed to delivering robust shareholder returns through our disciplined capital allocation program.

Consisting of three main pillars.

First is strategically investing in our business to drive outsized returns.

Second is supporting our 35% dividend payout target.

And finally, returning capital to our shareholders to value enhancing share repurchases.

However, as you know we have currently suspended share repurchases in light of the unprecedented environment created by the pandemic.

We continue to support our dividend program and returned $416 million to our shareholders by paying a dividend of 55 cents per share in the quarter.

And importantly, we are investing in growth initiatives to build on the momentum that we are seeing across our business.

In Q2 capital expenditures totaled $382 million.

We continued to prioritize investments in our omnichannel capabilities as our customers are shopping more online.

Now turning to the income statement.

In Q2, we generate GAAP diluted earnings per share of $3.74 compared to $2 in 14 cents last year and increased to 75%.

In the quarter, there was a very modest impact on operating income related to the previously announced Canadian restructuring.

Now my comments from this point Ford will include certain non-GAAP comparisons where applicable.

In Q2, we delivered adjusted diluted earnings per share of $3.75.

An increase of 74% compared to the prior year.

These results surpassed our expectations due to higher than expected sales gross margin rate and SG may leverage as well as our strong execution to meet robust customer demand.

Q2 sales were $27.3 billion, an increase of 34.2% our comparable basis versus the prior year.

This was driven by transaction growth of 22.6% and total average ticket growth up 11.6%.

As we saw strong repeat rates from new and existing customers.

US comp sales were up 35.1% in the quarter with truly broad based strength across all geographies and across both DIY and pro customers.

Lows dotcom sales growth remained robust increasing 135% in the quarter.

Given all of our previously announced investments in the product and service offerings for the pro we were particularly pleased to see mid 20% growth for the pro customer in Q2.

Our us monthly comps were strong throughout the quarter.

With 41.5% May 34.4% in June and 28.2% in July.

It's important to note that we delivered these strong comps despite significantly reducing promotions during the quarter.

Throughout the quarter, we saw strong cobot related demand driven by customers working on incremental projects and make their homes at safe and us functional as possible.

It's clear that homes to become multifunctional spaces for many families.

Placed for work for school and for residents.

We've also seen wallet share shift way from other forms of discretionary spending shifting into home repair and maintenance work.

Our sales also benefited from an excellent Ics execution and strong service levels across our stores in response to this unprecedented demand.

Of note sales trends remained strong in areas of the country, where cobot 19 had been resurging.

In August we've continued to see the strong broad based sales trend that we experienced in July with strength across both DIY and pro customers.

Today August us comp sales trends are materially consistent with july's performance levels.

Gross margin was 34.1% of sales in the second quarter, an increase of 197 basis points compared to second quarter of 19.

Gross margin rate improved 137 basis points, driven by benefits from our improved pricing and promotional strategies.

Favorable product mix also drove approximately 60 basis points of benefit.

SDMA was 18.4% of sales in Q2, and 90 basis point improvement over ally.

Company delivered a substantial improvement in operating leverage despite $430 million of cobot related expenses.

These investments included $260 million and financial assistance for our front line associates.

Approximately $75 million related to cleaning and other safety related programs.

And approximately $95 million in charitable contributions.

While $430 million of cobot related expenses negatively impacted SGN, a leverage by 157 basis points. This was more than offset by payroll leverage of 110 basis points related to higher sales volume and improved store operating efficiencies.

Advertising leverage of 35 basis points.

Employee insurance leverage of 40 basis points.

In occupancy leverage of 40 basis points.

Adjusted operating income margin increase 311 basis points to 14, and a half person sales.

Driven both by robust sales and improved operating efficiencies.

The effective tax rate of 24.4% was in line with our expectations and consistent with the prior year.

At $13.8 billion inventory was essentially flat compared to the prior year levels as the supply chain works to meet elevated customer demand throughout the quarter.

Now before I close let me address our 2020 business outlook.

As I indicated last quarter, we have suspended our guidance.

In this unprecedented operating environment.

We like many other companies have limited visibility into the future business trends, which result in an unusually wide range of potential outcomes for our financial performance.

Having said that I'd like to provide some perspective on the second half of the year.

First we expect that our topline growth will moderate somewhat from Q2 levels. Although demand is still expected to remain strong.

As consumers continue to invest in their homes.

Further we expect that our improved product offerings and customer service will allow us to retain new pro and DIY customers.

Now keep in mind that both the third and fourth quarters are typically smaller revenue quarters, given the natural demand patterns of the home improvement sector.

For the remainder of the year, we expect that promotional activity will increase modestly.

But will not return to the prior year levels.

We will also be lapping harder prior year comparisons as our sequential gross margin performance improved as we move through 2019.

As such we expect lower levels of gross margin expansion in the second half of 2020 relative to the second quarter.

Turning to expenses, we anticipate that we will incur cobot related operating expenses of approximately $70 million to $80 million per quarter to support safety and cleanliness in our stores.

And importantly, we're making significant investments in our business support the long term growth and enhanced returns.

These investments include merchandising resets and expansion of our supply chain infrastructure.

In the back half of this year. Many of these projects are weighted more heavily towards expense rather than capital.

Based on all of these factors, we anticipated that operating income margin flow through will moderate in the second half versus the first half.

We're still planning for approximately $1.6 billion in Capex for the year with a continued focus on omnichannel investments.

In closing we are operating in a robust sector with strong underlying demand trends, we are investing in our business to further our capabilities. So we can continue to disproportionately capitalize on these trends.

We have a strong balance sheet and we remain committed to a disciplined capital allocation program.

Which should lead to long term shareholder value creation.

So with that I. Thank you, we're now ready for questions.

Thank you we're now ready for questions.

Your question. Please press star one on your telephone keypad to withdraw your question. Please press star to in order to allow question from as many individuals possible. Please limit yourself to one question and one follow up our first question comes from the line of Chris Horvers JP Morgan. Please proceed with your question.

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Mr. However, it does your line on meal.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Thanks, Good morning, everyone and nice quarter.

And I apologize, there's still sound like the broken record question I wanted to ask about the 12% EBIT margin target realized.

An actual goal in terms of timing was was never given but that this environment, probably speeded up can you talk about 12% I think some of the math to get there in the near term or medium term would imply that sales continued to grow at a nice rate, but expenses actually get deleted or your productivity gets a lot better.

So can you talk about.

The real reality or the realistic nature of doing that in the next call. It 12 to 18 months. Thanks.

Chris This is Dave I think you're right. Obviously, we're very focused on delivery upon that 12% operating margin target and keep in mind that just a step function that's not the hand, but if we can do better than that over time. It's clear at this point in time, we're trending a bit ahead of that given just how our business is performing but having said that we sold a lot of.

Investments that were made easy to ensure that we can consistently deliver that 12% day in day out I think you heard US talk about this morning that we're investing in assortment and merchandising store environment immediately.

Important strategic investment in our online capabilities and technology platform as low as well as in our supply chain. If we continue to focus in those areas to make sure that we consistently deliver full really strong topline performance and gross margin at a reasonable rate leveraged guest.

A meaningful way so we can deliver that update target overtime.

And Dave is there.

Any different thought with regard to gross margin I know that right. It's benefiting in the near term.

From lack of promotion and you're expecting that level of promotion to to continue to rise.

To be a little bit less of a benefit going forward, but is there some level or is the calculus of getting to the 12% any different where gross margin ends up being a little bit better in that than you thought initially.

I don't know that if anything materially change there clearly know plenty Nike they had a bit of a step down in gross margin. Our objective in 2020 beyond was to get our margin rate back keep in mind that we are making investments in supply chain that will disproportionately dampened gross margin rate, but will allow us to lever SDMA more productively.

We're currently have some natural kind of geography shifts within the Pinedale Simeon.

Okay. Thanks take care.

Thank you.

Thank you. Our next question comes from the line of Michael Lasser with TV. Please proceed with your question.

Good morning, Thanks for taking my question Martin do you think theres been any structural shift.

I mean that this growth you're experiencing now won't just be a one shot deal that will be given back next year. When people go back to traveling and eating out said another way under what conditions do you think you can.

Positive next year when you lap all of this.

Yes, Mike I think it's a short question next year is difficult quality obvious Immaculate reasons, but we feel good about our business trends and look I don't want to minimize the impact of what we described as retail fundamental we've talked about.

Getting foundational things in place year lows for the last a month and theyre paying dividends getting dotcom on the cloud hiring and experienced team.

Home improvement of retail experts and key functional areas, new price management system steel marches focus on pro we all of these things matter and when we take about market share and we take about the sustainability of it.

Our data is pretty consistent that when customers sharklets install online they have a good experience they come back when customers shop worth in our stores, especially in this environment and they feel safe they come back.

We've done and analysis that suggests that are coordinating safety protocols in our stores are much less failure in the industry and Forbes ranked lows number six on our list relative today.

And our research tells us that when customer sharpened our environment specifically during this call overnight in crisis, and they feel safe and they feel well taking care of they come back and when you look at our first half results. It demonstrates a customer coming back over and over again and so we believe that have all the date within.

Our control if we can execute disease at a continual high level than the rest will take care of yourself.

Okay and my follow up question is of them need 20% growth that you experienced what portion of that came from new pros that Loews has it been regularly interacting with and where do you grab needs from and maybe somewhat unrelated Dave you mentioned that promotions are going to pick up at the back half of the year why would that.

Perspective, but we expected that in this environment, but we also noted that we had.

Reach performance in our urban areas and we think that was driven by our improved performance enpro as well as our Omnichannel and online performance, which you have to have in those urban markets. So I'll, let Joe just briefly cover a little bit about the pro segmentation that we have.

Thanks, Martin Thanks for the question, Mike our strong pro demand with comps in mid Twentys continues and we're truly around our investments that we've been making in both the product and the service offerings. So things like our job lot quantities are dedicated supervisors, our pro parking or loaded.

Others et cetera, et cetera that is we now move to the more strategic phase of our pro growth initiatives, but we're really excited about the progress, we're making things like our pro loyalty platform, that's integrated with CRM, keeping pros working through the partnerships.

Announced at home advisor.

Job site.

Really excited about to our announcement, a total rental and so as these pro customers continue coming back seeing new product additions like Simpson strong tie and so we feel very good about the future of our pro business and Michael as it relates to produce I'll ask be able to comment here a bit as well, but clearly.

We frankly in the back half of the year, we do think promotions will pick up just a little bit I don't think it'd be a material change, but I think it is important that we communicate really the value that we're offering to both consumers and approach with the breadth of offerings that we havent lows.

Because of that we'll see just a slight tick up but I don't think a material change from a promotional cadence perspective last yeah. Just at Michael just add on what they were saying I think everybody got to realize that the.

If centers and the holiday trim and treat programs were all committed four and bought prior to covert happening and so those were well in motion and on the way and those are things that we have to work our way through based on how that the consumer response to those programs I think it's also important to clarify that during the quarter and during the first half of this year, we were dramatically less.

Promotional.

All around building around our pricing and promo strategy that we've been working to put in place over the last 20 months, which which has been a focus on everyday values and being priced right everyday for our customer and so we're really pleased with the with the traction that we're making with the teams and I think as we look at the back half it's not like we're going.

To go from one side of the road to the other and just get back into the promotional game.

Thank you very much and good luck.

Thank you.

Thank you. Our next question comes from the line of Chuck Grom Gordon Haskett. Please proceed with your question.

Good morning, Great results.

Mark just what have you guys could just speak to the opportunity on the digital part now that you've completed the migration to the cloud I guess to start to size up the opportunity.

Are you guys in the back half and even at the next year.

Well, we think is significant I mean, we talk from the very beginning about the importance of modernizing our online business.

I just can't help would reiterate that just a year ago ruin a decade old platform in.

And we were slowing our growth because were disappointing customer so the ability for Somalia and her team to get this replatforming effort done in the second quarter is monumental flaws because it gives us a much agility and flexibility to build on that platform, we're not going to put.

Any numbers to check because I think in this environment, it's really difficult, but what we do know.

Is that it will be impossible for us to deliver handler box and commented in the second quarter without that replatforming effort, because our instability with such that.

Back in Black Friday of 2018, the volume we had crash the whole system, we've had volume that exceeded that the probably 90 straight days. So that tells you where we were in Britain, where we are I'll, let bill talk a little bit about some of the specific things coming online that we think we'll continue to build a business in an open.

Fill a whole new set of customers that will continue to rediscover low yeah. I think it's important to note that during the during the quarter. All 15 departments grew at or above double digit rates for dot com.

The migration to the cloud obviously allowed for speed allowed for us to be nimble, but we've got improved checkout navigation continuing to happen as we go through the back half we continue to work on separating freight from cost. If you remember our comments on this before this will help make sure that competitive pricing shows up online the way it needs to show up.

In line continue to enhance our curbside pickup working with chose team in store continuing to have improved our buying online pick up in store process to make it at that store picking faster and in my prepared remarks, I talked about the store picking app, that's all around designing for the associate to be able to handle the customer with.

With speed.

So we've got a lot efforts going in addition to adding skews in improving the content that we put out there and on comp on a on a daily and weekly basis. So Chuck we're not trying to avoid answering the specifics of the question. It's just really tough the forecast. We just noted we have a much better platform that we can we can take that demand and manage.

But as it comes our way.

Yep.

A couple of and then just taking a step back in over a long term sales per square foot target I believe was around $70 below that number pretty easily. This year. So this is kind of built off of Simeons question about margins, but thinking about it from a self productivity perspective install about a roughly $100 below your biggest pier. This one.

You guys just size up the opportunity of how much more productive on your stores can be around that would kind of lend support that you guys actually so bill the top two strong results in the next couple of years.

Chuck date here.

As we have a tremendous amount of opportunity here part part of what we're doing is investing in our infrastructure such that our bayes can become a lot more productive day to day out and you heard Joe speak about all the investments, we're making from a technology perspective within the store environment, such that we can really leverage the hours that we have in our stores to.

Put more of those dollars to work.

Customers and actually driving incurred increased sales and productivity as we move.

Volume through the box. So I think there is a big opportunity you'll see it continue to talk about and push on it and it actually even leveraging the omni channel environment will also help back because as we engage consumers both in the store and online it really helps us leverage those fixed costs across our platform. So Chuck This'll Marvin in August.

Just last points that we think about where the opportunity exists for us to increase also square foot versus historical and what was they talked about and bill discussed in his prepared comments regarding the work we're going to do in the second time to get our adjacent sees corrected and to go in and drive more they productivity.

Based on how we are merchandising a floor and also creating a more intuitive shopping experience. This sounds very basic but we all were surprised with the core adjacent to structure in our stores in how most stores don't even have planted grams in the system and so it's almost impossible.

The merchandise and to have a good replacement strategy. So that's number one number two.

You have three things that are going to drive productivity, an existing stores increased penetration pro and improve ecommerce and omnichannel infrastructure and a better install business and we negative comp and install business last year, we discussed dotcom to either.

We have detail and we've also talked a lot of our pro and so all of these investments are part of our strategy to hit those targets that you talked about and we think we're well on our way to making some progress.

Okay.

Thank you. Our next question comes your line of Scott Farrellys with RBC capital markets. Please proceed with your question.

Good morning, guys sketching early.

I think what are your big it bigger productivity unlocks a shifting sound that date large inventory categories like appliances out a distortion back into the fulfillment network can you help dance, where you are on that front end related to that are there any large productivity initiatives that.

You've maybe had to delay because at the expected sales surge. Thanks.

Hey, Scott I'll take this was Marvin so I'll take the second part first no red Lily delayed any large projects Dave mentioned it to the contrary, we've decided to push project up that drive productivity and also that impact improvement of our omnichannel strategy because.

We believe that were behind and candidly, we want to come out of this pull that 19 prices a better company that we were going into it and we think we're making progress in that area relative to supply chain and our transition of products like appliances out we're in the early stages of that.

Hi reiterated in my prepared comments that we are going to have an aggressive 18 months strategy to rollout.

Delivery cross dock and bulk distribution centers and also online fulfillment centers, our pilots have proven successful in getting appliances and bulk product out of our bank loans into more centralized local distribution for delivery and youre going to see if accelerate that into back half whether you're going into next.

Sure.

That's really helpful and can you just give us a quick update on where you are in terms out the.

Customer facing hours versus tasking. Thanks.

Yes, let me hand that agility to give you some specific yeah. Thanks, guys. So we add we've made significant progress. We're ahead of our 60 40 goal, we continue to to engineer out a tasking in the stores to improve customer service, we are well underway and ahead of our 60 40 wall. It's got last point to make.

Just giving credit to Joe's team and the IC team without some will be.

Advancements in technology like the new labor scheduling system I mean, we would be in a much different position as a company you're trying to serve the needs of the customer and the needs of the associates in this unique environment, but having a system that gives us ability to manage to the unique needs of both customers and associated.

Net system was put in place last year, it's created just an enormous benefit to our ability to not only serve customers with the drop productivity. So proud of the progress of joint operations team and we think will hit that target before what we committed to because it's just the right thing to do for our associates.

Also for shareholders.

Very helpful. Thank you.

Thank you. Our next question comes from the line even for Guggenheim Securities. Please proceed with your question.

Good morning, and David maybe the first one for you right just given the number of facilities being set up our next 18 months and you sort of mentioned the geography shifts.

In the prepared remarks, but can you help us better understand the penal implications I mean should we should we expect a net margin headwind headwind I guess, an incremental one given the pull forward here are there enough offsetting factors can neutralize the initiative as you roll it out.

Yes, Stephen just keep in mind that what we have done here is consistent with our long term plan could we were always in the mode of investing in the supply chain that we would drive incremental cost and dampen gross margin rate equivalent.

But would alleviate some estimate pressure in the stores and across our platform. So I think.

The the plan over the long term, it's consistent with that clearly when you make investments in the short term you have to stand up the facility in advance for them being at full productivity level. So there will be some near term headwinds and thats somewhat of the commentary you heard me speak about as you've thought about the back half of 2020 is really due to that fact.

Yes, I think as Steven This is Marbn did the home point I'll add is obviously this is part of our plan, but we also have things, we're implementing that will be offsets and I've talked about the price management system in the.

Continued maturation of the system gives bill and his team a lot more understanding to drive benefits relative to pricing and also having a more balanced promotional strategy. Some of the things that Joe is putting in the stores with productivity perspective, that's helping us to get that balanced payroll, which also drives operating income.

Improvements so there will be offsets yield to go along with the investments. We're making this is not really a pull forward. This is really a reminder, where we are in the process. So it keeps us on track, we're not getting off track and we're not going to create any downside scenarios that we didnt interest.

Okay.

And then and then just a quick follow up I guess I guess, Dave again, starting with you as you noted right the the expectation for.

I guess, a moderation writing topline growth as we head into the back half year, but any any context on.

How that pertains to both the DIY and pro customers there any sort of.

I guess dichotomy between the.

Two channels.

Customer segments.

Listen I don't think so listen I think we've seen really strong.

Growth in retention of both new and repeat customers in our channel both from a pro perspective in the DIY.

I think I think just just practically speaking, we're going into kind of the season, which.

Demand begin to moderate just from a natural progression perspective, and I think that's just what we're trying to call out. If you think about the back half year I think we're really nicely positioned from a merchandising.

Perspective, and from a labor perspective that we're going to really do well.

Off from a service perspective, and have the right product in stores and online to meet the demands these customers.

Thank you.

Operate represents question.

Thank you. Our next question comes from Seth Sigman with Credit Suisse. Please proceed with your question.

Thanks, a lot good morning, everybody given the strength over the last few months, we get a lot of questions about pull forward I guess as you look at the composition of sales through the second quarter and.

And then obviously early here in the third quarter are you seeing any change in the types of projects that consumers are working on anything that any helps give you confidence that demand through this period has been incremental versus pull forward. How are you guys thinking about that.

We do not see it as pull forward I think what we've tried to articulate is that this is a really unique environment.

Where most of those are forced to spend more time at home than we ever have in our lifetime.

And so those customers are finding projects around the how that have been on the list. They just heading the data chance to get to a more candidly. It just didn't notice them. So we don't see this as a pull forward. This was more of a incremental add in addition to that as I mentioned, we've been running a negative install business.

For the past couple of years and Bill Bolton as merchandising teams made big investments last year in updating our flooring showings on our stores and updating our kitchen showrooms.

We believe that those investments in the store has led to us improving our install business. This year along with the restructuring over filtering that Joe took on so the short answer is we don't really does this pull forward we see those incremental just based on the unique environment with and we also see as market share gain I mean is difficult for company our size.

As to grow sales by 35% comp without having some significant market share gain thats happening as well.

Right right. Okay. That's helpful. And then just a question on the regional consistency. It's helpful to get that color. It's obviously very good trend that's been so consistent throughout this period.

I'm just curious have you seen any change in comps or the composition of categories in markets, where koby cases have started to pick up.

No we have not I think actually.

Where cobot has picked up we see very strong demand in those markets seems to be pretty consistently really have not material change in that.

Okay, Great alright, Thanks, a lot guys. Thank you Michel will take one last question. Please.

Thank you. Our final question comes from the line of Mike Baker with D.A. Davidson. Please proceed with your question.

Thanks, So I wanted to follow up on DIY versus pro and I think some of your comments suggests that that DIY was maybe up posted a 40% in the quarter versus pro up 25%, but has that gap narrowed this quarter I think at one point. It was said that pro is up mid Twentys and.

You sort of implied that the whole companies up mid Twentys in August so that would imply that that gap has narrowed is that correct assumption.

We will say your assumption is correct on the ratio between pro and DIY relative to a composition change not so much mean this is a unique environment and most of 2019, our pro comps outperform the why the shift occurred.

Obviously, you're doing this coordinating prices where customers are spending more time at home and in some cases are still little apprehensive to allow contracted in their home. So we think those combination of factors is driving yield resurgence in D.R. why we happen.

To be more penetrated from the DLR perspective.

As a company.

Our pro business is growing but why has always been a strength and we think that we're benefiting from the current trends.

Okay makes sense, one more follow up on indoor versus outdoor so you gave us the indoor comp.

Could you just share with us the outdoor comp or percent of indoor versus outdoor and then we get back into the outdoor comp, but more importantly, how does that percentage change as we go through the back half of the or how much bigger does indoor gap relative to outdoor.

Well, what I will say as we give in play a competition information. So we're not going to give you any more specifics on ratio because we think we've given enough to provide you know contacting cola both going into the back half a year is the ships inside versus outside just due to weather and seasonality.

I'll, let bill talked a little bit about what our focus is on the inside into back half the cost or something that we've been working quite a bit on yeah. I think you know two could play off a marvin's comments you know as we shift to the fall business naturally shifts in dollar but in the southern parts of the country. There's still a lot of outdoor projects that get done as the weather.

Cool, but for the northern markets the pro moves inside the consumer moat moves inside flooring kitchens Bath those types of projects all about getting the holiday getting the home ready for the holidays is where the customers focused and then you have your natural fall businesses right. So fall businesses continue to play those are a little less.

Seasonal than the Springs spring timeframe and they're all really driven based on what mother nature brings so thats really what drives the backup.

Okay, one more for the which might be.

Helpful.

One if I could you talk a lot about call it where we've seen the covert spikes businesses remained strong I guess I'd be concerned about the opposite were coal that is sort of.

Calming down are we seeing people move away from the home.

I have not actually seen our business in those areas actually improve.

So in the last one on me we have 15 geographic regions. All 15 were 30% comp or higher I mean, that's a pretty unprecedented number and that that.

Yes illustrates the consistency of demand across rule urban and all types of geographies in the in the country and we think that is also consistent with really good execution.

The merchandising in stores team to drive the business as well as outstanding work from our store leases out there every day.

Doing incredible job for customers and communities.

Thank you.

Todays teleconference. You may disconnect your lines at this time. Thank you for your participation have a wonderful day.