Q3 2021 Lowe's Companies Inc Earnings Call

November 17, 2021

We would like to provide greater transparency around our 2020 to expectations and is still uncertain operating environment. Marvin will speak to the key growth initiatives and our total home strategy, while Dave will outline our 2022 financial targets and priorities to assist with your modeling. After our prepared remarks, we will host a Q&A session. With that, I'll turn the call over to Marvin.

Marvin will speak to the key growth initiatives and our total home strategy, while Dave will outline our 2022 financial targets and priorities to assist with your modeling.

After our prepared remarks, we will host a Q&A session. With that, I'll turn the call over to Marvin.

Thank you Kate and good morning, everyone. Our momentum continued this quarter with comparable sales up 2.2% for the total company and 2.6% for the US on top of over 30% growth last year. This resulted in comp sales of 33% for the total company and 33.7% for the US on a two-year basis. These outstanding results were driven by disciplined execution of our total home strategy, which allowed us to grow our share of wallet with both pro and DIY customers as they gain confidence in Lowes as the right destination for all of their project needs.

Top of over 30% growth last year. This resulted in comp sales of 33% for the total company and 30.

Two 7% for the U S on a two year basis.

These outstanding results were driven by disciplined execution of our total home strategy, which allowed us to grow our share of wallet with both pro and DIY customers as they gain confidence and lows as the right destination for all of their project needs.

Our results also benefited from the great work by our merchants and supply chain teams, who delivered competitive in-stock positions as we leverage our scale and carrier relationships to build inventory in key high demand categories despite the widespread disruption in the global supply chain. Later in the call, Bill will discuss how we are navigating these unprecedented challenges in order to meet the continued strong demand for home improvement products.

Later in the call Bill.

33 graphs, how we are navigating these unprecedented challenges in order to meet the continued strong demand for home improvement products.

After labor day, we saw an increase in DIY demand on the weekends as travel activity slowed down and children returned to school. As a result, consumers will once again spend more time on projects in their homes. Our elevated product assortment across our home decor offerings are resonating with consumers, resulting in particularly strong performance in appliances and flooring, and contributing to an 11% increase in ticket over $500. The strength in a higher ticket category reflects the continued consumer confidence in their homes as a sound investment and reflects the early success of our total home strategy.

As a result consumers will.

Once again spending more time on projects in their homes.

Our elevated product assortment across our home decor offerings are resonating with consumers, resulting in particularly strong performance in appliances, and flooring and contributing to an 11% increase in ticket over $500.

<unk> is a strength and a higher ticket categories reflects the continued consumer confidence in their homes as a sound investment and reflects the early success of our total home strategy.

We're also making significant progress growing Pro sales. Pro once again outpaced DIY this quarter with Pro growth over 16% and over 43% on a two-year basis. Over the past two years, we have relentlessly focused on improving our Pro offering in our stores and online with better service levels deeper inventory quantities, a more intuitive store layout combined with an increased number of Pro national brands. As we continue to drive higher Pro growth, we will increase sales productivity and operating leverage across our stores.

With pro growth over 16% and over 43% on a two year basis.

Over the past two years, we have relentlessly focused on improving our pro offering in our stores and online with better service levels deeper inventory quantities, a more intuitive store layout combined with an increased number.

Pro National brands.

As we continue to drive higher pro growth, we will increase sales productivity and operating leverage across our stores.

Later in the call, Bill will discuss our continuing efforts to expand our Pro product offerings and then Joe will discuss how we continue to enhance our Pro shopping experience. For the past 18 months the home has increased importance for all of us and perhaps especially for baby boomer customers, who are increasingly interested in aging in place and their own homes.

Number of being experience.

For the past 18 months to home has increasing importance for all of us and perhaps especially for a baby boomer customers, who are increasingly interested in aging in place and their own homes.

This morning, we are delighted to announce the launch of our Lowes Livable home. Shadow and installation services and a unique collaboration with AARP. We will offer affordable entre and solutions like walk-in bathtub, grab bars, stairlifts, nonslip floors, pull-down cabinets and wheelchair ramps. These solutions will help our customers modify their homes to fit their lifestyle needs. Our collaboration with AARP will leverage their trusted brand and expertise as we help to educate our customers on how to approach aging in place. We look forward to updating you on this very exciting initiative on future calls.

Shadow and installation services and a unique collaboration with AARP.

We will offer affordable entre and solutions like walk in bathtub grab bars stair lifts nonslip floors pull down cabinets and wheelchair ramps. These.

These solutions will help our.

<unk> prime modified our homes to fit their lifestyle needs.

Our collaboration with AARP will leverage their trusted brand and expertise as we help to educate our customers on how to approach aging in place. We look forward to updating you on this very exciting initiative on future calls.

Now turning to Lowes.com. Sales grew 25% on top of 106% growth in the third quarter of 2020. Which represents a 9% sales penetration this quarter and a two year comp of 158%. As we modernize our omnichannel offering, we continue to gain traction with consumers, who increasingly expect a seamless integrated shopping experience. And as a further indication of the strides we've made in upgrading our dotcom platform, I am pleased to announce that we have recently launched Lowe's is one roof media network. Our recognition for the first time in 17 years as Fortune's most admired specialty retailer and our inclusion as one of the top three marketers as of the year and AD Age's annual list means that we are well-positioned to put our vendor partners at the forefront of the home lifestyle movement. Helping them to capitalize on the shift in consumer behavior and sentiment towards the home.

Sales grew 25% on top of 106% growth in the third quarter of 2020.

Which represents a 9% sales penetration this quarter and a two year comp of 158%.

As we modernize our omnichannel offering.

Continue to gain traction with consumers, who increasingly expect a seamless integrated shopping experience.

And as a further indication of the strides we've made in upgrading our dotcom platform I am pleased to announce that we have recently launched at Lowe's is one roof media network.

Our recognition for the first time in 17 years as Fortune's most admired specialty retailer.

And our inclusion as one of the top three market as of the year and AD Age's annual list means that we are well positioned to put our vendor partners at the forefront of the home lifestyle movement, helping.

Helping them to capital.

Lives on the shift in consumer behavior and sentiment towards the home.

We're excited to participate in this rapidly growing segment of digital advertising. During the quarter, operating margin expanded approximately 240 basis points, leading to a diluted earnings per share of $2.73. Which is a 38% increase as compared to adjusted diluted earnings per share in the prior year. Our improved operating performance continues to reflect a great execution of the team as well as the benefits of our new price management system and the success of our perpetual productivity improvement initiatives or PPI.

During the quarter operating margin expanded approximately 240 basis points, leading to a diluted earnings per share of $2 73.

Which is a 38% increase as compared to adjusted diluted earnings per share in the prior year.

Our improved operating performance continues to reflect a great execution of the team as well as the benefits of our new price management system and the success of our perpetual productivity improvement initiatives or.

Or PPR.

Dave and Joe will provide further details on both of these initiatives later in the call. Now turning to our results in Canada. While our performance lagged the US, as the Canadian business is more heavily weighted towards lumber. The Canadian leadership team remains focused on driving productivity by leveraging technology and processes that have already yielded strong results in the US. I'd now like to take a moment to discuss how we're expanding our fulfillment capabilities to meet the ever-increasing consumer demand for omnichannel shopping solutions.

Now turning to our results in Canada.

While our performance lagged the U S. As the Canadian business is more heavily weighted towards lumber.

The Canadian leadership team remains focused on driving productivity.

<unk> by leveraging technology and processes that have already yielded strong results in the U S.

I'd now like to take a moment to discuss how we're expanding our fulfillment capabilities to meet the ever increasing consumer demand for Omnichannel shopping solutions.

This quarter, we completed the conversion of our second geographic area, the Ohio Valley region to the market base delivery model for big and bulky product. Building on our success, we gain in Florida. As a reminder, in the market-based delivery model for big and bulky products floor from our supply chain directly to consumers' homes bypassing the stores altogether. Replaces the legacy store delivery model, which is highly inefficient and relies on each store to function as his own distribution node for these products. This new delivery model is already driving higher sales and appliances, improved operating margins, reduced inventory and higher on time delivery rates. We plan to complete the rollout across the entire US over the next 18 plus months.

Second geographic area, the Ohio Valley region to the market base delivery model for big and bulky product.

Building on our success, we gain in Florida.

As a reminder, in the market based delivery model for big and bulky products floor from our supply chain directly to consumers' homes bypassing the.

<unk> of our altogether.

Replaces the legacy store delivery model, which is highly inefficient and relies on each store to function as his own distribution node for these products.

This new delivery model is already driving higher sales and appliances improved operating margins reduced inventory.

Tori and higher on time delivery rates.

We plan to complete the rollout across the entire U S. Over the next 18 plus months.

Now, let's talk about the importance of culture at Lowe's. This year, we are celebrating our centennial with a $10 million investment in 100 communities across the country. With projects ranging from renovating homeless shelters, updating youth centers and addressing the unique needs for communities all around the country. You can go to Lowes.com to see a full list of all 100 community projects. This is our way of expressing our appreciation for our loyal customers and paying tribute to the company's long-standing commitment to community service.

This year, we are celebrating our centennial with a $10 million investment in a 100 communities across the country.

Stores with projects ranging from renovating homeless shelters updating you centers and addressing the unique needs for communities all around the country.

You can go to Lowes Dot Com is C. A full list of all 100 community projects.

This is our way of expressing our appreciation for our loyal customers and paying tribute.

<unk> company's long standing commitment to community service.

In addition to the commitment to the community at Lowe's, we are proud of our relationship with and support of our military veterans and active duty service members. This is demonstrated by the $1 billion in discounts that we give our military families and our country this year through our military discount program. Joe will discuss this program in more detail later in the call. Before I close, I would like to extend my appreciation for our frontline associates. Every week I am fortunate to travel across the country visiting stores and I'm impressed by our associates resilience and commitment to serving our customers and our communities. And I'm very pleased to announce that for the seventh consecutive quarter, 100% of our stores earn a winning together profit-sharing bonus. This $138 million payout to our frontline hourly associates is $70 million above the target payment level. And reflects our appreciation for the hard work of our hourly workforce. And with that, I will now turn the call over to Bill.

Families and our country this year through our military discount program.

Joe will discuss this program in more detail later in the call.

Before I close I would like to extend my appreciation for our frontline associates.

Every week I am fortunate to travel across the country visiting stores.

Due to the compressed by our associates resilience and commitment to serving our customers and our communities.

And I'm very pleased to announce that for the seventh consecutive quarter, 100% of our stores earn a winning together profit sharing bonus this $138 million payout to our frontline hourly.

Amin Ocs is $70 million above the target payment level and reflects our appreciation for the hard work of our hourly workforce.

And with that I will now turn the call over to Bill.

Thanks, Marvin and good morning, everyone. In the third quarter, US comparable sales increased 2.6%. And 33.7% on a two-year basis as our total home strategy continues to gain traction with our DIY and Pro customers. This quarter, we drove positive comps across our home decor and hard lines divisions. Comps in the building products divisions were down slightly as compared to the prior year. As we cycled over a period of extremely high DIY demand for lumber.

And 33, 7% on a two year basis as our total home strategy continues to gain traction with our DIY and pro customers.

This quarter, we drove positive comps across our home decor and hard lines divisions.

Comps in the building products divisions were down slightly as compared to the prior year as.

As we cycled over a period of extremely high DIY demand for lumber.

Growth continued to be broad-based on a two-year basis with all product categories up more than 17% in that timeframe. In our home decor division, appliances and flooring delivered standout performances as we leveraged our competitive in-stock positions and updated product assortments to deliver strong positive comps on top of 20% growth in these categories last year. Within appliances, sales of refrigerators, freezers, and washers and dryers were particularly strong. In flooring, vinyl flooring remains the top-performing category. Supported by innovative product like the wet protect from Purgo, which is exclusive to Lowe's.

In our home decor division appliances, and flooring delivered standout performances as we leveraged our competitive in stock positions.

<unk> and updated product assortments to deliver strong positive comps on top of 20% growth in these categories last year.

Within appliances sales of refrigerators, freezers, and washers and dryers were particularly strong.

In flooring vinyl flooring remains the top performing category.

Supported by innovative product like the wet protect from Purgo, which is exclusive to Lowe's.

And we are pleased to see the new product offerings, and our own Allen and Roth brand resonating with our customers like the new Allen and Roth lifestyle performance rugs. These drugs have the appearance of an indoor rug, but they are hose washable. Which makes them ideal for busy families with kids and pets. Turning to our performance in our hard lines division, customers also invested in outdoor entertainment and upgrading their outdoor living spaces as well as holiday decorations for their homes and yards, driving strong positive comps in seasonal and outdoor living and lawn and garden, resulting in two-year comps over 43% in each category.

Which makes them ideal for busy families with kids and pets.

Turning to our performance in our hard lines Division customers also invested in outdoor entertainment and upgrading their outdoor living spaces as well as holiday decorations for their homes and yards driving strong positive comps in seasonal and outdoor living and.

And lawn and garden, resulting in two year comps over 43% in each category.

We were also pleased with our performance in Halloween as we sold through much earlier than in previous years and our early sales of holiday trim and tree are tracking ahead as well. As consumers are getting a jumpstart on their holiday decorating. In addition to early sales of holiday, we have also seen customers purchasing cold-weather products like snow throwers earlier than in years past. With broader awareness of potential global supply chain disruptions, we are seeing many consumers looking to purchase products as soon as they are available in our stores.

In addition to early sales of holiday, we have also seen customers purchasing cold weather products like snow throwers earlier than in years past.

With broader awareness of potential global supply chain disruptions, we are seeing many consumers looking to purchase products as soon as they are available in our stores.

In the quarter, we also leveraged our number one position in outdoor power equipment to deliver over 20% growth in battery operated outdoor power equipment. Both our DIY and Pro customers are enjoying the zero-emission rechargeable products available in the ego cobalt craftsmen and skill brands. We continue to expand our brand and product assortment building on the powerful lineup of brands that include John Deere, Honda, Husqvarna, Aaron's and Craftsman. In building products, comps were down slightly due to a decline in DIY lumber sales, despite double-digit comps in electrical and strong positive comps in rough plumbing and building materials.

Our number one position in outdoor power equipment to deliver over 20% growth in battery operated outdoor power equipment.

Both our DIY and pro customers are enjoying the zero emission rechargeable products available in the ego cobalt craftsmen and skill brands.

We continue to expand our brand.

<unk> and product assortment building on the powerful lineup of brands that include John Deere, Honda Husqvarna, Aaron's and Craftsman.

In building products comps were down slightly due a decline in DIY lumber sales, despite double digit comps in electrical and strong positive comps in rough plumbing and building materials.

We feel good about the traction that we're gaining with the Pro customer as we continue to build out our product assortments that are tailored to their needs. This quarter, we completed the launch of the Spacs Fastener program in our stores. Spacs is the market leader in multi-material construction screws. We also continue to build out our probe power tool accessory program with new launches from Spyder into work. This quarter, Spyder will be launching their new tarantula circular saw blades offering seven new options to tackle a wider variety of tough construction jobs, all of which are exclusive to Lowe's. And the Walt will be launching their new elite series circular saw blades, which are designed to maximize productivity for heavy-duty projects and these will also be exclusive to Lowe's. These new products are strong additions to our program lineup, which includes great programs like Simpson, strong tie to Walt Metabo, Bosch, Spyder, GRK, facet master, TW [inaudible] and the recent additions of Flex, Spacs and Mansfield.

This quarter, we completed the launch of the Spacs Fastener program in our stores Spacs is the market leader in multi material construction screws.

We also continue to build out our probe.

Our tool accessory program with new launches from Spider into work.

This quarter Spider will be launching their new tarantula circular saw blades offering seven new options to tackle a wider variety of tough construction jobs, all of which are exclusive to Lowe's.

And the Walt will be launching their new elite series circular.

Probe saw blades, which are designed to maximize productivity for heavy duty projects and these will also be exclusive to Lowe's. These.

These new products are strong additions to our program lineup, which includes great programs like Simpson, strong tie to Walt Metabo, Bosch, Spyder, GRK, facet master, TW [inaudible] and the recent additions of Flex, Spacs and Mansfield.

Circulars ITW Lufkin Marshalltown S wing eaten shark bite and let's go and the recent additions of flex Spacs and Mansfield.

Now shifting to Lowes.com, we delivered sales growth of 25% in the quarter and 158% on a two-year basis. Following the launch of Loews virtual kitchen design and visual search in Q2, we enhanced our omnichannel customer experience with the introduction of our paint visualize her on Lowes.com in the third quarter. We are continually working to remove friction from the buying process and to fully integrate the online and in-store shopping experience.

Following.

Growing the launch of Loews virtual kitchen design and visual search in Q2, we enhanced our omnichannel customer experience with the introduction of our paint visualize her on lowes dot com in the third quarter.

We are continually working to remove friction from the buying process and to fully integrate the online and in store shopping experience.

Before I close, I'd like to discuss how we're navigating the unprecedented disruptions across the global supply chain that are impacting the retail industry. As one of the largest importers in the US, we are fortunate to be able to leverage our scale and carrier relationships to secure shipping and transportation capacity and work to minimize the impact of cost increases. We're also taking a very proactive approach by ordering inventory earlier than in years past, including our seasonal buys for both 2021 and 2022. This gives us more time to manage through any unforeseen delays in either the production or the distribution of our orders. Once the product lands in the US, we're able to leverage our growing network of coastal holding facilities. So that we can hold the product upstream from our regional distribution centers and bulk distribution centers until it's needed. From there we can quickly flow of the product to the right areas of the country.

As one of the largest importers in the U S. We are fortunate to be able to leverage our scale and carrier relationships to secure shipping and transportation capacity and work to minimize the impact.

Pact of cost increases.

We're also taking a very proactive approach by ordering inventory earlier than in years past, including our seasonal buys for both 2021 and 2022.

This gives us more time to manage through any unforeseen delays in either the production or the distribution of our orders once.

Plans in the U S. We're able to leverage our growing network of coastal holding facilities. So that we can hold the product upstream from our regional distribution centers and bulk distribution centers until it's needed from there we can quickly flow of the product to the right areas of the country.

Looking ahead, we are ready to flex our seasonal pads to a variety of different winter and early spring offerings after we sell through our trim a tree product. The investments that we made in the US stores reset last year expanded our operating capabilities and has allowed us to respond rapidly to the changing consumer shopping habits like the early season buying that we're seeing right now. Once again, I'd like to thank our merchants, supply chain team and our vendor partners for their hard work and support which has allowed us to manage through this changing environment. Thank you and I'll now turn the call over to Joe.

The product adds to a variety of different winter and early spring offerings. After we sell through our trim a tree product.

The investments that we made in the U S stores reset last year expanded our operating capabilities and has allowed us to respond rapidly to the changing consumer shopping habits like the early season buying that we're seeing right now.

Once again I'd like to thank our merchants supply chain team and our vendor partners for their hard work and support which has allowed us to manage through this changing environment. Thank.

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

Thanks, Bill and good morning, everyone. As Marvin mentioned, this quarter 100% of our stores earn their winning together profit-sharing bonus resulting in a payout of $138 million to our frontline hourly associates. I would like to thank our associates not only for their outstanding execution this quarter but for their commitment to the communities during the numerous severe weather events across the country. The current hiring environment remains competitive. And we continued to align labor to meet demand. Our labor management system has allowed us to serve the needs of our customers while addressing the lifestyle demands of our associates. Lowe's offers a unique opportunity for job seekers as we foster a culture that is geared towards associates skill and career development. During the quarter, we expanded Lowe's University leadership curriculum across all of our stores.

But sharing bonus resulting in a payout of $138 million to our frontline hourly associates I would like to thank our associates not only for their outstanding execution this quarter, but for their commitment to the communities during the numerous severe weather events across the country.

The current hiring environment remains competitive.

And we continued to align labor to meet demand our labor management system has allowed us to serve the needs of our customers while addressing the lifestyle demands of our associates Lowe's offers a unique opportunity for job seekers as we foster a culture that is geared towards associates skill and career development.

During the quarter weeks.

expanded Lowe's University leadership curriculum across all of our stores.

Lowes U provides all associates with new learning and development opportunities in addition to the standard onboarding courses. Our program provides small digestible lessons that improve their product and have to knowledge and is tailored to the associates' role. The additional training complements their existing knowledge and supports improved customer service and leadership development. Loews University is available for all store associates via our smart mobile devices on the sales floor or in the newly created Lowes U learning labs in our stores and we continue to expand it into our contact centers as well as our distribution centers.

Competitivity associates role.

The additional training complements their existing knowledge and supports improved customer service and leadership development.

Loews University is available for all store associates via our smart mobile devices on the sales floor or in the newly created lows you'd learning labs in our stores and we continue.

To expand it into our contact centers as well as our distribution centers.

In addition to competitive wages and benefits and rewarding career opportunities, Lowes U will play a pivotal role in our efforts to retain an experienced and engaged workforce. I would also like to provide you with an update on our perpetual productivity improvement initiatives, which continued to drive payroll leverage through the quarter. As a reminder, PPI is an ongoing process and a series of initiatives that scale over time instead of one large single project. One example is a simplified interface that we introduced in the checkout area last year, which allowed us to accelerate cash retaining process and improve the customer experience. We have begun introducing the simplified interface to other selling stations throughout the store, including appliances, kitchens and baths and millwork. This new interface will replace the primitive green screen technology that is cumbersome and difficult to learn.

I would also like to provide you with an update on our perpetual productivity improvement.

Tinnitus, which continued to drive payroll leverage through the quarter as a reminder, P. P is an ongoing process and a series of initiatives that scale over time instead of one large single project.

One example is a simplified interface that we introduced in the checkout area last year, which allowed us to accelerate.

Initiative Hasher training process and improve the customer experience, we have begun introducing the simplified interface to other selling stations throughout the store, including appliances kitchens and baths and millwork.

This new interface will replace the primitive green screen technology that is cumbersome and difficult to learn.

Our associates are starting to use this intuitive modern platform for consultative selling with more time to focus on the customer, the necessity that is now better able to capture the entire project. Lowes homegrown self-checkouts is another PPI initiative that will drive increased labor productivity as we scale it over time. This new option, which was designed specifically for the home improvement shopper, is so much easier to use that we are already seeing higher customer adoption rates. These two initiatives are fantastic examples of what PPI is all about, leveraging technology to reduce tasking and drive labor productivity. While improving the associates and the customer experience.

Those homegrown self checkouts as another PPI initiative that will drive increased labor productivity as we scale it over time.

This new option, which was designed specifically for the home improvement shopper is so much easier to use that we are already seeing higher customer adoption rates.

These two initiatives are fantastic examples of what PPI is all about leveraging technology to reduce tasking and drive labor productivity will.

While improving the associates and the customer experience.

Shifting to Pro. I would like to thank our protein for delivering outstanding results once again this quarter, driving Pro comps of over 16% for the quarter and over 43% on a two-year basis. Our Pro customers are expressing appreciation for our new in-store convenience features including pro trailer parking, free phone charging stations and air stations for refilling tires. This helps them get in and out of our stores quickly with additional conveniences that cut down on the number of stops they need to make during the week. Time is money for this busy customer. So we're focused on helping them maximize the time they spend on the job site.

Our pro customers are expressing appreciation.

<unk> for our new in store convenience features including pro trailer parking free phone charging stations and air stations for refilling tires. This helps them get in and out of our stores quickly with additional conveniences that cut down on the number of stops they need to make during the week time is money for this busy customer.

So we're focused on helping them maximize the time they spend on the job site.

We recently completed our inaugural Pro Pulse survey, which provides great insight into what is on the pros mind and how they view their future business opportunities. We are encouraged to learn more about the optimistic outlook and their strong job pipelines. I look forward to updating you on future calls on our ongoing initiatives to grow share with this very important customer. In honor of Veterans Day, I would like to thank my fellow veterans at Lowe's for their service. 25,000 strong across our company. As a veteran, I'm particularly proud of the commitment to the 10% discount for active duty service members and our veterans and their families. Every single day with no purchase limit.

Lines I look forward to updating you on future calls on our ongoing initiatives to grow share with this very important customer.

In honor of Veterans day, I would like to thank my fellow veterans at Lowe's for their service 25000 strong across our company.

As a veteran and I'm, particularly proud of the commitment to the 10% discount.

Count for active duty service members and our veterans and their families.

Every single day with no purchase limit.

And I also wanted to mention that we offered our first responders a Lowes discount for the first time this quarter. This recognition reflects our heartfelt appreciation for their commitment to serving others during the ongoing pandemic. At Lowes, we remain focused on improving the communities, where our associates work and live and there's no better way to do this than to support our first responders. I would like to close by once again thanking our store associates for their continued hard work and dedication. And the great results they delivered this quarter. With that, I will turn it over to Dave.

At Loews, we remain focused on improving the communities, where our associates work and live and there's no better way to do this than to support our first responders I would like to close by once again thanking our store associates for their continued hard work and dedication and the great results. They delivered this quarter with that I will turn it over to.

Thank you, Joe. I'll begin this morning with a few comments on the company's disciplined capital allocation program. In Q3, we generated $1.9 billion in free cash flow driven by better than expected operating results. Capital expenditures totaled $410 million in the quarter as we invest in our strategic initiatives to drive the business and support long term growth. We returned $3.4 billion to our shareholders through a combination of both dividends as well as share repurchases. During the quarter, we paid $563 million in dividends at 80 cents per share.

In Q3, we generated $1 $9 billion in free cash flow driven by better than expected operating results.

Capital expenditures totaled $410 million in the quarter as we invest in.

Our strategic initiatives to drive the business and support long term growth.

We returned $3 $4 billion to our shareholders through a combination of both dividends as well as share repurchases.

During the quarter, we paid $563 million in dividends at <unk> 80 per share.

Additionally, we repurchased 13.7 million shares for $2.9 billion and have over $10.7 billion remaining on our share repurchases authorization. And today I'm excited to announce that we are now planning to repurchase an incremental $3 billion of shares in Q4. This will bring our total share repurchases to approximately $12 billion for the full year, a clear reflection of our commitment to driving long term value for our shareholders. Our balance sheet remains very healthy with $6.1 billion in cash and cash equivalents at quarter-end. Adjusted debt to EBITDA stands for 2.14 times, well below our long term stated target of 2.75 times.

This will bring our total share repurchases to approximately $12 billion for the full year, a clear reflection of our commitment to driving long term value for our shareholders.

Our balance sheet remains very healthy with $6 $1 billion in cash and cash equivalents at quarter end adjusted debt to EBITDAR stands.

For 2.14 times, well below our long term stated target of 275 times.

Now I'd like to turn to the income statement. In the quarter, we reported diluted earnings per share of $2.73. An increase of 38% compared to adjusted diluted earnings per share last year. This increase was driven by better than expected sales growth, improved gross margin rate and SG&A leverage as a result of strong execution across our business. My comments from this point forward will include approximations, where applicable. In the quarter sales were $22.9 billion with a comparable sales increase of 2.2%. Comparable average ticket increased 9.7% driven primarily by higher ticket sales of appliances and flooring as well as product inflation. Keep in mind that commodity inflation did not have a material impact on comparable sales in Q3. As deflation in lumber was largely offset by inflation in other categories, including copper.

In the quarter, we reported diluted earnings per share of $2 73.

An increase of 38% compared to adjusted diluted earnings per share last.

Last year.

This increase was driven by better than expected sales growth improved gross margin rate and SG&A leverage as a result of strong execution across our business.

My comments from this point forward will include approximations, where applicable in the quarter sales were $22.

$9 billion with a comparable sales increase of two 2%.

Comparable average ticket increased nine 7% driven primarily by higher ticket sales of appliances and flooring as well as product inflation.

Keep in mind that commodity inflation did not have a material impact.

Impact on comparable sales in Q3.

As deflation in lumber was largely offset by inflation in other categories, including copper.

Year to date commodity inflation had lifted total sales by approximately $2.1 billion and improved comp growth by 300 basis points. In the quarter comp transaction count declined 7.5% due to lower sales to DIY customers of smaller ticket items as well as lower DIY lumber unit sales. In the quarter, we once again cycled over a period where consumer mobility was limited. So many of our DIY customers were working on smaller home improvement projects. Comp transactions increased 16.4% last year, which resulted in a two-year comp transaction increase of 7.7%. We continue to gain momentum in our total home strategy as both Pro and DIY customers alike increasingly look to Lowes for a one-stop solution to their project needs.

Points.

In the quarter comp transaction count declined seven 5% due to lower sales to DIY customers of smaller ticket items as well as lower DIY lumber unit sales in.

In the quarter, we once again cycled over a period, where consumer mobility was limited.

So many of our DIY customers, we're working on smaller home improvement projects.

Comp transactions increased 16, 4% last year, which resulted in a two year comp transaction increase of seven 7%.

We continue to gain momentum in our total home strategy.

As both pro and DIY customers alike increasingly look to Lowe's for a one stop solution to their project needs.

We delivered growth of over 16% in Pro. 25% on Lowes.com and positive comps across all home decor categories. US comp sales increased 2.6% in the quarter. And was up 33.7% on a two-year basis. Our US monthly comp sales were down .4% in August, up 1.1% in September. And up 7.7% in October. Trends improved as we move through the quarter with stronger weekend traffic post-Labor Day. As Bill mentioned, we are seeing some indications of early seasonal buying consistent with broader retail trends. Looking at US comp growth on a two-year basis from 2019 to '21, August sales increased 28.4% September increased 33.3%. And October increased 40%. US comp transaction count improved each month of the quarter ending October up double digits on a two-year basis.

25% on Lowes dot com and positive comps across all home decor categories.

U S comp sales increase.

2.6% in the quarter.

And was up 33, 7% on a two year basis.

Our U S monthly comp sales were down <unk>, 4% in August.

One 1% in September.

And up seven 7% in October <unk>.

Trends improved.

Proved as we move through the quarter with stronger weekend traffic post Labor day as Bill mentioned, we are seeing some indications of early seasonal buying consistent with broader retail trends.

Looking at U S comp growth on a two year basis from 2019 to 21.

August sales increased 20.

Eight 4% September increased 33, 3%.

And October increased 40%.

U S comp transaction count improved each month of the quarter ending October up double digits on a two year basis.

Gross margin was 33.1% of sales in the third quarter, up 38 basis points from last year. Product margin rate declined 25 basis points. Lumber margins were pressured, particularly towards the beginning of the quarter as we sold through the higher cost inventory layers after the steep drop in lumber prices in early July. As our Canadian business is more heavily concentrated in lumber, the margin pressure was more acute there than in the US. These pressures were largely mitigated by data-driven pricing and product cost management strategies across many other product categories. Gross margins also benefited from five basis points of favorable product mix due to a lower percentage of lumber sales versus the third quarter of last year.

Percentage of sales in the third quarter up 38 basis points from last year.

Margin rate declined 25 basis points lumber margins were pressured, particularly towards the beginning of the quarter as we sold through the higher cost inventory layers. After the steep drop in lumber prices in early July.

As our Canadian business is more heavily concentrated in lumber the margin pressure was more acute there than in the U S East.

These pressures were largely mitigated by data driven pricing and product cost management strategies across many other product categories.

Gross margins also benefited.

From five basis points of favorable product mix due to a lower percentage of lumber sales versus the third quarter of last year.

In addition, higher credit revenue benefited margins by 60 basis points, while improved shrink contributed 20 basis points of benefits this quarter. These benefits were partially offset by 30 basis points of increased supply chain costs due to higher importation and transportation costs as well as the expansion of our omnichannel capabilities. We are leveraging our scale and our carrier relationships to minimize the impacts of these higher distribution costs. However, we are not immune to these rising costs and we expect that we will continue to absorb higher costs in our distribution network going forward. SG&A at 19.1% of sales levered 230 basis points versus [AOY] due to better than expected sales and disciplined expense management. We incurred $45 million of COVID-related expenses in the quarter. As compared to $290 million of COVID-related expenses last year. The $245 million reduction in these expenses generated 110 basis points of SG&A leverage.

These benefits were partially offset by 30 basis points of increased supply chain costs due to higher importation and transportation costs as well as the expansion of our omnichannel capabilities.

We are leveraging our scale and our carrier relationships to minimize the impacts of these higher.

Dubuque cost.

However, we are not immune to these rising costs and we expect that we will continue to absorb higher costs in our distribution network going forward.

SG&A at 19, 1% of sales Levered 230 basis points versus Earl y due to better.

Distracted sales and disciplined expense management.

We incurred $45 million of Covid related expenses in the quarter.

As compared to $290 million of Covid related expenses last year.

The $245 million reduction in these expenses general.

Then, it's 110 basis points of SG&A leverage.

Additionally, we incurred $100 million of expenses related to the US stores reset in the third quarter of last year. As we did not incur any material expense related to this project this year. This generated 50 basis points of SG&A leverage compared to LY. And finally, we generated approximately 50 basis points of favorable SG&A leverage from our PPI initiatives. We are very pleased with our operating income performance as we are driving solid growth in operating profits, while significantly expanding operating margin rate. For the quarter, operating profit was $2.8 billion, adding $600 million or a 28% increase over last year. Operating margin of 12.2% of sales for the quarter increased approximately. 240 basis points over LY driven by improved SG&A leverage and higher gross margin rate.

As we did not incur any material expense related to this project this year.

This generated 50 basis.

Points of SG&A leverage compared to L y.

And finally, we generated approximately 50 basis points of favorable SG&A leverage from our PPI initiatives.

We are very pleased with our operating income performance as we are driving solid growth in operating profits.

<unk>, while significantly expanding operating margin rate.

For the quarter operating profit was $2 $8 billion, adding $600 million or a 28% increase over last year.

Operating margin of 12, 2% of sales for the quarter.

Increased approximately.

240 basis points over L Y driven by improved SG&A leverage and higher gross margin rate.

The effective tax rate was 26.1%. This is above the prior year rate, where there was a timing shift that benefited Q3 at the expense of Q4. At the end of the quarter, inventory was $16.7 billion, which is $1 billion higher than the third quarter of 2020. When our in-stock positions were pressured due to strong consumer demand and COVID-19 related supply constraints. Inflation did not have a material impact on inventory levels as deflation in lumber was largely offset by inflation in other categories, including copper. Our push to land spring product earlier than normal has increased our inventory position modestly and this approach also limits our ability to significantly improve inventory turns in the near term. However, as both Marvin and Bill have indicated, a relatively strong in-stock positions create a competitive advantage in the current environment given the ongoing global supply chain constraints.

This is above the prior year right, where there was a timing shift that benefited Q3 at the expense of Q.

Four at the end of the quarter inventory was $16 $7 billion, which is $1 billion higher than the third quarter of 2020.

When our in stock positions were pressured due to strong consumer demand and COVID-19 related supply constraints.

Inflation did not have a material impact on.

Inventory levels at.

As deflation in lumber was largely offset by inflation in other categories, including copper.

Our push to land spring product earlier than normal has increased our inventory position modestly and this approach also limits our ability to significantly improve inventory.

Burns in the near term.

However, as both Marvin and Bill have indicated a relatively strong in stock positions create a competitive advantage in the current environment given the ongoing global supply chain constraints.

Now before I close, I'd like to comment on our current trends and our improved 2021 financial outlook. We are seeing continued momentum in our business as reflected in better than expected results. Month to date, November US comparable sales trends are materially consistent with October's performance level on a two-year basis as we continue to see early holiday spending trends. Our improved expectations for 2021 include sales of approximately $95 billion for the year, representing two-year comparable sales growth of approximately 33%. This compares to our prior expectations of approximately $92 billion of sales, which represents approximately 30% comparable sales growth on a two-year basis.

Tori true 2021 financial outlook.

We are seeing continued momentum in our business as reflected in better than expected results maam.

Month to date November U S comparable sales trends are materially consistent with october's performance level on a two year basis as.

In our opinion to see early holiday spending trends are.

Our improved expectations for 2021 include sales of approximately $95 billion for the year, representing two year comparable sales growth of approximately 33%.

This compares to our prior expectations of approximately 90.

We can put dollars of sales, which represents approximately 30% comparable sales growth on a two year basis.

We continue to expect gross margin rate to be up slightly versus 2020 levels, with higher projected sales levels and our productivity efforts taking hold we are raising our outlook for operating income margin to 12.4% from 12.2% for the full year. We expect capital expenditures of up to $2 billion for the year. And as I mentioned earlier, we're now planning to return excess capital to shareholders via an additional $3 billion in share repurchases in Q4. This will bring our total share repurchases to approximately $12 billion for the full year, which is higher than our original expectations of $9 billion due to better than anticipated performance.

Operating income margin to 12, 4% from 12, 2% for the full year.

We expect capital expenditures of up to $2 billion for the year.

And as I mentioned earlier, we're now planning to return excess capital to shareholders via an additional $3 billion in share.

Two built uses in Q4 this will bring our total share repurchases to approximately $12 billion for the full year, which is higher than our original expectations of $9 billion due to better than anticipated performance.

In closing, we are operating ahead of expectations expect to benefit from the secular tailwinds over the next several years. I am confident that the combination of our strong operating results and our shareholder focused capital allocation strategies will continue to drive meaningful long term shareholder value. And as Kate announced earlier, we look forward to providing you with our 2022 financial outlook on December 15th. With that, we are now ready for questions. Thank you.

Their report hail wins over the next several years I am confident that the combination of our strong operating results and our shareholder focused capital allocation strategies will continue to drive meaningful long term shareholder value.

And as Kate announced earlier, we look forward to providing you with our 2020.

<unk> financial outlook on December 15th with that we are now ready for questions.

Thank you.

We are ready for questions now. If he would like to ask a question, press star one on your telephone keypad. To withdraw your question, press star two. In order to allow questions for as many individuals as possible. Please limit yourself to one question and one follow up. Our first question is from Simeon Gutman with Morgan Stanley. Please proceed.

Two question Press Star two.

Either to allow question for as many individuals as possible. Please limit yourself to one question and one follow up.

Our first question is from Simeon Gutman with Morgan Stanley. Please proceed.

Hey, good morning, everyone. My first question is on the Q4 guidance. Dave, you just gave us the color on the stacks holding for now. Are there any reasons the stacks, I know it's a crystal ball question, but is there any reason the stacks won't hold through the quarter? And then on margin, is there anything to be wary of? It sounds like not on gross margin, anything on SG&A in terms of flow-through why the business could see anything different than how the business performed in the third quarter?

First.

My question is on the Q4 guidance.

Dave you just gave us the color on the stacks holding for now are there any reasons. The stacks I know, it's a crystal ball question, but is there any reason the stacks won't hold through the quarter and then on margin is there anything to be wary of it sounds like not.

Gross margin anything on SG&A in terms of flow through.

the business could see anything different than how the business performed in the third quarter?

The business could could could see anything different than how the business performed in the third quarter.

Simeon, this is Dave. The short answer is no, there's no difference in Q4 versus the year to date performance. I would say that just obviously Q4 is the lowest sales volume of the quarter. So obviously the flow-through is typically compressed in that quarter. I would just also just make an observation here that clearly we're operating in a very uncertain environment and the company is focused on managing those items on which we can control. Despite this uncertainty, we do have a view of the future and we develop plans that both drive our sales performance as well as our profit performance over time. And we believe strongly that it's best practice that we share these views and our plans with investors. So that you can better access and understand our performance and the company continues to really focus really on two things.

The short answer is no there's no difference in the in Q4 versus the year to date performance.

I would say that just obviously Q4 is the lowest sales volume of the quarter. So obviously the flow through is typically compressed in that quarter. I would just also just make an observation here that clearly we're operating in a very uncertain environment and the company is focused on managing those items on which we can control.

Despite this uncertainty we do have a view of the future and we develop plans that both drive our sales performance as well as our profit performance overtime and we believe strongly that it's best practice that we share these views and our plans with investors. So that you can better access and understand our performance and.

The company continues to really focus really on two things.

One is gaining share in the marketplace. And two is improving our profit performance and I think our outlook both for this year really demonstrates that we're focused on achieving both of those objectives. And really as you said, we're off to a really solid start as we enter Q4 and look forward to December to talk about 2022.

Really demonstrates that we're focused on achieving both of those objectives and really as you said off to a really solid start as we enter Q4 and look.

Forward to December to talk about 2022.

So thanks for that, Dave. I guess my follow up is on December 15th and I think the point of December 15th is to talk about it then. But I'm going to make a try anyway and so maybe this for Marvin and for you, Dave. Anything that's come up as far as investment cadence that you philosophically want to expedite where you don't let margin flow and then the part for you, Dave. Is assuming that the business grows and the environment stays favorable into next year, is there any reason why the margins for this business shouldn't continue to grow?

Anything.

Thats come up as far as investment.

Cadence that you philosophically want to expedite where you don't let margin flow and then the part for you Dave is assuming that the business grows and the environment stays favorable into next year is there any reason why the margins for this business Shouldnt continue to grow.

Simeon, good question. Listen, we'll go through that in-depth a bit on December 15th, really will give you an outlook of how we expect the markets to perform from a macro perspective, and how we as a company would plan to execute our financial plan into '22. The short answer is we do believe the market is really constructive within home improvement. We believe that it is over the longer term. I think it's probably a little harder in the really near term to estimate exactly how we're going to perform but I do think longer term really nice tailwind to the market. Number two, we set a very specific plan to continue to improve our operating margin rate and we are very focused on doing that and we have line of sight long term to continue to expand that.

The short answer is we do believe the market is really constructive within home improvement.

We believe that it is over the longer term I think it's probably a little harder and that really near term to estimate exactly how we're going to perform but I do think longer term really nice tailwind to the market number two we set a very specific plan to continue to improve our operating margin rate and we are very.

They focus on doing that and we have line of sight long term to continue to expand that.

Simeon, this is Marvin. And just to set expectations for everyone. We have no plans to announce any big changes to our strategy. We have no plans to announce an acquisition. This is about transparency today's point. Look, we noted we are operating in very uncertain times, and we have other retail and other larger public companies that decided not to share any outlook. So we want to be as transparent as we can because we know that you all were trying to set your models for next year. So the intent of December is to do exactly what Dave says, we'll provide the strategic outlook on where we think the growth initiatives will deliver and then Dave is going to provide our best view of our outlook for 2022. And that's the sole intent of the investment update on the 15th of December.

Plans to announce any big changes to our strategy, we have no plans to announce.

And acquisition.

This is about transparency today's point.

Look we noted we are operating in very uncertain times, and we have other retail and other larger public companies decided.

Not to share any outlook. So we want to be as transparent as we can because we know that you all were trying to set your models.

<unk> next year. So the intent of December is to do exactly what Dave says, we'll meter provide the strategic outlook on where we think the growth initiatives will deliver and then Dave is going to provide our best view of our outlook for 2022, and that's the sole intent.

<unk> investment.

Update on the 15th of December.

Okay. Thank you, good luck in the fourth quarter. Our next question is from Michael Lasser with UBS. Please proceed.

Our next question is from Michael Lasser with UBS. Please proceed.

Good morning, Thanks a lot for taking my question. The traffic has been declining as smaller DIY projects have been under pressure as we return to normalcy. Do you think that this is a good barometer good proxy for how traffic is going to unfold over the next few quarters? Or prolonged period, where traffic is going to be down for quite some time as we have this road back to whatever the new normal is. And as part of that, can you give us a sense for how much non-commodity related inflation contributed to your performance. In the quarter and recently given that your it looks like you're running a double-digit comp quarter to date. And this is important obviously because to the extent that you do see a drag from DIY traffic being down and you have to lap the stimulus, perhaps some of the non-commodity related inflation can support your same-store sales growth even in the face of those headwinds. Thanks.

Traffic has been declining.

<unk>.

Well I.

The smaller DIY projects have been under pressure as we return to normalcy.

I think that this is a good barometer good proxy for how traffic is going to unfold over the next few quarters or.

Prolonged period, where traffic is going to be down for quite some time.

As we have this road back to whatever the new normal is and as part of that can you give us a sense for how much non commodity related inflation contributing to your performance.

In the quarter and recently given that your it looks like Youre running a double digit comp quarter to date and this.

It is important obviously because to the extent that you do see a drag from DIY traffic being down and you have to lap the stimulus perhaps some of the non commodity really related inflation can support your same store sales growth even in the face of those headwinds.

Yeah.

The 2020 was one of the most unique periods, not only in retail but in the history of our country and our globe. And we saw a significant number of low dollar transactions were cleaning supplies for PPE and for other around the house-related projects. So when we look at traffic trends for DIY and for Pro, they cited the numbers on a two-year basis. The reality is the only way we can really get a true understanding of the trends of our business is to look at everything on a two-year basis because last year was such a unique anomaly when it comes to revenue and traffic and quite candidly as it relates to operating expenses. At a high level, we feel great about our performance as a company. We feel great about the macro indicators that support home improvement.

And we saw a significant number of low dollar transactions were cleaning supplies for PPE and for other around the house related projects. So when we look at traffic.

Trends for DIY and for Pro day.

You cited the numbers on a two year basis. The reality is is the only way we can really get a true understanding of the trends of our business is to look at everything on a two year basis, because last year was such a unique anomaly when it comes to.

Traffic revenue and traffic and quite candidly as it relates to operating expenses.

At a high level, we feel great about our performance as a company we feel great about the macro indicators that support home improvement.

And as Joe mentioned in his prepared comments, our pulse survey what our Pro customers give us enormous confidence that they're going to continue to see growth in their business based on what they're seeing in their pipeline. And as we look at initiatives like our total home strategy in a Lowe's Livable home strategy, we think that we have great initiatives to support our DIY customers to create ongoing demand.

Pro customers give us enormous confidence that they're going to continue to see growth in their business based on what they're seeing in their pipeline and as we look at initiatives like our total home strategy in a Lowe's livable home strategy, we think that we have great initiatives to support our DIY customers to create ongoing demand.

My follow up question is that it would be helpful to have a bit of a flavor for your gross margin over the next couple of quarters. You've got some idiosyncratic drivers that are helping given the more strategic approach to pricing and discounting. To what extent can that offset some of these very unique supply chain challenges that you're going to continue to experience over the next couple of quarters, especially because it sounds like this credit portfolio benefit that you experienced in the third quarter won't be as significant moving forward. Thanks.

That offset some of these very unique supply chain challenges that youre going to continue to.

Experience over the next couple of quarters, especially because it sounds like this credit.

Portfolio benefit that you experienced in the third quarter won't be as significant moving forward. Thanks.

Hey, Michael. It's Dave here. From a gross margin perspective, as we indicated previously, we expect gross margin to expand slightly this year in 2021. From a longer-term perspective, but it is our expectation that we were going to essentially maintain flattish gross margin over time. Keep in mind that what we're doing here is we're essentially managing and improving product margin rate, at the same time investing in our supply chain capabilities that compressed gross margin. But we leave the stores with a lot of SG&A that expand operating income. So you should think about the algorithm from a financial perspective with that lens. And we feel very strongly that the tools and processes that we're putting in place and have in place will allow us to manage to that objective.

From a gross margin perspective, as we indicated previously we expect gross margin to expand slightly this year in 2021.

From a longer term perspective, but it is our expectation that we were going to essentially maintain flattish gross margin over time keep in mind.

And that what we're doing here is we're essentially managing and improving product margin rate at the same time investing in our supply chain capabilities that compressed gross margin, but we leave the stores with with a lot of SG&A that expand operating income. So you should think about the algorithm from a financial perspective.

With that lens, and we feel very strongly that the tools and processes that we're putting in place and have in place will allow us to manage to that objective.

Thank you very much and have a good holiday. Our next question is from Christopher Horvers with JPMorgan. Please proceed.

Our next question is from Christopher harvest.

Harvard with J P. Morgan. Please proceed.

Yes.

Thanks. Thanks for taking my question and good morning, So just jumping back obviously, really strong quarter to date. It seems like you know running say low double-digit kind of trend. Clear acceleration. You talked about some early buying of seasonal and holiday. If you are running low double-digit and sort of implying like a flattish comp trend I guess and decelerating the CAGR relative to Q3. I mean is this sort of like a prudent estimate are you able to look at some of the seasonal sell-through here in November and then project forward like how much of a, maybe give it that would could create in the December timeframe. So just trying to understand really how you're thinking quantitatively about pull forward risk and in sort of the embedded deceleration.

We're accelerating acceleration you talked about.

Early buying of seasonal and holiday.

You are running low double digit.

And sort of implying like a flattish comp trend I guess.

And decelerating the CAGR relative to <unk> I mean is this sort of like a prudent estimate are or are you able to look at some of the seasonal sell.

Some true here in November and then project forward like how much of a maybe give it that would could create in the in the December timeframe. So just trying to understand really how you're thinking quantitatively about pull forward risk and in sort of the embedded deceleration yes.

Yeah. Hey, Chris. It's Dave. We feel very strongly that we're off to a really great start. A few of our bigger weeks are ahead of us coming forward here from a holiday perspective, but let's not get totally over-index and focused on Q4. We set a realistic and achievable forecast for the quarter. I think the merchant and store ops team are really well-positioned to flex as we sell through holiday product to be able to flex into other categories. To maintain momentum as we moved throughout the quarter and set us up for a really strong 2022.

Well three that we're off to a really great start a few of our bigger weeks are ahead of us coming forward here from a holiday perspective, but let's not get totally over index and focused on Q4, we set a realistic and achievable forecast for the quarter I think the merchant and store ops team.

Team are really well positioned to flex as we sell through holiday product to be able to flex into other categories.

To maintain momentum as we moved throughout the quarter and set us up for really strong 2022.

Chris This is Marvin and look as you can appreciate how difficult it is to prove. A precise forecast in this environment and I'll just repeat what I've said. We have certain retailers. Haven't provided any outlook. So we don't want to be punished for trying to provide a level of transparency around where we think the business is headed I do won't bill boltz to talk a little bit about.

A precise forecast in this environment and I'll just repeat what I've said.

We have certain retailers.

Haven't provided any outlook. So we don't want to be punished for trying to provide a level of transparency around where we think the business is headed I do won't bill boltz to talk a little bit about.

The plans to flex that seasonal area, because we're seeing robust sell through which we're excited about what we're prepared for that and we're prepared to transition to other areas. So I'll, let bill talk about some of those some of those plants.

Thanks Marvin.

I think it's also important to understand that whenever.

Ever you can sell through the holiday program early that's a benefit for everybody and so obviously excited about the early sell through of holiday, but we do have.

Really robust plans to transition that space, we certainly shift into a gifting time frame with our tools business, we moved quickly into winter storage.

Because look the pack stuff up and put things away and that's become a big big event for US and then we've also built this winter Bath and flooring event that is.

Very successful, especially in our north.

Our spring comes a little later and then in our deep South markets will transition to spring and so we've got really good plans on how to how to rotate the floor.

Okay.

Seasonally relevant across the country.

Got it that makes sense and just can you talk a little bit about in terms of the average ticket, maybe disaggregate that into sort of AUR <unk> mix.

So fourth and <unk>.

Is there any area near assortment that youre seeing price.

Price elasticity.

Floor to price elasticity.

As you pass through price increases.

This day, but probably that level of detail, we wont go into specifically, but I would just say one area that we continue to see really solid performance within our appliance business, that's a business that.

As you know historically has been a very high low.

<unk> business, we've been moving to more of an everyday.

Petitor price profile in that in that category and it continues to perform quite well for us both topline and bottomline.

Got it have a great holiday. Thank you.

Yes.

Our next question is from Chuck Grom with.

Please proceed.

Thanks, a lot great quarter, the one metric that stood out to us as being a little bit light was just inventory.

Intuitive usually wanna be light, but right now you Wanna be heavy so just wondering about how you're thinking about your inventory balance throughout the quarter and the ability to chase sales here.

<unk>.

The state we feel that were.

We feel very good about our position from an inventory perspective, obviously there are areas that we would love to be a little bit deeper and that global supply chain has some constraints around but relatively speaking if you look at where we stand from an in stock perspective, and our depth of inventory.

Inventory relative to others in the marketplace, we feel like we're very nicely positioned and feel like we.

We'll have a really strong Q4 nicely positioned from a spring perspective, as we cycle into 'twenty two.

Okay, that's great and then Marvin.

If you could share some color on the on the pro Pulse survey that you guys conduct.

Conducted in the third quarter.

Particularly I'm just wondering what you're hearing from pros on the backlog and then bigger picture you know perm.

<unk> is much lower than than depot do you think over time, you can grow it and do you want to grow it to some thoughts on that front. Thanks.

No. Thanks for the question so I'll take the penetration question.

Question, then I'll, let Joe just provide a little bit of detail on what we learned from the pulse survey.

Thing that we talk a lot about here is the importance of being customer centric.

<unk> from past mistakes is when you set penetration targets or customer segments, you tend to make decisions.

To support the target versus decision to support the needs of the customer. So we have every expectation that that penetration number is going to grow you know anytime you deliver.

A 16% comp number which equates to a 43% growth onto your basis. It gives you at least.

Confidence that the business is headed in the right direction. So at a high level, we expect the penetration to grow we know when it grows it provides great operating leverage throughout the whole store and space productivity, but we're not setting targets that we're trying to chase. So let me, let Joe give just a little bit of detail I was hoping to key learnings from the.

The pulse survey.

Yeah, Chuck Thanks for the question.

We are we put this probe pulse survey out and really.

Got some great responses and insights for 2022, and so things like 80% of pros expect the increase home improvement demand seen endemic is going to greatly improve and continue.

In 2022.

There are more reliant on their teams than ever we've got insight into the top five projects in 2022 that they are pros will be focused on it.

A lot of our pros are saying this is the time of year to take advantage of all the holiday deals are they're planning on a.

We will purchase supply purchases, so we feel really good about.

The capabilities, we have increased and the problem with the pros are telling us.

Great. Good luck. Thank you.

Our next question is from Steven Forbes with Guggenheim. Please proceed.

Good morning.

I wanted to focus on Opex productivity, David I think you mentioned 50 basis points of leverage during the quarter from your PPI initiatives.

If you can expand on on how the initiatives are progressing relative to the original timeframe provided last year.

Any idea right, you're just trying to get an understanding of how much opportunities.

Go ahead of us.

Hey, Steven.

In general the PPI efforts are tracking along fairly consistent with our plan for 2021.

The one area that you think really over the next 18 months that we have opportunities to continue to improve from a from an opex perspective.

Steve is really around our market delivery rollout.

Keep in mind, we have that now as Marvin indicated in his remarks in two markets today, we're working to roll that out over the remainder of our markets for them over the next 18 to 24 months when that is fully operational that will.

Puts that will dampen a bit on gross margin, but really relieves the store with a lot from a lot of labor and SG&A ultimately enhancing our flow through that's probably the biggest area over the next couple of years, where we're leaning in to really drive operating profit improvement and we feel really hum.

Respect.

Uh-huh bullish about where we stand today and optimistic about the outlook of that program.

Thank you and then just a quick follow up.

If I remember correctly, another large opportunity with store inventory management systems. So maybe just provide an update on on where.

The businesses in <unk>.

Sort of rolling out and optimizing.

The line of sight into inventory location.

The store level.

Yes, you'll see we're excited Joe and his team have done great work with.

I teach him to just give our associates and our customers better visibility to inventory.

I'll, let Joe just give you a couple of two or three of the key points to this this new inventory management system and why we're so excited about the productivity that we're going to gain from it.

Thanks, Marvin listen we've been laser focused on trying to improve the accuracy of our on hands and store it helps greatly.

Tumors are searching online for the different products they might pick up in the store.

And a big challenge.

For the last 30 years I can remember in home improvement.

Is where the overstock product is where the product is in multiple locations in the store.

We're very very pleased number one.

When covey ease of use for our associates the adoption of the tools that we're giving them and it's just great partnership through our store operations team as well as the IP team.

We feel we feel really good about the productivity enhancements, that's going to continue to drive it.

When Joe and team survey our associates activity during the day, we found out that one of the most nonproductive.

Activities in advance that happens on a daily basis is looking for product because as Joe said, it's very difficult historically to put a location system and the overhead and home improvement.

Steve has a lot what we call off shelf locations for attachments.

Now we have the ability to do that and we think it's going to unlock incredible customer service benefits and also productivity for social associates.

Thank you best of luck.

Our.

Our question is from Brian Nagel with Oppenheimer. Please proceed.

Hi, good morning.

Great quarter congratulations.

So that's correct.

First question, just with regard to the probe and the efforts.

A lot of that.

Emphasis.

Yeah.

Our next few team over the past several quarters to really improve the per offer and you talked about in prepared Thomas's question I haven't.

If you look at it now is the infrastructure basically built or are there still tweaks you have to make in order to sort of say major offering even more compelling to the professional customers.

It's a really good good question.

Brian I would say the short answer is is that the foundation of the infrastructure is built if you think about it we started with what we call retail fundamentals and pro enjoying the same started with basic things like staffing at the desk loading assistance something as simple as having the ability to put a pro to actually check out.

At the protests, we had no point of sale terminals at our pro desk will pull you can check out and so those things were just problematic than bill.

In partnership with supply chain and Joe started to work on things like job lot quantities, and then bill and his team have been working tirelessly on improving the number of national brands.

Over the past 10 years prior to coming here Loews had diluted most of their national brands.

Sorry.

With with proprietary brands and we know that pros are are more attracted to national brands and so bill and his team Bill gave the list that we're at and we're continuing to build on that.

Now we're building our loyalty platform and now we're building our CRM platform.

And now we're gonna be building fulfillment platform. So the foundation is in place. We just have to earn the pros trust and respect because for so many years. They would show up service was terrible were out of stock.

We couldn't allow them to get in and out quickly or to grow their business now that we have the foundational elements in place its all about consistent execution, and reaching out and engaging to customers and I give you Joe Beall in our proteins a lot of credit for getting us where we are thus far.

Martin that's.

And while I appreciate it.

And then the second follow up question I have just with regard to supply chain. So Lowe's has been managing.

The headwinds extraordinarily well and it was evidenced by sales and gross margins.

The question I have is as you look out all.

All the different moving pieces of the ongoing supply chain.

Prices around the world.

Are there are there are there potentially incremental risks that you see as you move into 'twenty two.

Well the short answer is yes, but I don't know that the risks are more pronounced than.

Then anything that you've heard about all that's been discussed in.

It's very healthy place you said another way when bill and I talk about spring the risk that he's looking at is no different than the broader risks of any merchant looking at it from a supply demand standpoint, when I talked to Don.

Who's our supply chain leader I mean, we have similar risk the good news is.

As Bill mentioned in his prepared comments.

We have scale because of size.

And because of that we've been able to leverage our carrier relationships and also just strategic initiatives like these coastal holding facilities that bill talked about to land product early get it in country.

Mark and distributed where needed. So we're going to continue to do that but it gives us the ability to buy early landed early so that we can have possession of it and that has worked for us, but again, we're not immune I couldn't be more proud of the team's efforts to your point to increase gross margin increased operating income.

And also a sustained competitive in stocks and in the midst of the most complex global supply chain environment than any of us are operated.

And Brian just to add one thing.

The pulse survey and over 80% of our pro customers are citing for basis supply chain issues challenge.

But there also are very very optimistic about all of our 2022 projects.

Sherri this is Scott.

Thank you Brian sure for one more question.

Great. Our next question is from Liz Suzuki.

With Bank of America. Please proceed.

Great. Thank you for squeezing me in just on the subject of product innovation I mean, what are the most exciting our highest growth product categories that you think they will be game changers for the next few years like led lighting was several years ago, our Lv tea in the flooring category and whats. The next innovative product that's going to take over its category.

So I'll give it to bill I'll, what I'll tell you is we're really excited about a lot of innovation in outdoor power equipment and.

And flooring power tools I'll, let bill just highlight.

Sorry about that that's coming our way.

Yeah. So thanks, Marvin I think.

Across the store, there's innovation all across the store you think about.

Smart product, whether that's in lighting, whether thats in light bulbs, whether thats in appliances, or even just smart home products in general when you think about the new launch of our flex brand in power tools, New battery lithium battery technology.

No.

Innovation in flooring with wet protect from Perrigo.

Think about the battery technology and outdoor power and that continues to expand and what igo has done in their categories with zero turn riding mowers that offer operate off of a battery then you go into categories that you may not think.

There is innovation in but you get into building materials and building products there is innovation and.

Thats coming in ZIP wall Theres innovation in dry wall Theres innovation all across the store. So we're very excited and very pleased with what the merchants have done to continue to probe for new we found innovation in our private brands as I was able to mention on Alan.

With the lifestyle performance rugs literally you can take a garden hose and hose these runs down.

When you think about pet spills you.

Do you think about kids do you think about crayons and you can just close it off with your with your garden hose pretty pretty cool stuff. So a lot of stuff going on.

We'll be talking more.

And Ralph.

Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.

Q3 2021 Lowe's Companies Inc Earnings Call

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