Q4 2024 Lowe's Co Inc Earnings Call

Professor Bill Boltz Executive Vice President merchandising, Joe Mcfarland Executive Vice President stores and Brenna, Thank our executive Vice President and Chief Financial Officer, I would like to remind you that our notice regarding forward looking statements is included in our press release. This morning, which can be found on Lowe's Investor Relations website. During the call we will be making comments that are forward looking including our expectations for fiscal 2020 for actual results may differ materially from those expressed or implied as a result of various risk.

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Uncertainties and important factors, including those discussed in the risk factors MD&A 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 the quarterly earnings section of our Investor Relations website now I'll turn the call over to Martin. Thank you Kate and good morning, everyone and a full quarter comparable sales clients switch more to DIY customers continue.

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To remain cautious with their home improvements and harsh weather impacted large parts of the U S. In January. Despite these challenges I'm very pleased with the excellent customer service in our stores control operating profit performance for the quarter driven by disciplined focus on our perpetual productivity improvement initiatives or PPR.

At the full fiscal year 2023, we delivered sales of $86 4 billion adjusted operating margin of 13, 3% and adjusted earnings per share of $13.09.

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Getting with our DIY sales results November December trends improve in the third quarter, followed by a sharp drop in traffic during periods of extreme weather in January.

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Macroeconomic factors like precision inflation and a stable housing market continued to make DIY customers and consumers hesitant to spend on big ticket purchases were homes and those who did engage in home improvement activities took on smaller non discretionary projects with a heightened focus on value.

This impacted demand for bigger ticket interior categories, like kitchen, and Bath flooring, and appliances and last quarter, we shifted our strategy to adapt to these changing consumer behaviors, resulting in a record black Friday, and cyber Monday online sales and improved holiday sell through and margins. While we're pleased to see these results. We are now focused on winning spring and we're excited to see how the customer responds to our more targeted traffic driving marketing strategy and a lineup of great spring product.

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Speaker Change: Good morning, everyone welcome to Lowe's companies' fourth quarter 2023 earnings conference call My.

At an outstanding value and we will provide more detail on our compelling product assortment for spring later in the call.

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

Rob: As a reminder, this conference is being recorded.

Amongst most exciting changes for this spring is our new DIY loyalty program that we announced in January. This first of its kind rewards program designed for DIY customers that gives these value focus homeowners more reasons to choose lowes.

Rob: I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer.

Kate Pearlman: Thank you and good morning here with me today are Marvin Ellison, Chairman and Chief Executive Officer, Paul <unk>, Our executive Vice President merchandising, Joe Mcfarland Executive Vice President stores, and Brian and Thank our executive Vice President and Chief Financial Officer.

In our marketplace were nearly all DIY home equipment customer shop multiple retailers mellowed rewards loyalty program is designed to get these DIY customers, who choose loans over other retail competitors, but home equipment needs.

We expect this to drive traffic and return visits while also enabling us to personalize offers and experiences for our loyalty members, creating a flywheel effect that increases DIY loss in demand over time, both in store and online.

Kate Pearlman: I would like to remind you that our notice regarding forward looking statements is included in our press release. This morning, which can be found on Lowe's Investor Relations website.

Kate Pearlman: During this call we will be making comments that are forward looking including our expectations for fiscal 2020 for 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 MD&A and other sections of our annual report on Form 10-K and our.

Hello rewards will be available nationwide in March just in time for spring, making low as the only national home improvement retailer with distinct loyalty offerings, both pro and DIY customers.

Now moving to grow despite a challenging macro environment and difficult weather in January our comparable store sales were flat for the quarter. As a reminder, our core pro customers are small to medium sized business owner and in a recent poll survey. These customers told us our backlog are in line with last year and they are cautiously optimistic about their ability to generate and close leads in 2024.

Kate Pearlman: Other SEC filings.

Kate Pearlman: Additionally, we will be discussing certain non-GAAP financial measures a reconciliation of these items to U S. GAAP can be found in our quarterly earnings section of our Investor Relations website, now I'll turn the call over to Marvin.

We remain focused on executing our holistic growth strategy with more convenient fulfillment options and enhance product assortment, creating a best in class digital experience and a rewards program that incentivizes long term loyalty.

Marvin R. Ellison: Kate and good morning, everyone in the fourth quarter comparable sales declined six 2% as DIY customers continue to remain cautious with their home improvement span and harsh weather impacted large parts of the U S. In January in spite of these challenges I'm very pleased with the excellent customer service in our stores and strong operating profit perform.

As these investments scale and mature they will increasingly say pros time and money, enabling us to earn more of their business as we aim to grow pro at two times the market rate.

Now turning to online comparable sales were flat for the quarter and we're pleased to see higher conversion rates and lower returns a positive indicator that customers are responding to our faster fulfillment and improved digital experience.

Marvin R. Ellison: For the quarter, driven by disciplined focus or a perpetual productivity improvement initiatives or PPR.

Our talented technology team remains focused on developing a best in class Omnichannel experience to seamlessly serve our multi generational customer base, including co, creating innovative customer solutions with world class technology companies like our immersive kitchen design App for Apple's New vision Pro headset using general AI to improve how we sell shopping work like a home improvement chat GBT plug in.

Marvin R. Ellison: Looking at the full fiscal year 2023, we deliver sales of $86 4 billion.

Marvin R. Ellison: Adjusted operating margin of 13, 3% and adjusted earnings per share of $13 nine.

Now, let's transition to talk to you the macro as we look forward. Many of you are asking when we expect home improvement demand to inflict although it's a very fair question, Unfortunately still very difficult to predict.

Marvin R. Ellison: Beginning with our DIY sales results November December trends improved from the third quarter, followed by a sharp drop in traffic during periods of extreme weather in January.

And while there is increased confidence of soft landing there is still a lot of speculation on the timing of anticipated interest rate cuts and the pace of slowing inflation.

Marvin R. Ellison: Macroeconomic factors like persistent inflation and a stagnant housing market continuing to make DIY customers and consumers hesitant to spend on big ticket purchases for our homes and those who did engage in home improvement activities took on smaller non discretionary projects with a heightened focus on value.

Also unclear how quickly the consumer will react to these changes and how quickly their spending habits will change overall, the consumer is financially healthy but in this post pandemic timeframe customers are still showing a preference for spending on services with <unk> demand for travel restaurants, and other experiences and while we anticipate these trends will normalize the timing is uncertain.

Marvin R. Ellison: This impacted demand for bigger ticket interior categories, like kitchen, and Bath flooring and appliances.

Existing home sales are at levels, we've not seen in almost 30 years and even as mortgage rates decline two thirds of homeowners remain locked in at rates below 4%, which may keep many on the sidelines duties back as we expect DIY demand to remain under pressure and Brian will provide more detail on our 2020 expectations later in the call. However, we're very confident in our strategic land and in our ability to execute at a high level in a multitude of economic environment.

Last quarter, we shifted our strategy to adapt to these changing consumer behaviors, resulting in a record black Friday, and cyber Monday online sales and improved holiday sell through and margins. While we are pleased to see these results. We're now focused on winning spring and we're excited to see how the customer responds to our more targeted traffic driving.

Despite near term uncertainty, let me remind you why we remain bullish on the medium and long term outlook for home improvement.

With record demand drivers of our business and disposable personal income home price appreciation and the age of housing stock remains supportive. We've heard these factors would trends like chronic under supply of homes Millennial household formation baby boomers aging in place and a sustained number of people working from home you can see why we are confident that home improvement demand will trend upwards overtime across both homeowners and pros.

Marvin R. Ellison: Marketing strategy and our lineup of great spring products at an outstanding value Bill will provide more detail on our compelling product assortment for spring later in the call.

Marvin R. Ellison: Amongst the most exciting changes for this spring is our new DIY loyalty program that we announced in January. This first of its kind rewards program designed for DIY customers that gives these value focused homeowners more reasons to choose lowes.

And in the meantime, we are focused on controlling we control and making the right investments in our total home strategy to modernize our supply chain and it infrastructure localize and improve our merchandising assortments rolling out our pro and DIY loyalty program, continuing to elevate our store environment and developing a best in class digital and Omnichannel experience.

Marvin R. Ellison: In a marketplace, where nearly all DIY home improvement customers shop multiple retailers <unk> rewards loyalty program is designed to get these DIY customers to choose lowes over other retail competitors for the home improvement needs.

All of these investments are told home strategy will position us to win in the short run and set us up for strong sales and profit growth when a home improvement market recovers.

Before I close I'd like to extend my appreciation to hardworking associates for their commitment to serving customers in recognition of the dedication reward our frontline associates with a end of year discretionary bonus of $140 million. This is always saying, thank you Valerie associates and assistant managers, who serve our customers and make our communities better as I travel across the country visiting stores and conducting town halls to hear directly from our frontline associates I am consists.

Marvin R. Ellison: We expect this to drive traffic and return visits while also enabling us to personalize offers and experiences for our loyalty members, creating a flywheel effect that increases DIY loyalty and demand over time, both in store and online.

Marvin R. Ellison: <unk> rewards will be available nationwide in March just in time for spring, making low as the only national home improvement retailer with a distinct loyalty offering for both pro and DIY customers.

Humbled by the passion commitment and expertise now I'll turn the call over to Bill. Thanks, Marvin and good morning, everyone. While softer DIY demand trends continued this quarter, we remain focused on highlighting value and convenience both in our stores and online to a price conscious consumer all while maintaining a balanced focus on profitability. We're also staying committed to serving a resilient pro which resulted in flat pro comps as we continue to enhance.

Marvin R. Ellison: Now moving to pro despite a challenging macro environment and difficult weather in January our comparable pro sales were flat for the quarter as.

As a reminder, our core pro customers are small to medium sized business owner.

Our pro product and service offerings, beginning with building products. This was our best performing area with positive comps in building materials. This strength was fueled by an increased demand for roofing and drywall combined with improved fulfillment capabilities and in stock positions to better serve our pro customers throughout the quarter. We continued to launch additional client products across our stores, bringing the number one tool brand for electrical and HVAC professionals.

Marvin R. Ellison: And in a recent <unk> survey these customers told us our backlogs are in line with last year and they are cautiously optimistic about their ability to generate and close leads in 2024.

Marvin R. Ellison: We remain focused on executing our holistic pro strategy with more convenient fulfillment options and enhanced product assortment.

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We now have the largest assortment of client tools in our home improvement retail channel with initial sales exceeding our expectations across electrical and tools and stack will tool storage.

Marvin R. Ellison: Our best in class digital experience and a rewards program that incentivizes long term loyalty.

Throughout the store, we continue to introduce new and innovative products to lows like pellets hidden screen Windows. This new window includes a built in screen. It appears when the window is open the hydro way when it's closed.

Marvin R. Ellison: As these investments scale and mature they will increasingly say pros time and money, enabling us to earn more of their business as we aim to grow pro at two times the market rate.

Turning to home decor. This division was significantly impacted by softer DIY demand in bigger ticket into your categories like kitchen, and Bath flooring and appliances. This past quarter, we pivoted our go to market strategy to be more responsive to a shift in shopping trends like the appliance consumers increasing preference for a single unit purchase in their search for the best deal. While these actions pressured our average selling price as.

Marvin R. Ellison: Now turning to online comparable sales were flat for the quarter and we were pleased to see higher conversion rates and lower returns a positive indicator that customers are responding to our faster fulfillment and improved digital experience.

Marvin R. Ellison: Our talented technology team remains focused on developing a best in class Omnichannel experience to seamlessly serve our multi generational customer base.

<unk>. This approach was a major contributor to our successful Black Friday, and cyber Monday events and while some consumers remain budget conscious we're seeing others trade up for innovation, which we continue to offer across all major appliance categories. A great example is our exclusive LG smart refrigerator, which has a double freezer and also makes the popular slow melting craft is this product is consistently a top seller despite REIT.

Marvin R. Ellison: Including co, creating innovative customer solutions with World class technology companies like our immersive kitchen design App for Apple's New vision Pro headset using general AI to improve how we sell sharpened work like our home improvement chat GPT plug in.

Selling for over $2500. This type of innovation adds to our already industry, leading assortment in appliances, including high quality brands like Bosch, MELA, LG, Samsung and Kitchenaid and we're continuing to help our customers see the value entertain ability of trading up for affordable premium features paint.

Marvin R. Ellison: Now, let's transition to our view of the macro as we look forward. Many of you are asking when do we expect home improvement demand to inflect, although it's a very fair question. Unfortunately is still very difficult to predict.

Paint is another category, where we've seen product innovation resonate like our exclusive line of spec rate paint designed for pros who paid.

Marvin R. Ellison: And while there is increased confidence of a soft landing there is still a lot of speculation on the timing of anticipated interest rate cuts and the pace of slowing inflation.

Beyond gaining traction with pros, we saw strong exterior paint demand before the weather turned colder in January which gives us confidence we have the right offering in place at spring arrives. We also recently completed the rollout of our upgraded paint department, which converted our color Walter trusted Sherwin Williams colors and improve the shopping experience to make it easier for our customers to grab the higher margin attachment items, they need to complete their paint projects.

Marvin R. Ellison: It is also unclear how quickly the consumer will react to these changes and how quickly theyre spending habits will change.

Marvin R. Ellison: Overall, the consumer is financially healthy but in this post pandemic timeframe customers are still showing a preference was spending on services with elevated demand for travel restaurants, and other experiences and while we anticipate these trends will normalize the timing is uncertain.

Turning to our results in hard lines. This is another area, where we quickly adjusted to the change in consumer buying patterns, which was reflected in our improved holiday sell through and profitability. We're also encouraged that our new rule assortments continue to resonate across the country with strength in apparel pet in automotive as consumers respond to the products and brands. We also recently launched a new partnership with Sunrun the market leader in home solar and battery installation. This.

Marvin R. Ellison: Also existing home sales are at levels, we've not seen in almost 30 years and even as mortgage rates decline two thirds of homeowners remain locked in at rates below 4%, which may keep many on the sidelines due to these factors, we expect DIY demand to remain under pressure and Brandon will provide more detail on our <unk>.

Partnership now enhances our services offering for consumers looking to power their homes with renewable energy.

Those are the go to destination for homeowners in spring and as we enter our biggest season of the year, we are positioning ourselves to capitalize on this demand as Marvin mentioned, we are excited about our product lineup. The launch of portal builds on our industry, leading outdoor power equipment lineup alongside John Deere, Aaron's ego Craftsman, Husqvarna cobalt and scale, our outdoor power equipment assortment is unmatched in home improvement, which is reflected in our continued market leadership in this space.

Marvin R. Ellison: 2024 expectations later in the call.

Marvin R. Ellison: However, we're very confident in our strategic plan and in our ability to execute at a high level in a multitude of economic environments.

Marvin R. Ellison: Despite near term uncertainty, let me remind you why we remain bullish on the medium to long term outlook for home improvement.

I'm also excited about our new patio sets from our private brands, Alan and Roth and <unk> 21, which enables homeowners to update their outdoor spaces for spring with trending styles across multiple price points and if consumers don't see the color. They are looking for on a sales floor that can easily shop, the extended aisle with associates now able to tender the purchase directly on their mobile smart devices. The merchants in our seasonal businesses are also bringing customers innovate.

Marvin R. Ellison: The three core demand drivers of our business disposable personal income home price appreciation and the age of housing stock remains supportive.

Marvin R. Ellison: When you've heard these factors with trends like chronic under supply of homes Millennial household formation baby boomers aging in place and a sustained number of people working from home you can see why we are confident that home improvement demand will trend upwards overtime across both homeowners and pros.

<unk> and functionality at more competitive prices like our new exclusive triborough grill lineup, which lets griller switch from a traditional grill to a griddle in seconds or the fast growing Blackstone branded grills that continues to bring new features and value to the market.

Beyond our compelling seasonal assortment and strong in stock position I'm also looking forward to launching our enhanced marketing strategy for spring. This season, we are taking a more sophisticated tech enabled advertising approach and we will be featuring traffic driving events that will motivate homeowners to get started on their spring projects at Loews. We're also leaning into live sports with an expanded NFL relationship and leveraging our popular commercials featuring Lowe's home.

And in the meantime, we are focused on controlling what we control and making the right investments in our toll home strategy to modernize our supply chain and it infrastructure.

Marvin R. Ellison: Localize and improve our merchandising assortments rolling out our pro and DIY loyalty program, continuing to elevate our store environment and developing a best in class digital and Omnichannel experience.

Players trying their hands at DIY projects, we're extremely pleased with the success of this season's home team players with two members of the Lowe's team Travis Kelsey and Christian Mccaffrey, both participating and Super Bowl 58 will be featured in our commercials.

Marvin R. Ellison: All of these investments our total home strategy will position Lowe's to win in the short run and set us up for strong sales and profit growth when the home improvement market recovers.

Shifting gears to merchandising productivity, our team is making tremendous progress on a perpetual productivity improvement or PPI initiatives, which as we planned our offsetting the cost of our supply chain and grow investments as a reminder, the PPA initiatives that I outlined at our analyst and Investor Conference include expanding our private brand penetration improving inventory productivity, maintaining a disciplined approach to pricing and promotions.

Marvin R. Ellison: Before I close I'd like to extend my appreciation to our hard working associates for their commitment to serving customers.

Marvin R. Ellison: In recognition of the dedication we rewarded our frontline associates with a end of year discretionary bonus of $140 million.

Scaling our retail media network and closely managing product costs over.

Marvin R. Ellison: This is our way of saying, thank you to hourly associates and assistant managers, who serve our customers and make our communities better.

Over the past year, we've been working closely with our vendor partners to claw back some of the cost increases we absorbed during periods of exceptionally high inflation and now that raw material and transportation costs are normalizing our best in class cost optimization tool gives us robust data down to the item level that allows us to take a calculated surgical approach, helping guide us to reducing cost across our portfolio.

Marvin R. Ellison: As I traveled across the country visiting stores and conducting town halls to hear directly from our frontline associates I am consistently humble about our passion commitment and our expertise now I'll turn the call over to bill Thanks, Marvin and good morning, everyone.

As we work to recoup these costs with our suppliers, we are reinvesting those savings into our marketing and merchandising strategies to drive traffic and sales as I close I'd like to thank our vendors and merchants for their unwavering focus on delivering value to our shared customers and for putting us in a strong position to win spring I will now turn the call over to Joe. Thank you Bill and good morning, everyone I would like to start by thanking our frontline team for their relentless focus on execution.

Bill: Softer DIY demand trends continued this quarter, we remain focused on highlighting value and convenience both in our stores and online to a price conscious consumer all while maintaining a balanced focus on profitability.

Bill: We're also staying committed to serving a resilient pro which resulted in flat pro comps as we continue to enhance our pro product and service offering.

This quarter their efforts to serve our customers while tightly managing control expenses. Once again resulted in improved customer service scores and strong operating profit performance. Despite slower sales customer satisfaction scores were up 200 basis points this quarter versus last year with improvements in both pro and DIY, reflecting the hard work of our frontline associates combined with improved omnichannel fulfillment capabilities. In fact, this year omni scores improved almost.

Bill: Beginning with building products. This was our best performing area with positive comps in building materials.

Bill: This strength was fueled by an increased demand for roofing and drywall combined with improved fulfillment capabilities and in stock positions to better serve our pro customers.

25% since 2020 customers have new functionality like two way texting, where they can be notified in advance to confirm their delivery date as well as same day delivery options through our gig network.

Bill: Throughout the quarter, we continued to launch additional client products across our stores, bringing the number one tool brand for electrical and HVAC professionals back to Lowe's.

Can also use our new self service functionality to tracker order status and resolve issues directly all without needing to call store and.

In addition to expanding our fulfillment options and improving how we communicate with our customers. We're also enhancing the <unk> or buy online pickup in store experience. So our new front end configuration, we completed over 450 front end Rollouts. This year with over 500 planned for 2024.

Bill: We now have the largest assortment of Klein tools in the home improvement retail channel with initial sales exceeding our expectations across the electrical and tools and stackable tool storage.

So embracing the new front end experience, telling us they appreciate the faster and easier checkout process. This new front end configuration also keeps sales associates in the aisles, helping customers instead of needing to assist with checkout process when lines get long, while we're improving the front end of our stores. We're also making strides on the backend with our ongoing freight flow transformation, where further improving our freight flow process with distribution centers now at.

Bill: Throughout the store, we continue to introduce new and innovative products to lows like pillows hidden screen windows.

Bill: This new window includes a built in screen that appears when the window is open but hides away when it's closed.

Speaker Change: Turning to home decor.

Speaker Change: This division was significantly impacted by softer DIY demand in bigger ticket interior categories, like kitchen, and Bath flooring and appliances.

New labels that are linked to each store's layout. These labels provider store teams the direction of exactly where to place the product on the sales floor. Once the freight is removed from receiving these enhancements will make it quicker and easier for associates to get products onto the floor and cross merchandize attachments and will drive better in stocks for our customers and improve payroll productivity for our stores. These new capabilities and improve processes are all part of our ongoing perpetual.

Speaker Change: This past quarter, we pivoted our go to market strategy to be more responsive to a shift in shopping trends like the appliance consumers increasing preference for a single unit purchase in their search for the best deal. While these actions pressured our average selling price as expected. This approach was.

The improvement or <unk> initiatives, which both improved customer experience and drive profitability.

Turning to our efforts to become the employer of choice can retail I'm really pleased with the progress. We've made last quarter. We saw a record response rates of our annual associate engagement survey with 90% plus participation in <unk>.

Speaker Change: A major contributor to our successful Black Friday, and cyber Monday events.

Speaker Change: And while some consumers remain budget conscious we're seeing others trade up for innovation, which we continue to offer across all major appliance categories. A great example is our exclusive LG smart refrigerator, which has a double freezer and also makes the popular slow melting craft types. This product is.

Even more importantly scores improved significantly across three areas that we measure engagement leadership effectiveness and conclusion, it's clear that better associate engagement leads to lower turnover and directly translates into better business results with a workforce more focused on serving our customers and driving productivity in our operations as Marvin mentioned, we announced $140 million and discretionary bonuses this quarter.

Speaker Change: Consistently a top seller despite retailing for over $2500.

He was an incremental $5000 for our assistant store managers and other frontline supervisors as well as our special discretionary bonus a $400 for a full time hourly associates and $200 for part time hourly associates. Additionally, since 2018, we have invested over $3 5 billion in incremental wage and share based compensation for our frontline associates. In fact, we are one of the few retailers towards stock brands.

Speaker Change: This type of innovation adds to our already industry, leading assortment in appliances, including high quality brands like Bosch, MELA, LG, Samsung and kitchen aid and we are continuing to help our customers see the value and attain ability of trading up for affordable premium features.

So our store managers and assistant store managers, so they share our long term success. These programs for our store leaders are not new in fact store managers have been receiving share based compensation for decades and assistant store managers. Since 2019, we are also creating opportunities for advancement for our associates to encourage them to build their careers with lows. Since 2018, we have added over 10000, New department Supervisors and over 2000.

Speaker Change: Paint is another category, where we've seen product innovation resonate like our exclusive line of spec rate paint designed for pros who paint.

Speaker Change: Beyond gaining traction with pros, we saw strong exterior paint demand before the weather turned colder in January which gives us confidence we have the right offering in place as spring arrives.

500, new assistant store managers and through those University, we're training and developing our associates for their next role. This year, we're extending our advanced leadership training to our assistant store managers to equip them with the tools they need to succeed as they move up in their career with these enhancements we've worked to increase the number of store managers promoted from ASM to over 80% over the past three years in fact more than 80% of our leadership roles are now bill.

Speaker Change: We also recently completed the rollout of our upgraded paint department, which converted our color wall to trusted Sherwin William colors, and improve the shopping experience to make it easier for our customers to grab the higher margin attachment items, they need to complete their paint projects.

From within all of these investments have led to one of the best spring staffing levels in many years and the stores are ready to serve our customers. This spring. We're very excited about the new <unk> rewards DIY loyalty program and a great spring merchandise lineup Bill outlined as I can.

Speaker Change: Turning to our results in hard lines. This is another area, where we quickly adjusted to the changing consumer buying patterns, which was reflected in our improved holiday sell through and profitability we.

I would like to once again, thank all of our store associates for their hard work and dedication now I'll turn it over to Brandon. Thank.

Speaker Change: We're also encouraged that our new gorilla Assortments continue to resonate across the country with strength in apparel pets, and automotive as consumers respond to the products and brands.

Thank you Joe let me begin with our Q4 results we generated diluted earnings per share of $1 77, as a reminder, in the prior year, we recognized $441 million of pre tax transaction costs associated with the sale of the Canadian retail business. My comments from this point forward will include comparisons to certain non-GAAP measures from last year, where applicable.

Speaker Change: We also recently launched a new partnership with Sunrun the market leader in home solar and battery installation.

Speaker Change: This partnership now enhances our services offering for consumers looking to power their homes with renewable energy.

Q4 sales were $18 6 billion.

Of note prior year sales included $958 million generated in our Canadian retail business and approximately $1 4 billion related to the additional 50 <unk> week also Q4 results reflect approximately $200 million in sales headwind due to the related shift in our fiscal calendar.

Speaker Change: Lows as the go to destination for homeowners in spring and as we enter our biggest season of the year, we are positioning ourselves to capitalize on this demand as.

Speaker Change: As Marvin mentioned, we are excited about our product lineup.

Comp sales were down six 2% driven by continued pressure in DIY bigger ticket spending and unfavorable January winter weather lumber deflation did not have a material impact on comp sales.

Speaker Change: The launch of <unk> builds on our industry, leading outdoor power equipment lineup alongside John Deere, Aaron's ego Craftsman, Husqvarna cobalt and skill our outdoor power equipment assortment is unmatched in home improvement, which is reflected in our continued market leadership in this space.

Although the calendar shift pressure total sales growth in Q4, it had no impact on comparable sales as comps are calculated based on weeks 41 to <unk> 53 in fiscal 2022.

Comparable average ticket was down 0.1% to prior year continued ticket growth in many pro heavy categories, offset appliance pricing pressure and lower DIY bigger ticket sales comp.

Speaker Change: I'm also excited about our new patio sets from our private brands, Alan and Roth and origin in 'twenty, one which enables homeowners to update their outdoor spaces for spring with trending styles across multiple price points and if consumers don't see the color theyre looking for on our sales floor. They can easily shop, the extended aisle with associate.

Comp transactions declined six 1% driven by the DIY slowdown and unfavorable January winter weather impacting traffic.

Our monthly comps were down four 8% in November and six 6% in December January comps declined seven 4% as we experienced significant pressure during weeks of unfavorable winter weather.

Speaker Change: It is now able to tender the purchase directly on their mobile smart devices. The.

Speaker Change: The merchants in our seasonal businesses are also bringing customers innovation and functionality at more competitive prices like our new exclusive char broiler grill lineup, which lets griller switch from a traditional grill to a griddle in seconds or the fast growing Blackstone brand of Grilles that continues to bring new feature.

Gross margin was 32, 4% of sales in the fourth quarter up seven basis points from last year gross margin benefited from multiple PPI initiatives as well as favorable product mix and lower transportation costs. These benefits were somewhat offset by supply chain expansion cost.

SG&A of 29% of sales de Levered five basis points versus prior year adjusted SG&A as the momentum we continue to build with our PPI initiatives across all functional areas of the company largely offset sales volume deleverage.

Speaker Change: <unk> and value to the market.

Speaker Change: Beyond our compelling seasonal assortment and strong in stock position I'm also looking forward to launching our enhanced marketing strategy for spring <unk>.

Margin rate of nine 1% declined 48 basis points versus prior year adjusted operating margin.

Speaker Change: This season, we are taking a more sophisticated tech enabled advertising approach and we will be featuring traffic driving events that will motivate homeowners to get started on their spring projects at Lowe's.

The effective tax rate was 23, 8% in line with prior year adjusted effective tax rate.

Inventory ended the quarter at $16 9 billion $1 6 billion lower than the prior year quarter as we invest in high velocity pro Skus, while managing replenishment inline with sales trends and improving the flow of spring product builds through our supply chain.

Speaker Change: We're also leaning into live sports with an expanded NFL relationship and leveraging our popular commercials, featuring Lowe's home team players try in their hands at DIY projects.

As a reminder, prior year inventory excluded Canadian operations as the sale was complete before year end.

Now turning to capital allocation in 2003, we generated $6 2 billion in free cash flow and returned $8 9 billion to our shareholders through a combination of share repurchases and dividends.

Speaker Change: We are extremely pleased with the success of this season's home team players with two members of the Lowe's team Travis Kelsey and Christian Mccaffrey, both participating and Super Bowl 58, while being featured in our commercials.

During the fourth quarter, we paid $632 million in dividends at $1 10 per share and repurchased one 9 million shares for $404 million returning over $1 billion to our shareholders.

Speaker Change: Shifting gears to merchandising productivity, our team is making tremendous progress on our perpetual productivity improvement or PPI initiatives.

Capital expenditures totaled $620 million in Q4, as we continue to invest in strategic initiatives to drive growth and profitability.

Speaker Change: Which as we planned our offsetting the cost of our supply chain and pro investments.

Adjusted debt to EBITDAR finished the year at $2 eight one times and lastly, we delivered a return on invested capital above 36% for the year.

Speaker Change: As a reminder, the PPI initiatives that I outlined at our analyst and Investor Conference include expanding our private brand penetration.

Now I would like to discuss our 2024 outlook as Martin mentioned, we are bullish on the medium to long term outlook for the home improvement industry, but the near term macro backdrop remains uncertain. There is optimism around potential interest rate cuts and improved consumer sentiment. However, the timing of fed actions remains unclear and there can be a lag before monetary policy impacts the consumer also housing turnover remains depressed and the consumers.

Speaker Change: Improving inventory productivity.

Maintaining a disciplined approach to pricing and promotions.

Speaker Change: Scaling our retail media network and closely managing product costs.

Speaker Change: Over the past year, we've been working closely with our vendor partners to claw back some of the cost increases we absorbed during periods of exceptionally high inflation and now that raw material and transportation costs are normalizing our best in class cost optimization tool gives us robust data down to the item level.

They are showing a greater preference for spending on services rather than good.

We are expecting these factors to continue to pressure home improvement spending in 2020 for especially for the DIY.

With that in mind, we are expecting sales ranging from 84 to 85 billion and comparable sales declines and a range of 2% to 3%.

Pro sales should continue to outpace DIY as we leverage our multi year strategy to improve product offerings fulfillment options and the in store and digital shopping experience to drive pro growth at two ex the market rate.

That allows us to take a calculated surgical approach, helping guide us to reducing cost across our portfolio.

Speaker Change: As we work to recoup these costs with our suppliers, we are reinvesting those savings into our marketing and merchandising strategies to drive traffic and sales.

We expect operating margin in the range of 12, 6% to 12, 7%.

When we bridge, our 2023 operating margin to our 'twenty 'twenty four expectations. There are a couple of points to keep in mind.

Speaker Change: As I close I'd like to thank our vendors and merchants for their unwavering focus on delivering value to our shared customers and for putting us in a strong position to win spring I will now turn the call over to Joe.

First the impact of sales volume deleverage and second the cycling of a favorable legal settlement in each of the first two quarters.

These pressures were partly offset by the expected positive impact of our ongoing enterprise wide PPI initiatives.

We have made significant progress in realizing our productivity goals over the past few years and we remain laser focused on driving these PPI efforts and closely managing expenses through this tough sales environment. These.

Joe Mcfarland: Thank you Bill and good morning, everyone I would like to start by thanking frontline team for their relentless focus on execution this quarter their efforts to serve our customers while tightly managing controllable expenses. Once again resulted in improved customer service scores and strong operating profit performance despite slower sales.

These expectations result in full year earnings per share of approximately $12 to $12 30.

Now to assist you with your modeling I would like to take a moment and provide some color on the cadence of our expected results for the year.

As a reminder, the steep pullback in DIY demand, which intensified in the third quarter of 2023 set us up for different compares in the first and second half of this year.

Joe Mcfarland: Customer satisfaction scores were up 200 basis points this quarter versus last year with improvements in both pro and DIY, reflecting the hard work of our frontline associates combined with improved omnichannel fulfillment capabilities. In fact, this year omni scores improved almost 25% since 2020.

Given this we expect first half comp sales to remain under pressure as the current DIY demand trends continue.

But as we move into the second half, we expect comp sales to improve as we begin to cycle over the pullback in the third quarter.

To be clear, we are not forecasting an improvement in demand trends. This year, rather the compares are easier in the second half.

Joe Mcfarland: Customers have new functionality like two way texting, where they can be notified in advance to confirm their delivery date as well as same day delivery options through our gig network.

And while we are planning for a normal spring season, the timing of spring is unpredictable and always bring some variability to our first half performance given our customer mix. These DIY drivers disproportionately impact our business.

Joe Mcfarland: They can also use our new self service functionality to track their order status and resolve issues directly all without needing to call a store.

Now more specific to our first quarter, we expect comp sales to be consistent with our fourth quarter results approximately 300 basis points below the bottom of our full year guide the combination of lower sales volumes as well as cycling a sizable legal settlement is expected to result in a Q1 operating margin rate approximately 200 basis points below the prior year adjusted rate.

Joe Mcfarland: In addition to expanding our fulfillment options and improving how we communicate with our customers. We're also enhancing the focus or bottom line pick up in store experience through our new front end configuration. We completed over 450 front end Rollouts. This year with over 500 planned for 2024 customers.

Before I close let me remind you of our capital allocation strategy, which remains unchanged. Our first priority is to reinvest in the business with capital expenditures of approximately $2 billion.

Joe Mcfarland: Customers are embracing the new front end experience, telling us they appreciate the faster and easier checkout process. This new front end configuration also keep sales associates in the aisles, helping customers instead of needing to assist with checkout process went lines get long.

Next we continue to target a 35% dividend payout ratio.

We also plan to use our free cash flow to repay a $450 million bond maturity, and then return excess cash to shareholders through share repurchases.

In closing we are confident in our ability to execute through the near term market uncertainty and remain focused on realizing the benefits of our total home strategy, while continuing to drive sustainable shareholder value and with that we'll open it up for questions.

While we are improving the front end of our stores. We are also making strides on the backend with our ongoing freight flow transformation.

Joe Mcfarland: We are further improving our freight flow process with distribution centers now, adding new labels that are linked to each store's layout. These labels provide our store teams with direction of exactly where to place the product on the sales floor. Once the freight is removed from receiving.

Thank you we don't have any questions to ask a question press star one on your telephone keypad concerning question Press Star two.

And final question for as many individuals as possible. Please limit yourself to one question and one follow up.

Our first question today comes from the line of Peter Benedict with Baird. Please state your question.

Joe Mcfarland: These enhancements will make it quicker and easier for our associates to get products onto the floor and cross merchandise attachments and will drive better in stocks for our customers and improved payroll productivity for our stores.

Hey, good morning, guys. Thanks for taking the question first one would be just try the sensitivity of your margin forecast if comps end up trending below that 2% to 3% range for the year.

And then alternatively as you think perhaps longer term.

Joe Mcfarland: These new capabilities and improved processes are all part of our ongoing perpetual productivity improvement or PPI initiatives, which both improve the customer experience and drive profitability.

Comps swing positive just what types of Incrementals do you think you could achieve on that given they've been pretty lean on the expense front here.

Given the current climate that my first question.

Yeah, Hey, Peter this is Brandon in terms of incremental decremental, we've established essentially a flow through rule of thumb, if our sales do exceed the top end of our guide we do expect about 10 basis points for every 1% of incremental comp sales on the high side and then on the low side sales fall below the bottom end, we're looking at about 15 basis points of margin contraction for every point of comp decline so high level.

Joe Mcfarland: Turning to our efforts to become the employer of choice in retail I am really pleased with the progress we've made.

Joe Mcfarland: Last quarter, we saw a record response rate to our annual associate engagement survey with 90% plus participation.

Joe Mcfarland: And even more importantly scores improved significantly across three areas that we measure engagement leadership effectiveness and inclusion.

That's more of a rule of thumb on an annual basis. It doesn't necessarily work for in terms of quarterly performance and the other thing I will stress is the plus and minus 15, not necessarily natural outputs I would tell you that the model and algorithm very contingent on us continuing to drive PDI across all functions and that's what's contemplated on both the upside and the downside.

Joe Mcfarland: It's clear that better associate engagement leads to lower turnover and directly translates into better business results with a workforce more focused on serving our customers and driving productivity in our operations.

Okay. That's helpful. Thanks, and then secondly, sorry.

<unk> had success with cost optimization efforts just to kind of be.

Joe Mcfarland: As Marvin mentioned, we announced $140 million and discretionary bonuses. This quarter. This includes an incremental $5000 for our assistant store managers and other frontline supervisors as well as our special discretionary bonus of $400 for full time hourly associates and $200 for part time.

On where you stand with those how much more is left to go and how that kind of plays into maybe your view of average ticket versus traffic and 24 do you think you can hold onto the ticket in 'twenty four given all the dynamics out there and you're calling back some costs you can reinvest that maybe took it down just curious.

That airplane and 24, thank you.

Yes, Peter I think to your first question on just our ability to manage cost were really pleased with our ability to manage expenses here. The last couple of years you know through this downturn, we have a robust involving roadmap of PPI initiatives, we were down comps for seven this year expecting down at the mid 0.2, and a half so our ability to manage the sales deleverage there with that robust pipeline again really pleased there as we look out.

Joe Mcfarland: Hourly associates.

Joe Mcfarland: Additionally, since 2018, we have invested over $3 5 billion in incremental wage and share based compensation for our frontline associates and.

Joe Mcfarland: In fact, we are one of the few retailers two awards stock grants to our store managers and assistant store managers. So they share in our long term success.

A number of initiatives you heard from Joe and Bill that we continue to be excited about we believe in 'twenty four in particular that PPA is going to enable us to offset over $400 million of wage pressure inflationary pressure and strategic investments I think the second part of your question just as we think about ticket into 2024, we are expecting that to hold up and that's largely what we saw in 2023. The pullback is expected again in transactions.

Joe Mcfarland: These programs for our store leaders are not new in fact store managers have been receiving share based compensation for decades and assistant store managers since 2019.

Joe Mcfarland: We are also creating opportunities for advancement for our associates to encourage them to build their careers with Lowe's.

Really the drivers of that pro growth positively impacting average ticket more from a mix standpoint, and then on the pressure point side, we're continuing to see the DIY bigger ticket pressure and they're going to continue to be a drag we don't expect any significant improvement off of that second half 'twenty two 'twenty three run rate and then on appliances, specifically asked me pressure expected to continue as we returned to a more more of a pre pandemic environment, but overall as we cycle into the second half of the year we are.

Joe Mcfarland: Since 2018, we have added over 10000, New Department Supervisors and over 2500, new assistant store managers.

And through Lowe's University, we're training and developing our associates for their next role this.

Joe Mcfarland: This year, we're extending our advanced leadership training to our assistant store managers to equip them with the tools they need to succeed as they move up in their career.

We're expecting a more normal historical relationship between average ticket and transactions.

Got you. Thanks appreciate it good luck.

Thank you Peter.

Joe Mcfarland: With these enhancements we've worked to increase the number of store managers promoted from ASM to over 80% over the past three years in fact more than 80% of our leadership roles are now filled from within.

Question is from the line of Adam.

With well Fargo.

Hey, good morning, I know, there's a lot of moving pieces on the SG&A line as you lap the legal settlement and some of the incentive comp dynamic. So is there any way you could bridge all the puts and takes in a little bit more detail on the 13, 3% operating margin in 'twenty three T. R. 12, 612, and 24 and also any color on gross margin versus SG&A.

Joe Mcfarland: All of these investments have led to one of the best spring staffing levels in many years and the stores are ready to serve our customers. This spring. We are very excited about the new <unk> rewards DIY loyalty program and the great spring merchandise lineup Bill outlined.

This is Brandon I would say on SG&A, it's really two themes and it's the cycling of the settlements on its deleverage on lower sales and when you look at the midpoint of the range of stepped back about 65 basis points breaks down about half and half there. So those are really as we look at managing SG&A in 'twenty. Four those are the pressure points, you mentioned incentive compensation, we paid a discretionary bonus in Q4 of 140 million.

Joe Mcfarland: As I close I would like to once again, thank all of our store associates for their hard work and dedication now I'll turn it over to Brandon.

Brandon: Thank you Joe let.

Brandon: Let me begin with our Q4 results.

Brandon: We generated diluted earnings per share of $1 77.

Which offset any previous we expected Q4 benefit that we had from lower management incentive comp and we're pleased that we were able to reward our frontline associates, but what that resulted in for the full year 'twenty three.

Brandon: As a reminder, in the prior year, we recognized $441 million of pretax transaction costs associated with the sale of the Canadian retail business.

The benefit from lower management incentive comp based on performance that was offset by the discretionary frontline bonuses that were paid in Q2 and Q4, so that really does not create a headwind for us as we bridge 'twenty three 'twenty four so back to the two things, it's mainly the cycling of the legal settlements and the deleverage on lower sales.

Brandon: My comments from this point forward will include comparisons to certain non-GAAP measures from last year, where applicable.

Brandon: Q4 sales were $18 6 billion.

Gotcha and then two.

Brandon: Of note prior year sales included $958 million generated in our Canadian retail business and approximately $1 4 billion related to the additional 50 <unk> week.

Two more quick ones.

Color on gross margin and then second April comps were slightly positive in Q3 by my math and Al Comping DIY for a few years now so I'm curious if you could just talk about DIY versus pro mix today, it's still in that 70 525 range.

Brandon: Also Q4 results reflect approximately $200 million in sales headwind due to the related shift in our fiscal calendar.

We got your gross margin question, so I'll take that one I'll toss it to Marvin for pros. So we're expecting gross margins for 24 to be roughly flat on the gross margin themes are really similar to what we saw here in 2023 our ongoing supply chain investment pressure as we wrap the rollout of market delivery will continue to make investments improved fulfillment about those pressures are being offset by ongoing PPI initiatives that bill discussed as we managed product costs lower transportation continue to expect.

Brandon: Comp sales were down six 2% driven by continued pressure in DIY bigger ticket spending and unfavorable January winter weather lumber.

Lumber deflation did not have a material impact on comp sales.

Private brands. So those those are the puts and takes from a gross margin standpoint, and Umbro I'll talk to you more so on the mix. It is directionally correct on a percentages.

Brandon: Although the calendar shift pressured total sales growth in Q4, it had no impact on comparable sales as comps are calculated based on weeks 41 to <unk> 53 in fiscal 2022.

Feel good about the resilience of our pro customer and as a reminder, our customers are small to medium sized business owner and we're actually pleased with the survey results, where they feel confident that they can bill the backlog is consistent with what they saw last year and if they can continue to drive their business again, they're cautiously optimistic based on what they know that gives us confidence that the things we're doing around loyalty around product.

Brandon: Comparable average ticket was down 0.1% to prior year.

Brandon: Continued ticket growth in many pro heavy categories, offset appliance pricing pressure and lower DIY bigger ticket sales.

<unk> expansion around service levels, our digital platform, how we dramatically improve then we think we have a best in class experience is resonating and relative to the DIY.

Brandon: Comp transactions declined six 1% driven by the DIY slowdown and unfavorable January winter weather impacting traffic.

We feel good about the level of execution in that business I mean, we viewed as probably as a macro issue versus a strategic issue or any type of an execution issue you had brandon that both in our prepared comments when we think about the medium to long term, we're very bullish because we've made tremendous investments in this business across supply chain infrastructure Omnichannel localization assortment planning space.

Brandon: Our monthly comps were down four 8% in November and six 6% in December <unk>.

Brandon: January comps declined seven 4% as we experienced significant pressure during weeks of unfavorable winter weather.

Brandon: Gross margin was 32, 4% of sales in the fourth quarter up seven basis points from last year.

Productivity store environment and service level that we know are going to pay dividends not only in the short run while we deal with this macroeconomic headwind, but when the market recovers, we think we're perfectly positioned to grow and take market share.

Brandon: Gross margin benefited from multiple PPI initiatives as well as favorable product mix and lower transportation costs.

Thanks Vivek.

Thanks Zack.

Our next question is from the line of Simeon Gutman with Morgan Stanley.

Brandon: These benefits were somewhat offset by supply chain expansion cost.

Yes.

Hey, Good morning, guys, Hey, Marvin you answered just now touched on this a bit I wanted to put it out here.

Brandon: SG&A of 29% of sales de Levered five basis points versus prior year adjusted SG&A as the momentum we continue to build with our PPI initiatives across all functional areas of the company largely offset sales volume deleverage.

Section or even misperception that the way that loves this expense would have been so well managed good either impact how much sales can grow in the cycle resumes or how much EPS growth if you have it.

SG&A back into the business. So I'm curious if you can comment on that.

No.

Fair question I think the best way for me to answer would be our customer service results and when you look at the fact that we have improvements in both pro and DIY 200 basis points for both that gives you an indication that our service levels remain extremely high and also gives you an understanding of the power of our PPI initiatives because a lot of our expense takeout is not the traditional.

Brandon: Operating margin rate of nine 1% declined 48 basis points versus prior year adjusted operating margin.

Brandon: The effective tax rate was 23, 8% in line with prior year adjusted effective tax rate.

Brandon: Inventory ended the quarter at $16 9 billion, one 6 billion lower than the prior year quarter as we invest in high velocity pro Skus, while managing replenishment inline with sales trends and improving the flow of spring product builds through our supply chain.

Payroll it is more about the investments of technology that drives productivity that allows us to add more hours to driving service and selling and taking hours out of tasking and Joe has talked about this for five years, you were trying to build a model, where we invest technology and we drive productivity that allows us to have more customer facing associates and less tasking. So we believe that our.

Brandon: As a reminder, prior year inventory excluded Canadian operations as the sale was complete before year end.

Activity based staffing model puts us in a great position that when sales go up we invested payroll based on the activity driven to create the sales and when sales come down we have a activity based system that we think is best in class that we can take hours out based on department level day and hour that we think will drive the business on productivity standpoint, but without hindering surface. So so we feel good about our whole model.

Brandon: Now turning to capital allocation in 2023, we generated $6 2 billion in free cash flow and returned $8 9 billion to our shareholders through a combination of share repurchases and dividends.

Brandon: During the fourth quarter, we paid $632 million in dividends at $1 10 per share and repurchased one 9 million shares for $404 million returning over $1 billion to our shareholders.

We don't think there's any negative implications of sale going up in SG&A, not being able to be managed as tightly and as efficient as we manage with the last couple of years and so let me give you. A quick example, if you think about five years ago, when we had less than 50% of the stores that actually have self checkout and so over the last five years. We've mentioned we've developed our own internal self checkout built with the home of premium customer in mind.

Brandon: Capital expenditures totaled $620 million in Q4, as we continue to invest in strategic initiatives to drive growth and profitability.

We now have that complete across the entire chain and now we've started our front end transformation and adding incremental assisted self checkouts and we have 400 stores complete. This has also allowed us to roll out a best in class loyalty program for the DIY customer that is tied right in with our mobile technology and so as we look to complete the incremental 500 in 2024, and then I mentioned in prepared remarks, our backend initiatives too so very confident in.

Brandon: Adjusted debt to EBITDAR finished the year at 281 times.

Brandon: And lastly, we delivered a return on invested capital above 36% for the year.

Speaker Change: Now I would like to discuss our 2020 for outlook.

<unk> activity based labor model N BPI initiatives, we continue to focus on one last point I mean, that's one example of many initiatives.

Speaker Change: As Marvin mentioned, we are bullish on the medium to long term outlook for the home improvement industry, but the near term macro backdrop remains uncertain.

And I both have on our timeline that we've yet to developing yet to implement so this is a ongoing process that is alive and well and every function, including merchandising as bill outlined his prepared comments.

Speaker Change: There is optimism around potential interest rate cuts and improved consumer sentiment. However, the timing of fed actions remains unclear and there can be a lag before monetary policy impacts the consumer.

Thanks for that and then the follow up is on the cycle I think in some models. The weakest part of the cycle would have been the second half of 'twenty, three and even the first half of 'twenty four and maybe the market was kind of looking for like a little bit sooner I can't tell if that was your base case as well it seems like the market is more dependent on existing home sales and then Marvin you mentioned in the prepared comments that it is the big question is whether or not we'll get back to something normal and I'm curious when when things start up again.

Speaker Change: Also housing turnover remains depressed and the consumer is still showing a greater preference for spending on services rather than goods.

We are expecting these factors to continue to pressure home improvement spending in 2020 for especially for the DIY.

Do we get back to normal or is it something thats less than normal.

Speaker Change: And with that in mind, we are expecting sales ranging from 84 to 85 billion and comparable sales declines and a range of 2% to 3%.

Well I'll give you my perspective, and I'll, let Brandon provide any additional comments when you think about the cadence of our comp sales for this year as Brendan mentioned is more indicative of year over year comparison versus our forecast that the market is going to improve at some point. This year, we hope that it improves and we are positioning ourselves that when that happens we think that we will have outsized top.

Speaker Change: Pro sales should continue to outpace DIY as we leverage our multi year strategy to improve product offerings fulfillment options and the in store and digital shopping experience to drive pro growth at <unk> the market rate.

And bottom line growth, but our perspective of 2024 is that we're gonna field as DIY pressure throughout the year and we're going to perform at a high level irrespective of kind of what type of macro environment that we're dealing with I'll, let Brandon add any additional comment I would just say so I mean, you mentioned the base case I mean, our base case guide assumes no change in macro conditions versus what we've experienced here the last couple of quarters.

Speaker Change: We expect operating margin in the range of 12, 6% to 12, 7%.

Speaker Change: When we bridge, our 2023 operating margin to our 2024 expectations. There are a couple of points to keep in mind.

Speaker Change: First the impact of sales volume deleverage and second the cycling of a favorable legal settlement in each of the first two quarters.

It's unclear as the timing of the rate cuts the improvements in home improvement share of wallet and Martin mentioned housing turnover consumer sentiment, so sort of a more of the same philosophy, there and even when we start to see some green shoots there it's going to be.

Speaker Change: These pressures are partly offset by the expected positive impact of our ongoing enterprise wide PPI initiatives.

The trends are going to improve there is an expected lag before the macro drivers. We believe are going to translate into spending. So those are the underpinnings of the assumptions that we've made here for 'twenty 'twenty four and again the improvement is just a function of what we're cycling in the second half versus our views on the macro and the timing of any improvement.

Speaker Change: We have made significant progress in realizing our productivity goals over the past few years and we remain laser focused on driving these PPI efforts and closely managing expenses through this tough sales environment.

Thanks, Good luck.

Thanks Amy.

Speaker Change: These expectations result in full year earnings per share of approximately $12 to $12 30.

Our next question is from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.

Thanks, Good morning, everybody. So two related questions follow up on the demand environment first did you say what do you think weather was a net headwind in the fourth quarter. Obviously December was warmer year over year and that probably helps areas like outdoor paint, but then January was much colder and you have a much more southern geography, and it seemed to impact that part of the country more so do you think.

Speaker Change: Now to assist you with your modeling I would like to take a moment and provide some color on the cadence of our expected results for the year.

Speaker Change: As a reminder, the steep pullback in DIY demand, which intensified in the third quarter of 2023 sets us up for different compares in the first and second half of this year.

It was actually a net headwind over the quarter was it more neutral when you think about the December side and then.

Brendan you mentioned green shoots on on share of wallet did you see anything in the holiday period that would suggest that that share of wallet pull forward is at least starting to move fast you, but maybe not moving towards more positive side.

Speaker Change: Given this we expect first half comp sales to remain under pressure as the current DIY demand trends continue.

Speaker Change: But as we move into the second half, we expect comp sales to improve as we begin to cycle over the pullback in the third quarter.

Chris Let me I'll hit the weather things first and it really was just a January winter extreme winter weather story impacted January as we size at about 200 basis points of impact on the month. It had an outsized impact on our pro business over those weeks. The other weather theme also just to mention as we cycled two straight years of hurricane recovery with Eon and Idaho, It's about 150 basis point comp in packaging.

Speaker Change: To be clear, we are not forecasting an improvement in demand trends. This year, rather the compares are easier in the second half.

Speaker Change: And while we are planning for a normal spring season, the timing of spring is unpredictable and always bring some variability to our first half performance.

For just cycling that but again that was all baked into our expectations and in terms of just what we saw through the holiday season, I'll actually pass it over to Bill and he can give a view on what we saw in terms of consumer behavior. There because I think for the holiday we saw as I mentioned in my prepared remarks, we saw a record holiday sales we saw the consumer respond very favorably to our trim a tree program.

Speaker Change: Given our customer mix these DIY drivers disproportionately impact our business.

Speaker Change: Now more specific to our first quarter, we expect comp sales to be consistent with our fourth quarter results approximately 300 basis points below the bottom of our full year guide.

And so a nice nice performance there we also saw.

As you mentioned December was warmer and so we saw those outdoor businesses perform both on the pro side as well as on the DIY side as the consumer continues to take an outdoor projects and as we've rolled into February and get started with 'twenty 'twenty four.

Speaker Change: The combination of lower sales volumes as well as cycling a sizable legal settlement is expected to result in a Q1 operating margin rate approximately 200 basis points below the prior year adjusted rate.

Begin to start or our spring program for the South and deep South we're starting to see some of those early signs of spring where the weather was warmer we're starting to get started with some of the spring related businesses. So where we've got some warm weather were starting to see some of those early signs of spring. So we're excited about that.

Speaker Change: Before I close let me remind you of our capital allocation strategy, which remains unchanged. Our first priority is to reinvest in the business with capital expenditures of approximately $2 billion.

And then my follow up is on the appliance category. It did track below I think your overall comp you mentioned.

ASP pressures as you're leaning to the assortment more to the value side.

Or do you think how are you looking at your performance relative to the market I don't know if you track line or something gives you sort of unit demand performance relative to the market, but it's your largest category and obviously you are at a leading assortment in and footprint in the store. So how do you think you're performing on the share side. Thanks very much.

Speaker Change: Next we continue to target a 35% dividend payout ratio.

We also plan to use our free cash flow to repay a $450 million bond maturity, and then return excess cash to shareholders through share repurchases.

So for the year, we saw share growth in appliances for the quarter, we saw unit growth across all the major categories. We did see average selling price pressure as we called out for the key major events, both Black Friday and cyber Monday, we saw a nice performance across those holiday weeks.

Speaker Change: In closing we are confident in our ability to execute through the near term market uncertainty and remain focused on realizing the benefits of our total home strategy, while continuing to drive sustainable shareholder value and with that we'll open it up for questions.

And we're pleased with that we did see the consumer pivot and we met them, where they wanted to go and that was a shift from multi unit purchases to a single unit purchase is the consumer who is looking for that we also see the consumer moving to.

Speaker Change: Thank you.

Speaker Change: We're now ready for questions.

Speaker Change: To ask a question press star.

You know kind of two spectrums, we're seeing them look for value so looking for products and that value conscious and we're also seeing them trade up and finding innovation and El show El show two examples they'll look for entry level laundry for example, and then they're not afraid to invest in for example, the <unk> profile all in one washer dryer combination that retails for over $2500 of which we could sell every single one that we can get our hands on so those are just two spectrum.

Speaker Change: One on your telephone keypad.

Speaker Change: To withdraw your question press Star two.

Speaker Change: Two last questions from as many individuals as possible. Please limit yourself to one question and one follow up.

Speaker Change: Our first question today comes from the line of Peter Benedict with Baird. Please proceed with your question.

Peter Benedict: Hey, good morning, guys. Thanks for taking the question.

Or what's going on in that business and it's happening across really all categories of the appliance business. So it's really two spectrums of what's going on we're continuing to see our online appliance business performed very well as that business continues to evolve and we're continuing to build out our capabilities there to make sure that we're meeting the customer where they want to be met and those fulfillment capabilities and delivery and as Joe talked about with two way texting market delivery and getting all of those capabilities.

Peter Benedict: First one would be.

Peter Benedict: Just around the sensitivity of your margin forecast, if comps end up trending below that 2% to 3% range for the year.

Peter Benedict: And then alternatively as you think perhaps longer term.

Peter Benedict: Comps swing positive just what types of Incrementals do you think you could achieve on that given that you've been pretty lean on the expense front here.

<unk> rolled out so that we can fulfill the way we want to fulfill this is more of a just one last one on appliances.

<unk> of our market delivery supply chain infrastructure is going to be significant not only in 2020 forward for years to come I mean were virtually the only national player that can deliver major classes next day and two day in virtually every ZIP code in the country and Thats significant in addition to having same day capacity for customers that have emergency purchases, we still have to take with inventory.

Peter Benedict: Given the current.

Environment. That's my first question.

Peter Benedict: Yeah, Hey, Peter sure. This is Brandon in terms of incremental decremental, we've established essentially a flow through rule of thumb, if our sales do exceed the top end of our guide we do expect about 10 basis points for every 1% of incremental comp sales on the high side.

Every store where customers can come in and literally leawood and appliance within the hour and so our model is difficult if not impossible to replicate in the brands that bill and his team have brought to our assortment is something that we think will continue to work off work and managed through the macro environment and I think the other thing we've done a really nice job and we'll continue to listen to the consumer and can pivot based on where they want us to go.

Peter Benedict: On the low side.

Peter Benedict: Sales fall below the bottom end, we're looking at about 15 basis points of margin contraction for every point of comp decline. So high level that that's more of a rule of thumb on an annual basis. It doesn't necessarily work for in terms of quarterly performance and the other thing I'll stresses the plus 10 and minus 15 not.

Thanks very much.

Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.

Peter Benedict: Sara Lee natural outputs I would tell you that the model and the algorithm very contingent on us continuing to drive PPI across all functions and that's what's contemplated on both the upside in the downside.

Hi, good morning, Thanks for taking my question.

Thank you for your pressure DIY and I'm wondering if we could try and get our arms around that a little bit more in terms of how it compares the next what you were saying.

Smaller versus larger projects and then also the question guys.

Alright.

Speaker Change: Okay. That's helpful. Thanks for that.

Backlog.

What are you seeing in terms of percentage of mix.

Speaker Change: Secondly, just start out I mean, you've had success with our cost optimization efforts.

Thank you for taking my ticket.

Yes. This is mark I'll take the first part and I'll, let I'll, let bill jump in on the second part, but if you think about the DIY consumer for a second the consumer is healthy and we feel good about the financial wherewithal of the consumer they are simply choosing to leverage their spend in different places as we've discussed and it's not just us but in all the different companies that talk about consumer spending customers are just spending more of their work.

Speaker Change: Kind of.

Speaker Change: Our view on where you stand with those how much more is left to go and how that kind of plays into maybe your view of average ticket versus traffic in 'twenty four.

Speaker Change: Or you think you can hold onto the ticket in 'twenty four given all the dynamics out there in your clawing back some costs do you think you'll reinvest maybe tickets down just curious.

On experiences on travel on concerts.

On restaurants, because of this whole post COVID-19 relationship or getting back out and getting back to normal and also I don't think is a.

Speaker Change: How do you see that and are applying in 24. Thank you.

Yes, Peter I think to your first question on just our ability to manage cost were really pleased with our ability to manage expenses here. The last couple of years through this downturn, we have a robust and evolving roadmap of PPI initiatives.

Are you surprised what's to say that customers purchase quite a few home related goods during the pandemic, but we're still working through that cycle, having said that we believe that we will work our way out of this macro environment at some point, we're not trying to call the timing on it. Our objective is to continue to invest in our business and execute at a high level. So whenever that consumer spin reverts back to normal we're going to be in a perfect.

Speaker Change: We were down comps for seven this year expecting down at the mid 0.2, and a half so our ability to manage the sales deleverage there with that robust pipeline again really pleased there as we look out a number of initiatives you heard from Joe and Bill that we continue to be excited about we believe in 'twenty.

Positioned to take advantage of it one of the reasons why we launched our DIY loyalty program is specifically for the DIY consumer to give them some level of rationale to choose us over someone else and to create a level of differentiation in the marketplace. Both in store and online. So that we can be a preference for the DIY consumer and so as we think about what theyre buying and where we think that big ticket is going I think it remains to be seen but we feel.

Speaker Change: Four in particular that PPI is going to enable us to offset over $400 million of wage pressure inflationary pressure and strategic investments.

Good about what we're positioning for those consumers and we'll wait on whatever timeframe occurs within the change their spending habits.

Speaker Change: I think the second part of your question just as we think about ticket into 2024, we are expecting that to hold up and thats largely what we saw in 2023. The pullback is expected again in transactions.

I'll just add that it really varies by product category and so as I said with appliances, you've got really two spectrums going you've got the value conscious consumer looking at.

Low end pricing all the way to innovation and we meet the customer across a variety of price points and then you have the pro looking at their jobs and we can meet them wherever they want to be met whether that's you know in stock cabinets and having those products in our stores again across the multitude of price points that we offer in our stores and the different you know different levels of product quality of product that we offer both online and in store and as we get ready for spring we.

Speaker Change: Really the drivers of that pro growth positively impacting average ticket more from a mix standpoint, and then on the pressure point side, we're continuing to see the DIY bigger ticket.

Speaker Change: Pressure and Thats going to continue to be a drag we don't expect any significant improvement off of that second half 'twenty 2023 run rate.

Have you know a lot of new product that we're excited about and so you think about bigger ticket product like riding lawn mowers walk behind mowers. The launch of <unk> as you know bigger ticket product. We're excited about that and those are all new and so same thing with patio furniture as we introduce the origin and 'twenty. One we introduced the Allan Robb program. Those are bigger ticket products and she is looking to address an upgrader outdoor spaces. So again, we want to meet her wherever she wants to be met we wanted to be able to offer of <unk>.

Speaker Change: And then on appliances, specifically ASP pressure expected to continue as we return to a more.

Speaker Change: More of a pre pandemic environment, but overall as we cycle into the second half of the year, we are expecting a more normal historical relationship between average ticket and transactions.

Speaker Change: Gotcha. Thanks, I appreciate it good luck.

We are pricing to her based on how she wants to be met as he takes on these projects and that's what we're trying to do both online and in store and so we're excited about the readiness, we worked really hard with our assortment that we offer both online and in store. We've worked really hard to make sure that we've got these variations across the country. So that we're localized it too to address those needs across the different areas and geographies of our stores and we're ready we're ready for mother nature to cooperate and ready to go and so.

Thank you Peter.

Speaker Change: Our next question is from the line of Zach <unk> with Wells Fargo. Please proceed with your question.

Zach: Hey, good morning, I know, there's a lot of moving pieces on the SG&A line as you lap the legal settlement and some of the incentive comp dynamic. So is there any way you could bridge all the puts and takes in a little bit more detail from the 13, 3% operating margin in 'twenty three tier <unk>.

With that Rob we have time for one more question.

Thank you.

Final question will be from the line of Stephens account with Citi. Please state. Your question Hey, Good morning, Thanks, very much for taking my question Brandon I wanted to just circle back to the same store sales guidance and I was curious if you could talk a little bit more about that outlook in particular, because it doesn't add a pretty big improvement on a one year basis, and then also on a multiyear basis.

Zach: 12, seven in 'twenty, four and also any color on gross margin versus SG&A.

Zach: Yes. This is Brian and I would say on SG&A, it's really two themes and it's the cycling of the settlements and its deleverage on lower sales and when you look at the midpoint of the range a step back about 65 basis points.

So maybe just flush out a bit what's really driving the improvement because you couldn't you could arguably say that not.

Conservatives ammonia. Thank you.

Yes, Steve really just when we look at the cadence of comps I'm Gonna reaffirm my earlier comment we expect the macro pressures inflation higher interest rates are low housing turnover to persist when we look specifically at the second half we're cycling easier compares as we comp over the DIY weakness that intensified in particular in Q3 of last year and to be clear our comp improvement in the second half is not a result of any views on.

Brian: <unk> down about half and half there. So those are really as we look at managing SG&A in 'twenty. Four those are the pressure points, you mentioned incentive compensation, we paid a discretionary bonus in Q4 of $140 million, which offset.

The improving macro but purely a reflective of easier year over year comparison. So we looked at the cadence we looked at it you know a lot of different ways I would tell you on a two year basis, which we leaned into pretty hard to year ex lumber, there's a pretty consistent trajectory as we moved across the years. So we feel really comfortable with the full year the breakdown the comps and the operating margin and wanted to provide the right level of transparency and visibility to that.

Speaker Change: Any previously expected Q4 benefit that we had from lower management incentive comp and we're pleased that we were able to reward our frontline associates, but what that resulted in for the full year 2003.

Speaker Change: We had the benefit from lower management incentive comp based on performance that was offset by the discretionary frontline bonuses that we paid in Q2 and Q4, so that really does not create a headwind for us as we bridge 23 to 24, so back to the two themes, it's mainly the cycling of the legal settlements and the deleveraging.

Okay. That's helpful. And then a follow up I had is just on the overall framework is there anything that's new this year as you think about the opportunity and then when you think about the store portfolio more broadly one of your peers has shifted to opening stores would you consider being a net opening our stores at some point in the future. Thanks.

Speaker Change: Lower sales.

Hey, this is Marvin I'll I'll take that final part of your question. So on the new store openings is we're going to always look for what we describe as real estate voids around different parts of the country, where we believe that we can get the right return on our capital for new store investment, but candidly I mean, our focus is on space productivity, we have such incredible upside opportunities in our stores to just invest capital in our existing.

Speaker Change: Gotcha and then.

Speaker Change: Two more quick ones.

Speaker Change: Any color on gross margin and then second.

Speaker Change: Our pro comps were slightly positive in 'twenty three by my math and out Comping DIY for a few years now.

Speaker Change: Curious if you could just talk about DIY versus pro mix today, and it's still in that $75 25 range.

Existing infrastructure and create space productivity, we think the return on invested capital is significantly greater and using our dollars for that versus opening new stores with expensive real estate, where we're struggling to get those investments to pencil and again, we'll open a handful of stores, but boys, but youre going to see you all spend a ton of time on driving space productivity and creating greater value from the assets that we already own and that's going to be our aki.

Speaker Change: Yes, sorry, I forgot your gross margin question, so I'll take that one and I'll toss it to Marvin for pros. So we're expecting gross margins for 24 to be roughly flat on the gross margin themes are really similar to what we saw here in 2023 ongoing supply chain investment pressure as we wrap the rollout of market delivery, we're continuing to.

Focus relative to rule, we're extremely pleased with the performance of those 300 plus stores when you think about categories like pet.

Marvin R. Ellison: Make investments in pro fulfillment, but those pressures are being offset by ongoing PPI initiatives that bill discussed as we manage product costs lower transportation continue to expect private brands. So those are the puts and takes from a gross margin standpoint pro I'll talk to you more.

Things like clothing, and automotive they're positive performing all outperformed the company in most other merchandising categories that you're going to see you all start to expand some of those rule categories in non rule locations around the country. We wanted to make sure that we learned enough about the consumer demand.

Enough about how we serve customers well and bill and Joe and her team have done an exceptional job and so you're going to hear US continue to talk about this but it's something that we're very pleased with and you'll start to see it show up in more places around the portfolio of our stores.

So on the the mix that's directionally correct on our percentages and look we feel good about the resilience of our pro customer and as a reminder, our customers are small to medium size.

Thank you Wolfgang.

Marvin R. Ellison: <unk> business owner and we're actually pleased with the survey results, where they feel confident that they can bill the backlog is consistent with what they saw last year and that they can continue to drive their business again, they're cautiously optimistic based on what they know but that gives us confidence that the things we're doing around <unk>.

Thank you all for joining US today, we look forward to speaking with you on our first quarter earnings call in May.

This concludes.

2023 earnings call you may now disconnect.

Marvin R. Ellison: Loyalty around product assortment expansion around service levels, our digital platform and how we have dramatically improved that and we think we have a best in class experience is resonating and relative to the DIY.

Marvin R. Ellison: Equally we feel good about the level of execution in that business I mean, we viewed as broadly as a macro issue versus a strategic issue or any type of an execution issue as Brandon and I. Both said in our prepared comments when we think about the medium to long term, we're very bullish because we've made.

Marvin R. Ellison: <unk> investments in this business across supply chain.

Marvin R. Ellison: Infrastructure Omnichannel localization assortment planning.

Marvin R. Ellison: <unk> productivity store environment and service levels that we know are going to pay dividends not only in the short run while we deal with this macroeconomic headwind, but when the market recovers, we think we're perfectly positioned to grow and take market share.

Speaker Change: Thanks for the time.

Speaker Change: Thanks Zack.

Speaker Change: Our next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed.

Simeon Ari Gutman: With your question.

Simeon Ari Gutman: Hey, good morning, guys.

Simeon Ari Gutman: Marvin you answered just now touched on this a bit I wanted to put it out here. There is this perception or even misperception that the way that Lowe's as expenses have been so well managed could either impact how much sales can grow in the cycle resumes or how much EPS growth. If you have to put more SG&A back into the business. So I'm curious if you can comment on that.

<unk>.

Simeon Ari Gutman: No.

Marvin R. Ellison: Fair question I think the best way for me to answer would be our customer service results and when you look at the fact that we have improvements in both pro and DIY 200 basis points for both.

Marvin R. Ellison: That gives you an indication that our service levels remain extremely high and also it gives you.

Marvin R. Ellison: Understanding of the power of our PPI initiatives, because a lot of our expense takeout is not the traditional cut payroll. It is more about the investments of technology that drives productivity that allows us to add more hours to driving service and selling and taking.

Marvin R. Ellison: <unk> was out of tasking and Joe has talked about this for five years, you were trying to build a model, where we invest technology and we drive productivity that allows us to have more customer facing associates and less tasking.

Marvin R. Ellison: So we believe that our activity based staffing model puts us in a great position that when sales go up we invest to payroll based on the activity driven to create the sales and when sales come down we have a activity based system that we think is best in class that we can take.

Marvin R. Ellison: <unk> was out based on department level day, and hour that we think will drive the business from a productivity standpoint, but without hindering service. So we feel good about the whole model and we don't think theres any negative implications of sales going up and SG&A not being able to be managed as <unk>.

Marvin R. Ellison: And as efficiently as we manage that the last couple of years.

Speaker Change: Let me give you a quick example.

Speaker Change: If you think about five years ago, when we had less than 50% of the stores that actually have self checkout and so over the last five years. We've mentioned we've developed our own internal self checkout built with the home improvement customer in mind.

Speaker Change: Now have that complete across the entire chain and now we have started our front end transformation and adding incremental assisted self checkouts. We have 400 stores complete. This has also allowed us to rollout a best in class loyalty program for the DIY customer that is tied right in with our mobile technology and so as we look to complete the.

Speaker Change: Incremental 500 in 2024, and then I mentioned in prepared remarks, our backend initiatives too so very confident in the activity based labor model and the PPI initiatives, we continue to focus on.

Speaker Change: One last point I mean, that's just one example.

Speaker Change: Hempel of many initiatives that.

Speaker Change: Brandon and I, both have on our timeline that we've yet to develop and yet to implement so this is a ongoing process that is alive and well and every function, including merchandising as bill outlined in his prepared comments.

Speaker Change: Thanks for that follow up is on the cycle.

Speaker Change: I think in some models.

Speaker Change: Weak as part of the cycle would have been the second half of 'twenty, three and even the first half of 'twenty four and maybe the market was kind of looking for light a little bit sooner I can't tell if that was your base case as well it seems like the market is more dependent on existing home sales and then Marvin you mentioned.

Speaker Change: In the prepared comments that it is the big question and whether or not we get back to something normal and I'm curious when when things start up again do we get back to normal or is it something thats less than normal.

Speaker Change: Well I'll give you my perspective, Simeon I'll, let Brandon provide any additional comments when you think about the cadence of our comp sales for this year as Brandon mentioned.

Speaker Change: It's more indicative of year over year comparison versus our forecast that the market is going to improve at some point. This year, we hope that it improves and we are positioning ourselves that when that happens we think that we will have outsized top and bottom line growth.

Brandon: Our perspective of 2024, we're going to feel this DIY pressure throughout the year and we're going to perform at a high level irrespective of kind of what type of macro environment that we're dealing with I'll, let brand and add any additional comment I would just say I mean, you mentioned the.

Brand: Our base case, I mean, our base case guide assumes no change in macro conditions versus what we've experienced here. The last couple of quarters. It's unclear is the timing of the rate cuts the improvements in home improvement share of wallet Marvin mentioned housing turnover consumer sentiment, so sort of a more of the same philosophy there.

Brand: And even when we start to see some green shoots there it's going to be.

Brand: The trends are going to improve there is an expected lag before the macro drivers. We believe are going to translate into spending. So those are been the underpinnings. The assumptions that we've made here for 2024 and again the improvement is just a function of what we're cycling in the second half versus our.

Brand: Views on the macro and the timing of any improvement.

Speaker Change: Thanks, Good luck.

Speaker Change: Thanks Amy.

Speaker Change: Our next question is from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.

Christopher: Thanks, Good morning, everybody so.

Christopher: Two related questions.

Christopher: A follow up on the demand environment first.

Christopher: Did you see or what do you think weather was a net headwind in the fourth quarter. Obviously December was warmer year over year and that probably helps areas like outdoor pain.

Christopher: But then January as much colder and you have a much more southern.

Christopher: Geography, and it seemed to impact that part of the country more so do you think whether it was actually a net headwind over the quarter was it more neutral when you think about the December side and then.

Christopher: Brandon you mentioned crane shoots on on share of wallet did.

Did you see anything in the holiday period that would suggest that that share of wallet pull forward is at least starting to move past you, but maybe not moving towards the more positive side.

Speaker Change: Chris Let me I'll hit the weather things first and it really was just a January winter extreme winter weather story.

Speaker Change: Impacted January as we sized at about 200 basis points of impact on the month. It had an outsized impact on our pro business over those weeks. The other weather theme also just dimension as we cycled two straight years of hurricane recovery with Eon and Ida.

Speaker Change: About 150 basis point comp impact to Q4, just cycling that but again that was all baked into our expectations.

Speaker Change: And in terms of just what we saw through the holiday season, I'll actually pass it over to Bill and he can give a view on what we saw in terms of consumer behavior there.

Bill: I think for the holiday we saw as I mentioned in my prepared remarks, we saw record holiday sales, we saw the consumer respond very favorably to our trim a tree program.

And so a nice nice performance there we also saw.

Bill: As you mentioned December was warmer and so we saw those outdoor businesses performed both on the pro side as well as on the DIY side as the consumer continued to take on outdoor projects.

Bill: We've rolled into February and get started with 2024.

Begin to start or.

Bill: Our spring program for the South and deep South.

Bill: We're starting to see some of those early signs of spring, where the weather is warmer we're starting to get started with some of those spring related businesses. So.

Bill: Where we've got some warm weather, we're starting to see some of those early signs of spring. So we're excited about that.

Speaker Change: And then my follow up is on the appliance category. It did track below I think your overall comp you mentioned.

Speaker Change: ASP pressures as you're leaning Tim the assortment more to the value side.

Speaker Change: Or do you think how are you looking at your performance relative to the market I don't know if you.

Speaker Change: Track line or something that gives you sort of unit demand performance relative to the market but.

Speaker Change: It's your largest category and obviously you have a leading assortment in and footprint in our stores. So how do you think you are performing on the share side. Thanks very much.

Speaker Change: Yeah. So for the year, we saw share growth in appliances for the quarter. We saw unit growth across all the major categories. We did see average selling price pressure as we called out.

Speaker Change: For the key major events, both Black Friday and cyber Monday.

Speaker Change: Nice performance across those holiday weeks.

Speaker Change: And we're pleased with that we did see the consumer pivot and we met them, where they wanted to go and that was a shift from multi unit purchases to a single unit purchase is the consumer who is looking for that we also see the consumer moving to.

Speaker Change: Kind of two spectrums, we're seeing them look for value so looking for products.

Speaker Change: And that value conscious and we're also seeing them trade up and finding innovation and I'll show I'll share two examples they'll look for entry level laundry for example, and then they're not afraid to invest in for example, the GE profile all in one washer dryer combination that retails for over $2500 of which.

Speaker Change: We could sell every single one that we can get our hands on so those are just two spectrums of what's going on in that business and it's happening across really all categories of the appliance business. So it's really two spectrums of what's going on we're continuing to see our online appliance business performed very well as that business continues to evolve and.

Speaker Change: So we're continuing to build out our capabilities there.

Speaker Change: To make sure that we're meeting the customer where they want to be met and those fulfillment capabilities in delivery in <unk>.

Speaker Change: As Joe talked about with two way text and market delivery and getting all of those capabilities.

Rolled out so that we can fulfill the way we want to fulfill and Chris. This is Marvin just one last point on appliances. The the work of our market delivery supply chain infrastructure is going to be significant not only in 2024, but for years to come.

Speaker Change: Virtually the only national player that can deliver major appliances next day and two day in virtually every ZIP code in the country and that significant in addition to having same day capacity for customers that have emergency purchases, we still have take with inventory and virtually every.

Speaker Change: Store, where customers can come in and literally Lee with an appliance within the hour and so our model is difficult if not impossible to replicate in the brands that bill and his team have brought to our assortment is something that we think will continue to work for us and look we will work and managed through the macro environment and I.

Speaker Change: I think bill and his team have done a really nice job and we will continue to listen to the consumer and pivot based on where they want us to go.

Speaker Change: Thanks very much.

Speaker Change: Our next question comes from the line of Kate Mcshane with Goldman Sachs. Please proceed with your question.

Katharine McShane: Hi, good morning, Thanks for taking our question.

Katharine McShane: You mentioned big tickets still stays under pressure.

Katharine McShane: Why did we wondered if we could try and get our arms around that a little bit more in terms of how it compares the mix of what you were seeing pre pandemic in terms of smaller versus larger projects and that also that question goes to the prowess.

Speaker Change: All right.

Speaker Change: Within the backlog sounds like Youre seeing a stable backlog, but what are you seeing in terms of percentage of the mix when it comes to those big ticket versus smaller ticket.

Speaker Change: Yes. So this is Marvin I'll take the first part and I'll, let I'll, let bill of Joe jump in on the second part, but if you think about the DIY consumer for a second the consumer is healthy.

Marvin R. Ellison: And we feel good about the financial wherewithal of the consumer there are simply choosing to leverage their spend in different places as we've discussed and is not just us but in all the different companies that talk about consumer spending customers are just spending more of their wallet on experiences on travel.

Marvin R. Ellison: <unk> on concerts.

Marvin R. Ellison: On restaurants because of this whole.

Marvin R. Ellison: Covid relationship with getting back out and getting back to normal and I also I don't think is.

Marvin R. Ellison: A surprise for us to say that customers purchase quite a few home related goods during the pandemic. So we're still working through that cycle, having said that we.

Marvin R. Ellison: We believe that we will work our way out of this macro environment at some point, we're not trying to call the timing on it.

Marvin R. Ellison: Our objective is to continue to invest in our business and execute at a high level. So whenever that consumers spin reverts back to normal we're going to be in a perfect position to take advantage of it one of the reasons why we launched our DIY loyalty program is specifically for the DIY consumer to give them.

Marvin R. Ellison: Some level of rationale to choose us over someone else.

Marvin R. Ellison: And to create a level of differentiation in the marketplace. Both in store and online. So that we can be a preference for the DIY consumer and so as we think about what they are buying and where we think that big ticket is going I think it remains to be seen but we feel good about what we're positioning for those consumers and we'll wait on whatever.

Marvin R. Ellison: Timeframe occurs with them to change their spending habits.

Speaker Change: Kate I would just add that it really varies by product category and so as I said with appliances, you've got really two spectrums going you've got the value conscious consumer looking at.

Speaker Change: Low end pricing all the way to innovation and we meet the customer across a variety of price points and then you have the pro looking at.

Speaker Change: Their jobs and we can meet them wherever they want to be met whether thats on stock cabinets and having those products in our stores again across a multitude of price points that we offer in our stores and the different different levels of product quality of product that we offer both online and in store and as we get ready for spring.

Speaker Change: We have a lot of new product that we're excited about and so you think about bigger ticket product like riding lawnmowers walk behind mowers. The launch of Toro, It's bigger ticket product we're excited about that.

Speaker Change: And those are all new and so same thing with patio furniture as we introduce.

Speaker Change: Origin 'twenty, one we introduced the Allen and Roth program those are bigger ticket products as she is looking to address an upgrader outdoor spaces. So again, we want to meet her wherever she wants to be met we want to be able to offer a variety of pricing to her based on how she wants to be met as she takes on these projects and that's what we're trying to do both online and.

Speaker Change: In store and so we're excited about the readiness, we've worked really hard with our assortments that we offer both online and in store. We've worked really hard to make sure that we've got these variations across the country. So that we are localized to to address those needs across the different areas and geographies of our stores and we're ready we're re.

For mother nature to cooperate and we're ready to get going so with.

Speaker Change: With that Rob we have time for one more question.

Rob: Thank you.

Rob: Our final question will be from the line of Stephens account with Citi. Please proceed with your question.

Stephens: Great. Good morning, Thanks, very much for taking my question.

Stephens: Brendan I wanted to just circle back to the same store sales guidance and I was curious if you could talk a little bit more about that second half outlook in particular, because it does embed a pretty big improvement on a one year basis, and then also on a multiyear basis.

Stephens: Tax perspective, so maybe just flush out a bit what's what's really driving the improvement because you could you could arguably say that's not.

Speaker Change: Conservative and one deal thank you.

Speaker Change: Okay.

Brendan: Yes, Steve.

Speaker Change: Really just when we look at the cadence of comps I'm going to reaffirm my earlier comment we expect the macro pressures inflation higher interest rates low housing turnover to persist when we looked specifically at the second half.

Steve: We're cycling the easier compares as we comp over the DIY weakness that intensified in particular in Q3 of last year and to be clear our comp improvement in the second half is not a result of any views on the improving macro but purely a reflective of easier year over year comparison.