Q2 2024 Lowe's Companies Inc Earnings Call

August 20, 2024

At Lowe's, save big every day when you buy in bulk. Save 10% when you buy one pallet or more of select shingles. Plus save 10% when you buy 68 or more select OSB sheathing.

At Lowe's, save big every day when you buy in bulk, save 10% when you buy one pallet or more of select shingles, plus save 10% when you buy 68 or more select OSB sheathing, and if you find a lower price in-store or online, we'll match it, because Lowe's knows savings, Lowe's knows pros.

Unknown Executive: At Lowe's, save big every day when you buy in bulk. Save 10% when you buy one pallet or more of select shingles, plus save 10% when you buy 68 or more select OSB sheathen. And if you find a lower price in store or online, we'll match it because Lowe's knows savings; Lowe's knows pros.

Speaker Change: at lows save big every day when you buy in bo save ten percent when you buy one palateter more of select shingles plus save ten percent when you buy sixty eight or more select osb shea and if you find a lower price in store online will' match because lows no savings lows nos pro

Speaker Change: This has been a presentation of Goldman Sachs.

Speaker Change: And if you find a lower price in-store or online, we'll match it, because Lowe's knows savings.

Speaker Change: Lowe's knows pros.

Speaker Change: Savings.

Savings, now that's speaking the Lowe's language, and when you join Milo's Rewards for free, the savings just keep coming, save money with member only offers, plus earn points when you shop, more points equal more rewards just for you, because Lowe's knows you earned it, literally, learn more about our loyalty program at Lowe's.com slash Milo's Rewards and become a member for free today.

these near-term market uncertainties while making the right investments in our total

Hi, good morning.

And then secondly, there's been some mention of faster delivery times, one day, two day

Unknown Executive: Savings, now that's speaking the Lowe's language, and when you join my Lowe's rewards for free, the savings just keep coming. Save money with member-only offers, plus earn points when you shop. More points equal more rewards just for you, because Lowe's knows you earned it, literally.

Speaker Change: Savings. Now that's speaking the Lowe's language. And when you join MyLowe's Rewards for free, the savings just keep coming. Save money with member-only offers, plus earn points when you shop. More points equal more rewards, just for you. Because Lowe's knows you earned it, literally. Learn more about our loyalty program at Lowe's.com slash MyLowe's Rewards and become a member for free today.

Unknown Executive: Learn more about our loyalty program at Lowe's.com/myLowe'sRewards, and become a member for free today.

Unknown Executive: Lowe's knows how to save time and money for the pros, now 20% in the cup and a cup of 5 gallons of vouch for defense or tints is gathered, and there are more, you've lost before the 2 p.m. to receive it the same day with free entry in the work, because Lowe's out of the pros.

Speaker Change: Lowe's knows how to save time and money for the pros. Save 20% on 1 gallon cans and 5 gallon jugs of Valspar Defense or Tinted Cabot. And there's more. Make your order before 2pm to receive it the same day with free delivery at the factory. Because Lowe's knows about the pros. Free. Who doesn't love free? Join Milo's Rewards, you guessed it, for free. And get the member-only treatment that's worth it. Get access to free member gifts you'll love. And once you reach Silver Key status, you can get free standard shipping. Because Lowe's knows nothing feels better than free. Learn more about our loyalty program at Lowe's.com slash Milo's Rewards and join for free.

Free, who doesn't love free?

Unknown Executive: Free, who doesn't love free? Join my Lowe's rewards, you guessed it, for free, and get the member-only treatment that's worth it. Get access to free member gifts you love, and once you reach Silver Key status, you can get free standard shipping, because Lowe's knows nothing feels better than free.

Unknown Executive: Learn more about our loyalty program at Lowe's.com slash My Lowe's Rewards, and join for free.

Join Milo's Rewards, you guessed it, for free, and get the member only treatment that's worth it.

home strategy all while continuing to drive sustainable shareholder value.

Thanks for taking our question.

shipping to those markets for major e-commerce player.

Get access to free member gifts you'll love, and once you reach silver key status, you can get free standard shipping, because Lowe's knows nothing feels better than free.

Learn more about our loyalty program at Lowe's.com slash Milo's Rewards and join for free.

Unknown Executive: Good morning everyone, welcome to Lowe's Companies 2nd quarter, 2024 earning conference call.

Speaker Change: Now that's speaking the Lowe's language.

Speaker Change: Yeah, Kate, we're really pleased with the ability to team, you know, to manage inventory, we continue to manage it with the sales trends that we're seeing, you know, as inventory declined faster than sales inventories down, you know, 3.3% year every year, we remain focused on making the investments in pro depth and brands and support and accelerate the pro growth that we've talked about, we feel like we're in a great position on in stock levels.

robini'll: Good morning, everyone. Welcome to Lowe's Companies second quarter 2024 earnings conference call. My name is Rob and I'll be your operator for today's call. As a reminder, this conference is being recorded. I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer.

Unknown Executive: My name is Robin. I'll be your operator for today's call. As a reminder, this conference is being recorded.

Kate Proman: I now turn the call over to Kate Proman, Vice President of Vestrelations and Treasurer. Thank you and good morning. Here with me today are Marvin Ellison, chairman, and chief executive officer. Bill Bulls are Executive Vice President Merchandising. Joe McFarland is Executive Vice President, Stores, and Brandon Sink is Executive Vice President and Chief Financial Officer.

robini'll: And when you join MyLowe's Rewards for free, the savings just keep coming. Save money with member-only offers, plus earn points when you shop.

robini'll: And then from a seasonal inventory standpoint, also in a good spot, as we've managed the seasonal buy to the to the trends we're seeing.

robini'll: More points equal more rewards, just for you.

robini'll: And I think you also mentioned your freight rates from a transportation standpoint, we continue to see lower transportation costs as we've leveraged our scale to drive the lower rates that we've seen with our carriers, you're mostly insulated from that, because we have contract pricing, and we see those favorable rates kind of extending through the first part of 2025. So we expect the favorability that we've seen in Q2 to kind of extend through the remainder of the year. And that's baked in our gross margin guide.

Speaker Change: Thank you and good morning. Here with me today are Marvin Ellison, Chairman and Chief Executive Officer, Bill Boltz, our Executive Vice President, Merchandising, Joe McFarland, our Executive Vice President, Stores, and Brandon Sink, our Executive Vice President and Chief Financial Officer.

Speaker Change: Because Lowe's knows you earned it, literally.

We were wondering if you could speak to how you're managing your inventory levels.

Kate Proman: 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 this call, we will be making comments that are forward-looking, including our expectations for fiscal 2024. 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 other SEC filings. Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP can be found on the quarterly earning section of our investor relations website.

Speaker Change: 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.

Speaker Change: During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2024.

Speaker Change: 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 other SEC filings.

Speaker Change: Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found on the quarterly earnings section of our investor relations website. Now, I'll turn the call over to Marvin.

Marvin Ellison: Now, I'll turn the call over to Marvin. Thank you, Kate.

Speaker Change: Learn more about our loyalty program at Lowe's.com slash MyLowe's Rewards and become a member for free today.

Speaker Change: And Kate, this is Marvin.

Good morning, everyone.

And with that, we will open it up for your questions.

I know inventory was down on a dollar basis in the quarter, but how are you thinking about inventory in the context of maybe a slightly more cautious demand environment in the second half, as well as possibly having to manage a higher ocean freight environment?

How should we think about any potential

Yeah, Kate, we're really pleased with the ability of the team to manage inventory. We continue to manage it with the sales trends that we're seeing. As inventory declined faster than sales, inventory's down 3.3% year over year.

Speaker Change: ¡Lowe's sabe ahorrarles tiempo y dinero a los pros!

Speaker Change: Well, one thing we don't talk a lot about is how we've converted our regional distribution centers to be more of a flow through a product versus stocking a product.

Marvin Ellison: Good morning, everyone, and thank you for joining us. 2nd quarter sales were $23.6 billion, with comparable sales down 5.1 percent from the same period last year. While we're pleased that we delivered positive comps and pro and online sales, we continue to manage through softness and DIY demand. Although this remains a challenging industry backdrop for the homeowner, I'm pleased with our team's ability to effectively manage the business. This is reflected in our discipline, expense management across the company, along with continual progress on our perpetual productivity improvement or PPR initiative. These efforts helped us respond to the pullback in DIY discretionary projects and unpredictable weather across the country to deliver better-than-expected flow through while improving the customer experience.

We remain focused on making the investments in pro-depth and brands to support and accelerate the pro-growth that we've talked about.

Speaker Change: ¡Ahorra 20% en latas de 1 galón y cubetas de 5 galones de Valspar Defense o Tintes Cabot!

Marvin: thank you katinging good morning everyone and thank you for joining us second quarter sales were twenty three point six billion dollars with comparable sales down five point one percent from the same period last year

Marvin: ¡Y hay más!

Marvin: If you go back to six years ago, these RDCs were basically the traditional hub and spoke, Distribution Centers that basically held and stored inventory and replenished stores.

Welcome to Lowe's Company's second quarter 2024 earnings conference call.

Thank you.

We feel like we're in a great position in stock levels and then from a seasonal inventory standpoint, also in a good spot as we've managed the seasonal buys to the trends we're seeing.

impact for the more rural Lowe's store base, just given that development?

I think you also mentioned freight rates. From a transportation standpoint, we continue to see lower transportation costs as we've leveraged our scale to drive the lower rates that we've seen with our carriers, mostly insulated from that because we have contract pricing and we see those favorable rates extending through the first part of 2025.

Marvin: Haz tu pedido antes de las 2 p.m. para recibirlo el mismo día con entrega gratis en la obra.

Marvin: And that really put a lot of pressure on terms and overall inventory position.

Marvin: While we're pleased that we delivered positive comps and pro and online sales, we continue to manage through softness and DIY demand. Although this remains a challenging industry backdrop for the homeowner, I'm pleased with our team's ability to effectively manage the business.

Marvin: ¡Porque Lowe's sabe de pros!

Marvin: But over the years, the team has converted that to being majority flow.

Marvin: So we're just becoming more of a cross-stock type of environment, and we have very small percent of the inventory being stocked. That will continue to evolve over time.

Marvin: And as Brandon noted, as we continue to make investments and finalize our buildout of our market delivery, that also puts us in a great position to continue to be the industry leader in appliances without having to hold that inventory the way we did years ago in the back of every store.

My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded.

We're now ready for questions.

We expect the favorability that we've seen in Q2 to extend through the remainder of the year, and that's baked in our gross margin guide.

If you'd like to ask a question, press star 1 on your telephone keypad.

Marvin: So there are constant things that we're working on that's going to give us the ability to improve our inside position, but also improve our turns at the same time.

To withdraw your question, press star 2.

Marvin: This is reflected in our discipline expense management across the company, along with continual progress on our Perpetual Productivity Improvement, or PPI, initiatives.

Marvin: Our next question is from the line of Robby Ohms with Bank of America.

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

In order to allow questions for as many individuals as possible, please limit yourself to one

Kate, this is Marvin.

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.

Marvin: Oh, thanks for taking my question.

Jo: These efforts helped us respond to the pullback in DIY discretionary projects and unpredictable weather across the country to deliver better-than-expected flow-through while improving the customer experience. Later in the call, Joe will provide more detail on our improved customer service results in Q2.

During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2024. 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.

question and one follow-up.

One thing we don't talk a lot about is how we've converted our regional distribution centers to be more of a flow through a product versus stocking a product.

If you go back to six years ago, these RDCs were basically the traditional hub-and-spoke distribution centers that basically held and stored inventory and replenished stores, and that really put a lot of pressure on turns and overall inventory position.

Joe Mcfarland: Later in the call, Joe will provide more detail or improved customer service results in Q2. We're also encouraged to see results from our ongoing investments in our total home strategy this quarter, allowing us to deliver mid-single digit positive COPS in pro and 2.9% comparable sales growth online. This demonstrates the importance of these strategic investments and shows that our total home strategy is gaining traction, even in this pressured macro environment. Our resilient, small to medium pro customers are responding to the way we've transformed our product and service offerings to meet their needs. Bill Angio will provide more detail on our successful pro-initiative later in the call.

Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found on the quarterly earnings section of our Investor Relations website.

Our first question is from Simeon Gutman with Morgan Stanley.

Now, I'll turn the call over to Marvin.

Please proceed with your question.

Thank you, Kate, and good morning, everyone, and thank you for joining us.

Good morning, everyone.

Well, the great thing about our gig network and the work that we've done online is that we're serving all customers and

Second quarter sales were $23.6 billion, with comparable sales down 5.1 percent from the same period last year.

At Lowe's, save big every day when you buy in bulk, save 10% when you buy one pallet or more of select shingles, plus save 10% when you buy 68 or more select OSB sheathen, and if you find a lower price in store online, we'll match it because Lowe's know savings, Lowe's knows pros.

Unknown Executive: At Lowe's, save big every day when you buy in bulk, save 10% when you buy one pallet or more of select shingles, plus save 10% when you buy 68 or more select OSB sheathen, and if you find a lower price in store online, we'll match it because Lowe's know savings, Lowe's knows pros. Savings, now that's speaking the Lowe's language, and when you join my Lowe's rewards for free, the savings just keep coming. Save money with member-only offers, plus earn points when you shop, more points equal more rewards, just for you, because Lowe's knows you earned it, literally.

Jo: We're also encouraged to see results from our ongoing investments in our Total Home Strategy this quarter, allowing us to deliver mid-single-digit positive comps in Pro and 2.9% comparable sales growth online.

While we're pleased that we delivered positive comps in pro and online sales, we continue to manage through softness in DIY demand.

I have one question about top line and then a second about margin.

giving them ability to get same day, next day fulfillment across all of our partners.

We feel really good about what's

Jo: This demonstrates the importance of these strategic investments and shows that our total home strategy is gaining traction even in this pressured macro environment.

Speaker Change: Savings, now that's speaking the Lowe's language, and when you join my Lowe's rewards for free, the savings just keep coming. Save money with member-only offers, plus earn points when you shop, more points equal more rewards, just for you, because Lowe's knows you earned it, literally.

Speaker Change: Our resilient small to medium pro customers are responding to the way we've transformed our product and service offerings to meet their needs. Bill and Jill will provide more detail on our successful pro initiatives later in the call.

Marvin Ellison: When it comes to online sales, we delivered growth across all three business areas driven by continued improvement in conversion rates as customers responded to our compelling offers and to our new expanded same-day delivery options that are now available on multiple platforms. In Q2, we added UberEats to our list of delivery partners, which also includes DoorDash, Ship, and Instacart. In addition to our last-byld technology partner, OneRail provides a fully integrated solution available on Lowes.com and in-store. As we continue to evolve our omnichannel strategy, we've learned that having multiple delivery platforms extends our reach into both urban and suburban areas and helps us drive incremental sales with different types of customers, especially younger generations who are more digitally savvy.

Although this remains a challenging industry backdrop for the homeowner, I'm pleased with our team's ability to effectively manage the business.

Speaker Change: Learn more about our loyalty program at Lowe's.com slash my Lowe's rewards, and become a member for free today.

Unknown Executive: Learn more about our loyalty program at Lowe's.com slash my Lowe's rewards, and become a member for free today. Free, who doesn't love free? Join my Lowe's rewards, you guessed it for free, and get the member-only treatment that's worth it. Get access to free member gifts, you'll love, and once you reach Silver Key status, you can get free standard shipping, because Lowe's knows nothing feels better than free.

Speaker Change: When it comes to online sales, we delivered growth across all three business areas, driven by continued improvement in conversion rates,

Speaker Change: As customers responded to our compelling offers and to our new expanded same-day delivery options that are now available on multiple platforms.

Speaker Change: In Q2, we added Uber Eats to our list of delivery partners, which also includes DoorDash, Shipt, and Instacart, in addition to our last-mile technology partner, OneRail, provides a fully integrated solution available on Lowes.com and in-store.

Speaker Change: Free, who doesn't love free?

Speaker Change: Join my Lowe's rewards, you guessed it for free, and get the member-only treatment that's worth it.

Speaker Change: As we continue to involve our omni-channel strategy, we've learned that having multiple delivery platforms extend our reach into both urban and suburban areas and helps us drive incremental sales with different types of customers, especially younger generations who are more digitally savvy.

Speaker Change: Get access to free member gifts, you'll love, and once you reach Silver Key status, you can get free standard shipping, because Lowe's knows nothing feels better than free.

Speaker Change: Learn more about our loyalty program at Lowe's.com slash my Lowe's rewards and join for free.

Unknown Executive: Learn more about our loyalty program at Lowe's.com slash my Lowe's rewards and join for free.

Marvin Ellison: We're also reaching a broader customer base in making a deeper connection with our new and existing customers through our marketing campaigns featuring sports icons like Lionel Messi, widely recognized as the best soccer player in the world. We have very effectively leveraged our partnership with Messi to gain exposure to our new DIY loyalty program, MyLoads Rewards. Overall, we're very pleased with our MyLoads Rewards loyalty program, which just launched nationwide in March, and through this program, we've learned more about our customers' lifestyle and purchasing trends, which will allow us to curate meaningful offers for them now and in the future.

Speaker Change: Good morning everyone, welcome to Lowe's companies, second quarter, 2024 earnings conference call.

Robin: Good morning everyone, welcome to Lowe's companies, second quarter, 2024 earnings conference call. My name is Robin, I'll be your operator for today's call. As a reminder, this conference is being recorded.

Robin: My name is Robin, I'll be your operator for today's call.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I now turn the call over to Kate Proman, Vice President of Vester Relations and Treasurer.

Kate Proman: I now turn the call over to Kate Proman, Vice President of Vester Relations and Treasurer. Thank you and good morning. Here with me today are Marvin Ellison, Chairman and Chief Executive Officer, Bill Bulls, our Executive Vice President Merchandising, Joe McFarland, our Executive Vice President Stores, and Brandon Sink, our Executive Vice President and Chief Financial Officer.

Speaker Change: We have very effectively leveraged our partnership with MESI to gain exposure to our new DIY loyalty program, MyLowe's Rewards.

Speaker Change: Thank you and good morning.

Speaker Change: Here with me today are Marvin Ellison, Chairman and Chief Executive Officer, Bill Bulls, our Executive Vice President Merchandising, Joe McFarland, our Executive Vice President Stores, and Brandon Sink, our Executive Vice President and Chief Financial Officer.

Speaker Change: Overall, we're very pleased with our MyLowe's Rewards Loyalty Program, which just launched nationwide in March. And through this program, we've learned more about our customers' lifestyle and purchasing trends, which will allow us to curate meaningful offers for them now and in the future.

Kate Proman: 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 this call, we will be making comments that are forward-looking, including our expectations for fiscal 2024. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MDNA and other sections of our annual report on Form 10K and our other SEC filings. Additionally, we'll be discussing certain non-GAP financial measures. A reconciliation of these items to USGAP can be found on the quarterly earnings section of our Investor Relations website.

Marvin Ellison: Now let me tell you about how we're leading the way with innovation and home improvement. Loads is working with Apple to help customers visualize and design their dream kitchens using Apple Vision Pro. This past quarter, we piloted an in-store design experience for our customers in three test markets. Where, with the help from a Loads associate, customers could wear the Apple Vision Pro and use the Loads Style Studio app to explore and customize hundreds of kitchen designs in 3D using products, fixtures, and appliances all available at Loads. This is just one example of how we're leading into innovation while we're also working with leading platforms like Nvidia, OpenAI, and Palantir to develop AI solutions for both our customers and our associates to help us improve how we sell, shop, and how we work.

Speaker Change: ¡Gratis!

Speaker Change: You know, really just two quick questions just on the back half and just going forward from here, the the PPI initiatives have been amazing, you know, on the expense side, you know, how much room is left?

So the first question on the spread between DIY and pro, I don't think we have that for

But over the years, the team has converted that to being majority flow, so we're just becoming more of a cross-stock type of environment and we have very small percent of the inventory being stocked.

happening in our rural markets.

Speaker Change: During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2024.

Speaker Change: Now let me tell you about how we're leading the way with innovation and home improvement.

Speaker Change: ¿Quién no ama gratis?

Speaker Change: At what point?

Speaker Change: ¡Júntate a los recompensas de MyLowe's, tú lo has adivinado, gratis!

Speaker Change: Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MDNA and other sections of our annual report on Form 10K and our other SEC filings.

Speaker Change: Lowe's is working with Apple to help customers visualize and design their dream kitchens using Apple Vision Pro. This past quarter, we piloted an in-store design experience for our customers in three test markets.

Speaker Change: ¡Y obtenga el tratamiento único de miembro que vale la pena!

Speaker Change: Do you get to diminishing returns on that in terms of managing expenses?

every quarter, but call it 15-point spread.

Speaker Change: ¡Obtén acceso a los regalos de miembro gratis que te encantarán!

Speaker Change: ¡Y una vez que alcanzes el estatus de la clave de oro, puedes obtener la entrega gratis!

Speaker Change: ¡Porque Lowe's sabe que nada se siente mejor que gratis!

Speaker Change: werere with the help from a lo associate customers could wear the apple vision pro and use a low style studio app to explore and customize hundreds of kitchen designase in three d using products fixtures and appliances all available at lows

Speaker Change: ¡Aprende más sobre nuestro programa de loyalidad en Lowe's.com y MyLowe's Rewards y ¡júntate gratis!

Speaker Change: Additionally, we'll be discussing certain non-GAP financial measures. A reconciliation of these items to USGAP can be found on the quarterly earnings section of our Investor Relations website.

Speaker Change: Now, I'll turn the call over to Marvin.

Marvin Ellison: Now, I'll turn the call over to Marvin. Thank you, Kate and good morning, everyone, and thank you for joining us. Second quarter sales were $23.6 billion with comparable sales down 5.1% from the same period last year. While we're pleased that we delivered positive comps and proven online sales, we continue to manage through softness and DIY demand. Although this remains a challenging industry backdrop for the homeowner, I'm pleased with our team's ability to effectively manage the business.

Speaker Change: Good morning, everyone.

Speaker Change: Thank you, Kate and good morning, everyone, and thank you for joining us.

Speaker Change: Second quarter sales were $23.6 billion with comparable sales down 5.1% from the same period last year.

Speaker Change: this is just one example of how we're leaning into innovation while we're also working with leading platforms like invideia open ai and pentteer to develop ai solutions for both our customer and our sces to help us improve how we sell shop and how we work

Speaker Change: While we're pleased that we delivered positive comps and proven online sales, we continue to manage through softness and DIY demand.

It looks like the highest number in a long time, if that's fair.

That will continue to evolve over time, and as Brandon noted, as we continue to make investments and finalize our build-out of our market delivery, that also puts us in a great position to continue to be the industry leader in appliances without having to hold that inventory the way we did years ago in the back of every store.

They perform to our expectations.

Marvin Ellison: Before closing, let me give you an update on the trends we're seeing in the macro environment. At the beginning of the year, our full year outlook reflected our expectation that macro and consumer trends in 2024 would be similar to the back-up in 2023. That assessment has turned out to be accurate, and yet there still remains a great deal of uncertainty, particularly around interest rates and inflation. In terms of housing specifically, we're seeing significant implications as a result of a lock-in effect. Simply put, people aren't moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rates.

Speaker Change: Welcome to Lowe's Company's second quarter 2024 earnings conference call.

Speaker Change: And when when we look at the back half, is it really more incentive comp and bonus comparisons that, you know, support, you know, you know, SG&A being lower than it might otherwise be versus, you know, PPI initiatives?

Speaker Change: Although this remains a challenging industry backdrop for the homeowner, I'm pleased with our team's ability to effectively manage the business. This is reflected in our progress on our perpetual productivity improvement or PPI initiative.

Speaker Change: Before I close, let me give you an update on the trends we're seeing in the macro environment.

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

Speaker Change: Robbie, this is Brandon.

And it would imply you're taking share in pro, but it looks like you're losing some

So there are constant things that we're working on that's going to give us the ability to improve our insight position but also improve our turns at the same time.

We are piloting a lot of unique and different

Speaker Change: At the beginning of the year, our full year outlook reflected our expectation that macro and consumer trends in 2024 would be similar to the back half in 2023.

Marvin Ellison: This is reflected in our progress on our perpetual productivity improvement or PPI initiative. These efforts helped us respond to the pullback in DIY discretionary projects and unpredictable weather across the country to deliver better than expected flow through while improving the customer experience.

Thank you.

initiatives in some of these stores.

Our next question is from the line of Robby Olms with Bank of America.

And you could argue that we're pressure testing some of these locations to see what

Speaker Change: These efforts helped us respond to the pullback in DIY discretionary projects and unpredictable weather across the country to deliver better than expected flow through while improving the customer experience.

Speaker Change: That assessment has turned out to be accurate, and yet there still remains a great deal of uncertainty particularly around interest rates and inflation.

Please proceed with your questions.

works and what does not work.

Thanks for taking my question.

Speaker Change: In terms of housing specifically, we're seeing significant implications as a result of a lock-in effect.

Speaker Change: Later in the college, Joe will provide more detail or improved customer service results in Q2.

Joe Mcfarland: Later in the college, Joe will provide more detail or improved customer service results in Q2. We're also encouraged to see results from our ongoing investments in our total home strategy this quarter, allowing us to deliver mid-single digit positive cops and pro and 2.9% comparable sales growth online. This demonstrates the importance of these strategic investments and shows that our total home strategy is gaining traction even in this pressured macro environment. Our resilient small to medium pro customers are responding to the way we've transformed our product and service offerings to meet their needs.

Really, just two quick questions.

Speaker Change: Simply put, people aren't moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rates. And as a consequence, housing turnover is hovering near its lowest levels since the mid-1990s.

Speaker Change: We're also encouraged to see results from our ongoing investments in our total home strategy this quarter, allowing us to deliver mid-single digit positive cops and pro and 2.9% comparable sales growth online. This demonstrates the importance of these strategic investments and shows that our total home strategy is gaining traction even in this pressured macro environment.

Marvin Ellison: And as a consequence, housing turnover is hovering near as low as levels since the mid-1990s. And the preference for spending on services, especially for the more affluent consumer, has persisted much longer than expected. That said, the three core drivers of our business remain strong. Home prices continue to appreciate, which is sustaining historically high levels of home equity. Disposable personal income is now growing faster than inflation. And the aging housing stock means people will need to make repairs and improvements in their homes. When you combine those factors with trends like a large number of millennials forming households, baby boomers aging in place, and people continuing to work from home, we remain optimistic about the medium to long-term outlook of the home improvement industry.

Speaker Change: And the preference for spending on services, especially for the more affluent consumer, has persisted much longer than expected.

One thing I will tell you is that we're still very excited about what we're doing with our

WorkAware initiative, specifically with Carhartt.

We're excited with what we're seeing with our pet food and pet

Speaker Change: That said, the three core drivers of our business remain strong.

initiative overall and what we're seeing with just ATV and other activities our rural customers participate in.

Speaker Change: Our resilient small to medium pro customers are responding to the way we've transformed our product and service offerings to meet their needs.

Speaker Change: Home prices continue to appreciate, which is sustaining historically high levels of home equity. Disposable personal income is now growing faster than inflation, and the aging housing stock means people will need to make repairs and improvements in their homes.

Speaker Change: Bill Angio will provide more detail on our successful pro initiatives later in the call.

Marvin Ellison: Bill Angio will provide more detail on our successful pro initiatives later in the call. When it comes to online sales, we delivered growth across all three business areas driven by continued improvement in conversion rates as customers responded to our compelling offers and to our new expanded same day delivery options that are now available on multiple platforms. In Q2, we added Uber Eats to our list of delivery partners, which also includes DoorDash, Ship and Instacart.

Speaker Change: When it comes to online sales, we delivered growth across all three business areas driven by continued improvement in conversion rates as customers responded to our compelling offers and to our new expanded same day delivery options that are now available on multiple platforms.

Speaker Change: When you combine those factors with trends like a large number of millennial forming households, baby boomers aging in place, and people continuing to work from home, we remain optimistic about the medium to long-term outlook of the home improvement industry.

Marvin Ellison: And in the meantime, our operating philosophy in this challenging home improvement macro environment is very straightforward. We will continue to invest in technology and innovation. We will offer our customers' value and differentiation whenever and however they choose to shop, and we will be incredibly disciplined with our expense management. We will achieve this by improving our operational efficiency through our PPI initiatives and making the right investments in our total home strategy. Although we are unable to call the date for the recovery and home improvement, we are confident that we will be in a strong position to take share when the market begins to inflect.

Speaker Change: And in the meantime, our operating philosophy in this challenging home improvement macro environment is very straightforward. We will continue to invest in technology and innovation.

This is reflected in our disciplined expense management across the company, along with continual progress on our perpetual productivity improvement, or PPI, initiatives.

Marvin Ellison: In addition to our last mile technology partner, OneRail provides a fully integrated solution available on Lowe's.com and in store. As we continue to involve our omnichannel strategy, we've learned that having multiple delivery platforms extend our reach into both urban and suburban areas and helps us drive incremental sales with different types of customers, especially younger generations who are more digitally savvy. We're also reaching a broader customer base and making a deeper connection with our new and existing customers through our marketing campaigns featuring sports icons like Lionel Messi, widely recognized as the best soccer player in the world.

Speaker Change: we'will offer our customers's value and differentiation whenever and however they choose a shop and we will be incredibly disciplinineed with our expense management

Speaker Change: In Q2, we added Uber Eats to our list of delivery partners, which also includes DoorDash, Ship and Instacart.

Speaker Change: So you mentioned PPI, we're really proud of the progress that we've made with PPI and broader expense management.

Just on the back half and just going forward from here, the PPI initiatives have been amazing on the expense side.

Speaker Change: We will achieve this by improving our operational efficiency through our PPI initiatives and making the right investments in our Total Home Strategy.

Speaker Change: although we're unable to call the date forhoa recovery and home improvement we are confident that will be an exstrong position to take share when the market beganins to infllect

Marvin Ellison: In closing, I want to thank our frontline associates for their dedication to our customers and communities. One of the best parts of my job is visiting stores every week. And in the first half of this year, I've personally visited all 15 geographic regions. Distoral business gives me an opportunity to personally thank our wonderful associates for their hard work and provide me with invaluable insights into how we can continually enhance our customer experience.

Speaker Change: In closing, I want to thank our frontline associates for their dedication to our customers and communities. One of the best parts of my job is visiting stores every week, and in the first half of this year, I've personally visited all 15 geographic regions.

Marvin Ellison: We have very effectively leveraged our partnership with Messi to gain exposure to our new DIY loyalty program, My Lowe's Rewards. Overall, we're very pleased with our My Lowe's Rewards loyalty program with just launched nationwide in March. And through this program, we've learned more about our customers lifestyle and purchasing trends, which will allow us to curate meaningful offers for them now and in the future.

Speaker Change: These store visits give me an opportunity to personally thank our wonderful associates for their hard work and provide me with invaluable insights into how we can continually enhance our customer experience.

Marvin Ellison: Thank you again for joining us this morning.

Speaker Change: As a reminder, this conference is being recorded.

But we're

Bill Boltz: And with that, I will now turn the call over to Bill. Thanks, Marvin. Good morning, everyone. Despite continuing softness in DIY discretionary demand, we're pleased that we delivered positive online comps and mid-single digit positive pro-coms this quarter. We now have the right brands for pros, the right inventory quantities, and the right product assortments to meet the needs of this demanding customer. Our strong pro performance in this challenging macro environment means that our efforts to transform the pro-customer experience are working. Now turning to our results in building products where we delivered above-average comps in rough plumbing, electrical, and mill work, and positive comps in building materials driven by continued growth in pro across all building materials subdivisions.

Speaker Change: Thank you again for joining us this morning and with that I will now turn the call over to Bill.

in DIY.

How much room is left?

pleased with our rural performance.

Speaker Change: I now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer.

Speaker Change: We're offsetting over $500 million in associate wages, inflationary pressures and strategic investments that we're making here.

Speaker Change: In addition to our last mile technology partner, OneRail provides a fully integrated solution available on Lowe's.com and in store.

Marvin Ellison: Now, let me tell you about how we're leading the way with innovation and home improvement. Lowe's is working with Apple to help customers visualize and design their dreamkitchens using Apple Vision Pro. This past quarter, we piloted an in-store design experience for our customers in three test markets. Where, with the help from a Lowe's associate, customers could wear the Apple Vision Pro and use a Lowe's Style Studio app to explore and customize hundreds of kitchen designs in 3D.

Speaker Change: Thank you and good morning.

Speaker Change: In 2024, the roadmap covers all aspects of the company stores, merchandising, supply chain, technology, our back office, expense, infrastructure, you heard Joe and Bill kind of reference a number of things going on there.

These efforts helped us respond to the pullback in DIY discretionary projects and unpredictable

Is that fair?

At what point do you get to diminishing returns on that in terms of managing expenses?

We're pleased that we're able to take this digital gig platform and serve customers in

Speaker Change: And I would say we have great alignment across the organization to continue to maintain that discipline.

Bill: Thanks Marvin and good morning everyone.

Bill: Despite continuing softness in DIY discretionary demand, we're pleased that we delivered positive online comps and mid-single-digit positive pro comps this quarter.

weather across the country to deliver better-than-expected flow-through while improving the customer experience.

And then if you look across geographies, how does the spread vary, you know, is it a function

Bill: Here with me today are Marvin Ellison, Chairman and Chief Executive Officer, Bill Boltz, our Executive Vice President, Merchandising, Joe McFarland, our Executive Vice President, Stores, and Brandon Sink, our Executive Vice President and Chief Financial Officer.

Bill: 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.

of the pro spread?

Bill: We now have the right brands for pros, the right inventory quantities, and the right product assortments to meet the needs of this demanding customer.

Bill: During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2024. 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 other SEC filings.

Bill: Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found on the quarterly earnings section of our Investor Relations website.

Bill: Our strong pro-performance in this challenging macro environment means that our efforts to transform the pro-customer experience are working.

Is it a function of DIY?

Bill: Now I'll turn the call over to Marvin.

Marvin Ellison: Using products, fixtures and appliances all available at Lowe's. This is just one example of how we're leading into innovation while we're also working with leading platforms like Nvidia, OpenAI, and Palantir to develop AI solutions for both our customer and our associates to help us improve how we sell, shop, and how we work.

Bill: Now turning to our results in building products, where we delivered above average comps in rough plumbing, electrical, and millwork, and positive comps in building materials, driven by continued growth in pro across all building materials subdivisions.

And then what's causing that spread to vary, if so?

Bill Boltz: Within rough plumbing, we also drove strong results in some hot weather categories like air circulation and HVAC, and we continued to deliver strong results in water heaters. Just one warm weather example: we recently rolled out Mr. Cool mini split air conditioners in 1,200 stores. These ductless systems are known for their advanced technology, energy efficiency, and ease of insulation, which means our DIY customers can now install their own mini HVAC system without having to hire a professional installer.

Bill: Thank you, Kate.

Bill: Within rough plumbing, we also drove strong results in some hot weather categories, like air circulation and HVAC, and we continue to deliver strong results in water heaters.

Speaker Change: As we continue to involve our omnichannel strategy, we've learned that having multiple delivery platforms extend our reach into both urban and suburban areas and helps us drive incremental sales with different types of customers, especially younger generations who are more digitally savvy.

Marvin Ellison: Before I close, let me give you an update on the trends we're seeing in the macro environment. At the beginning of the year, our full year outlook reflected our expectation that macro and consumer trends in 2024 would be similar to the back-up in 2023, that assessment has turned out to be accurate and yet there still remains a great deal of uncertainty, particularly around interest rates and inflation. In terms of housing specifically, we're seeing significant implications as a result of a lock-in effect.

Thanks.

Bill: Just one warm weather example. We recently rolled out Mr. Cool mini-split air conditioners in 1,200 stores.

Speaker Change: We're also reaching a broader customer base and making a deeper connection with our new and existing customers through our marketing campaigns featuring sports icons like Lionel Messi, widely recognized as the best soccer player in the world. We have very effectively leveraged our partnership with Messi to gain exposure to our new DIY loyalty program, My Lowe's Rewards.

Bill: These ductless systems are known for their advanced technology, energy efficiency, and ease of insulation, which means our DIY customers can now install their own mini HVAC system without having to hire a professional installer.

both urban, suburban and rural areas.

Bill Boltz: Now let's shift gears to home decor. We continue to see persistent pressure in bigger ticket DIY discretionary projects in flooring and kitchen and bath, consistent with the trends that began in 3rd quarter of 2023, and we continue to lead the industry in appliances, and we are pleased with our overall performance where we delivered above-average comps in double-digit growth in pro sales. When you put it all together, we have the whole package for customer shopping for new appliances. We have the widest assortment of the leading brands. We have a simple and seamless shopping experience, both in-store and online, and we have a best-in-class fulfillment solution with next-day and two-day delivery options, thanks to our multi-year investment in our market delivery infrastructure. We continue to bring the most innovative products to market.

And we're just continuing to build on that.

Speaker Change: Overall, we're very pleased with our My Lowe's Rewards loyalty program with just launched nationwide in March. And through this program, we've learned more about our customers lifestyle and purchasing trends, which will allow us to curate meaningful offers for them now and in the future.

Speaker Change: Now let's shift gears to home decor.

Speaker Change: We continue to see persistent pressure in bigger-ticket DIY discretionary projects in flooring and kitchen and bath, consistent with the trends that began in third quarter of 2023.

Marvin Ellison: Simply put, people aren't moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rates. And as a consequence, housing turnover is hovering near as low as levels since the mid-1990s. And the preference for spending on services, especially for the more affluent consumer, has persisted much longer than expected. That said, the three core drivers of our business remain strong. Home prices continue to appreciate, which is sustaining historically high levels of home equity.

And we'll provide more context when we get

Speaker Change: and we continue to lead the industry in appliances and we are pleased with our overall performance where we delivered above-average comps and double-digit growth in pro sales.

together in December, but we think rural is going to be a significant part of our growth strategy.

Speaker Change: When you put it all together, we have the whole package for customer shopping for new appliances.

Got it.

Thank you very much.

Speaker Change: We have the widest assortment of the leading brands.

Speaker Change: We have a simple and seamless shopping experience, both in-store and online.

Speaker Change: and we have a best-in-class fulfillment solution with next day and two-day delivery options.

Marvin Ellison: Disposable personal income is now growing faster than inflation. And the aging housing stock means people will need to make repairs and improvements in their homes. When you combine those factors, which trends like a large number of millennial forming households, baby boomers aging in place, and people continuing to work from home, we remain optimistic about the medium to long-term outlook of the home improvement industry.

Our next questions are from the line of Zach Fadum with Wells Fargo.

Speaker Change: Thanks to our multi-year investment in our market delivery infrastructure, and we continue to bring the most innovative products to market.

Bill Boltz: Like the low-exclusive, high-sense convertible 4-door refrigerator, which has a fingerprint-resistant finish and an extra storage drawer with different temperature settings that can be controlled over Wi-Fi from your mobile phone. In Paint, we are now partnering with Sherwin-Williams to offer customers free same-day delivery nationwide. Since painting is the number one home improvement project, we are making it easy and convenient for customers to order paint and paint supplies online and get it all delivered quickly right to their door. This delivery option is just another added convenience, especially if you happen to run short or out of supplies in the middle of a painting project.

Speaker Change: Like the Lowe's exclusive Hisense convertible four-door refrigerator, which has a fingerprint resistant finish and an extra storage drawer with different temperature settings that can be controlled over Wi-Fi from your mobile phone.

Please proceed with your questions.

Speaker Change: In Paint, we are now partnering with Sherwin-Williams to offer customers free same-day delivery nationwide.

Hey, good morning.

Marvin Ellison: And in the meantime, our operating philosophy in this challenging home improvement macro environment is very straightforward. We will continue to invest in technology and innovation. We will offer our customers' value and differentiation whenever and however they choose to shop. And we will be incredibly disciplined with our expense management. We will achieve this by improving our operational efficiency through our PPI initiatives and making the right investments in our total home strategy.

Speaker Change: Since painting is the number one home improvement project, we're making it easy and convenient for customers to order paint and paint supplies online and get it all delivered quickly right to their door.

Speaker Change: Now, let me tell you about how we're leading the way with innovation and home improvement.

Speaker Change: Lowe's is working with Apple to help customers visualize and design their dreamkitchens using Apple Vision Pro.

Speaker Change: This delivery option is just another added convenience, especially if you happen to run short or out of supplies in the middle of a painting project.

Bill Boltz: Now let's talk about hard lines. We're unfavorable weather pressured traditional spring seasonal categories like Lawn and Garden and seasonal and outdoor living. Given our DIY customer mix, sales pressure in these two DIY dominant categories greatly impacted overall comp sales for the quarter. In outdoor power equipment, the addition of Toro now gives us the strongest lineup in the industry, along with John Deere, Aaron's, Ego, Craftsman, Husqvarna, Cobalt and Skill; no one can beat it. In tools, we're expanding our collection of private branded Cobalt tools with a 24-volt paint sprayer, multi-material cutter, and finish nailer. And with our introduction of client tools and their new Kinect system, which is an impact-rated system of sockets, drivers, and ratchets that are compatible with both hand tools and power tools.

Speaker Change: Now let's talk about hard lines. We're unfavorable weather pressured traditional spring seasonal categories like lawn and garden and seasonal and outdoor living.

Marvin Ellison: Although we are unable to call the date for the recovery and home improvement, we are confident that we will be in a strong position to take share when the market begins to inflect.

Speaker Change: Given our DIY customer mix, sales pressure in these two DIY dominant categories greatly impacted overall comp sales for the quarter.

Speaker Change: In outdoor power equipment, the addition of Toro now gives us the strongest lineup in the industry. Along with John Deere, Ahrens, Ego, Craftsman, Husqvarna, Cobalt, and Skill, no one can beat it.

Speaker Change: In tools, we're expanding our collection of private-branded cobalt tools with a 24-volt paint sprayer, multi-material cutter, and finish nailer.

Speaker Change: And with our introduction of Klein Tools and their new Kinect system, which is an impact-rated system of sockets, drivers, and ratchets.

Marvin Ellison: Thank you again for joining us this morning.

Bill Bulls: And with that, I will now turn the call over to Bill. Thanks, Marvin.

Bill Boltz: This system is proprietary to Kine, the number one brand for electricians and HVAC professionals, and Kinect is also exclusive to Lows in the home center channel, where we now have the largest assortment of Kine tools in home improvement reach.

Speaker Change: that are compatible with both hand tools and power tools. This system is proprietary to Kline, the number one brand for electricians and HVAC professionals. And Connect is also exclusive to Lowe's in the Home Center channel, where we now have the largest assortment of Kline tools in home improvement retail.

Bill Bulls: Good morning, everyone. Despite continuing softness in DIY discretionary demand, we're pleased that we delivered positive online comps and mid-single digit positive pro-coms this quarter. We now have the right brands for pros, the right inventory quantities, and the right product assortments to meet the needs of this demanding customer. Our strong pro performance in this challenging macro environment means that our efforts to transform the pro-customer experience are working. Now turning to our results in building products, where we delivered above average comps in rough plumbing, electrical and mill work, and positive comps in building materials driven by continued growth in pro across all building materials subdivisions.

Bill Boltz: Hill. During the quarter, we were also pleased with the success of our Craftsman Days events, where we highlighted Craftsman products from multiple merchandising divisions, with more than 100 products featured both in-store and online. As we look ahead to Q3 in the fall season, we have a strong product lineup ready for the fall, starting with Halloween. It's bigger than ever before, with everything from new animatronics to inflatables, along with fall cleaning and fall harvest, and with the decor that can last the entire fall season. It is already available online and in-store.

Speaker Change: This past quarter, we piloted an in-store design experience for our customers in three test markets. Where, with the help from a Lowe's associate, customers could wear the Apple Vision Pro and use a Lowe's Style Studio app to explore and customize hundreds of kitchen designs in 3D. Using products, fixtures and appliances all available at Lowe's.

Speaker Change: During the quarter, we were also pleased with the success of our Craftsman Days events, where we highlighted Craftsman products from multiple merchandising divisions, with more than 100 products featured both in-store and online.

Speaker Change: This is just one example of how we're leading into innovation while we're also working with leading platforms like Nvidia, OpenAI, and Palantir to develop AI solutions for both our customer and our associates to help us improve how we sell, shop, and how we work.

Speaker Change: Before I close, let me give you an update on the trends we're seeing in the macro environment. At the beginning of the year, our full year outlook reflected our expectation that macro and consumer trends in 2024 would be similar to the back-up in 2023, that assessment has turned out to be accurate and yet there still remains a great deal of uncertainty, particularly around interest rates and inflation.

Speaker Change: as we look ahead to q three in the fall season we have a strong product lineup ready for the fall starting with halloween

Speaker Change: It's bigger than ever before, with everything from new animatronics to inflatables, along with fall cleaning and fall harvest, and with the decor that can last the entire fall season. It is already available online and in-store.

Speaker Change: In terms of housing specifically, we're seeing significant implications as a result of a lock-in effect. Simply put, people aren't moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rates. And as a consequence, housing turnover is hovering near as low as levels since the mid-1990s.

Bill Bulls: Within rough plumbing, we also drove strong results in some hot weather categories, like air circulation in HVAC, and we continued deliver strong results in water heaters. Just one warm weather example, we recently rolled out Mr. Cool Mini Split air conditioners and 1200 stores. These ductless systems are known for their advanced technology, energy efficiency and ease of insulation, which means our DIY customers can now install their own mini HVAC system without having to hire a professional installer.

Bill Boltz: Shifting gears, we continue to deliver on our perpetual productivity improvement, or our PPI initiatives. Our marketing team is rebranding our retail media network program to a simpler platform, where we help our brand partners meet a wide range of marketing objectives, from performance on shelf and new product launches to seasonal promotions and multi-product sales. We're also pleased with the progress we've made working with our suppliers to take out costs that we absorbed over the last few years. We continue to work together with our suppliers to claw back these costs while also looking to reinvest into our marketing and merchandising strategies to drive traffic and sales.

Speaker Change: shifting gears we continue to deliver on our perpetual productivity improvement or our pppi initiatives our marketing team is rebranding our retail media network program to a simpler platform where we help our brand partners meet a wide range of marketing objectives

Speaker Change: From performance on shelf and new product launches to seasonal promotions and multi-product sales.

Speaker Change: We're also pleased with the progress we've made working with our suppliers to take out costs that we absorbed over the last few years.

Bill Bulls: Now let's shift gears to home decor. We continue to see persistent pressure and bigger ticket DIY discretionary projects, in flooring and kitchen and bath, consistent with the trends that began in third quarter of 2023, and we continue to lead the industry in appliances, and we are pleased with our overall performance where we delivered above average comps in double digit growth in pro sales. When you put it all together, we have the whole package for customer shopping for new appliances.

Speaker Change: And the preference for spending on services, especially for the more affluent consumer, has persisted much longer than expected.

Speaker Change: We continue to work together with our suppliers to claw back these costs while also looking to reinvest into our marketing and merchandising strategies to drive traffic and sales.

Bill Boltz: As I wrap up, I want to once again thank our supplier partners and our merchants for their partnership and hard work in bringing our customers the best brands, innovative products, and compelling offers that offer value and new solutions for our customer's home improvement needs.

Speaker Change: As I wrap up, I want to once again thank our supplier partners and our merchants for their partnership and hard work in bringing our customers the best brands, innovative products, and compelling offers that offer value and new solutions for our customers' home improvement needs.

Speaker Change: That said, the three core drivers of our business remain strong. Home prices continue to appreciate, which is sustaining historically high levels of home equity.

Joe Mcfarland: Thank you, and now I'll turn the call over to Joe. Thanks, Bill, and good morning, everyone. I'd like to start by recognizing our frontline associates. Their dedication to serving our customers is reflected in continued improvement and our customer satisfaction scores over last year. And while we continue to elevate the customer experience, we also manage staffing well in a dynamic environment and achieve greater payroll productivity. We achieve this improvement in customer service and productivity by continuing to shift associate time from non-customer-facing areas to focus on selling and assisting customers. Which leads me to a question we often hear from our investors.

Speaker Change: Disposable personal income is now growing faster than inflation. And the aging housing stock means people will need to make repairs and improvements in their homes. When you combine those factors, which trends like a large number of millennial forming households, baby boomers aging in place, and people continuing to work from home, we remain optimistic about the medium to long-term outlook of the home improvement industry.

Bill Bulls: We have the widest assortment of the leading brands. We have a simple and seamless shopping experience, both in store and online, and we have a best in class fulfillment solution with next day and two day delivery options, thanks to our multi-year investment in our market delivery infrastructure. We continue to bring the most innovative products to market, like the low-exclusive, high-sense convertible, four-door refrigerator, which has a fingerprint-resistant finish and an extra storage drawer with different temperature settings that can be controlled over Wi-Fi from your mobile phone.

Later in the call, Joe will provide more detail on our improved customer service results in

Simeon, this is Marvin.

Um, if we assume the Fed starts easing in the next couple of months, what level of rate cut or rate

Speaker Change: And good morning, everyone.

Speaker Change: And as Joe mentioned, increasingly able to enhance our customer experience while also driving productivity with tech driven solutions.

Speaker Change: Thank you, and now I'll turn the call over to Joe.

Speaker Change: And in the meantime, our operating philosophy in this challenging home improvement macro environment is very straightforward.

Joe: Thanks, Bill, and good morning, everyone. I'd like to start by recognizing our frontline associates.

Joe: So I'll toss to Marvin, anything else you want to add there?

Joe: Their dedication to serving our customers is reflected in continued improvement in our customer satisfaction scores over last year.

Q2.

I'll take the first part of that.

level do you think is the right level to start stimulating demand in the category again?

Speaker Change: We will continue to invest in technology and innovation.

Joe: And while we continue to elevate the customer experience, we also manage staffing well in a dynamic environment and achieve greater payroll productivity.

Joe: We achieved this improvement in customer service and productivity by continuing to shift associate time from non-customer facing areas to focus on selling and assisting customers.

We are also encouraged to see results from our ongoing investments in our Total Home

I think what's difficult for us to determine in home improvement is were you actually losing

And when we look at the back half, is it really more incentive comp and bonus comparisons that support SG&A being lower than it might otherwise be versus PPI initiatives?

And is there anything in your

Joe: Yeah, I'm going to just let Joe and Bill talk a little bit about PPI.

Speaker Change: We will offer our customers' value and differentiation whenever and however they choose to shop.

Bill Bulls: In paint, we are now partnering with Sherwin Williams to offer customers free, same-day delivery nationwide. Since painting is the number one home improvement project, we're making it easy and convenient for customers to order paint and paint supplies online and get it all delivered quickly right to their door. This delivery option is just another added convenience, especially if you happen to run short or out of supplies in the middle of a painting project.

Joe Mcfarland: Namely, do our Perpetual Productivity Improvement or PPI initiatives negatively impact our customer experience? Let me address that head on. We found that the opposite is true. For a number of years now, we've been working smarter with tech-enabled solutions that make our associates more productive while enhancing customer service at the same time. The new in-store mode on our mobile app is a great example. When customers enter our store, they can enable in-store mode using the Loads.com app on their phone, providing them with the detailed product and location information to help them navigate the store with ease.

Speaker Change: Which leads me to a question we often hear from our investors. Namely, do our Perpetual Productivity Improvement, or PPI, initiatives negatively impact our customer experience?

Speaker Change: To Brandon's point, I mean, we are incredibly pleased with the progress that we've made.

Speaker Change: Let me address that head-on. We've found that the opposite is true. For a number of years now, we've been working smarter, with tech-enabled solutions that make our associates more productive while enhancing customer service at the same time.

Speaker Change: Initially, our productivity improvement initiatives were focused almost exclusively on store operations. And now we've created a culture where every functional area is driving their own PPI initiatives to not only drive improvements in the business and productivity, but also just driving overall efficiencies.

Bill Bulls: Now let's talk about hard lines. We're unfavorable weather pressure traditional spring seasonal categories like Lawn and Garden and seasonal and outdoor living. Given our DIY customer mix, sales pressure in these two DIY dominant categories greatly impacted overall comp sales for the quarter. In outdoor power equipment, the addition of Toro now gives us the strongest lineup in the industry, along with John Deere, Aaron's, Ego, Craftsman, Huskivarna, Cobalt and Skill, no one can beat it.

Speaker Change: I'm going to let Joe talk a bit about operations and then Bill talk about merchandising and what we're going to be seeing not only in the back half of the year, but going forward.

Speaker Change: The new in-store mode on our mobile app is a great example. When customers enter our store, they can enable in-store mode using the Lowe's.com app on their phone, providing them with the detailed product and location information to help them navigate the store with ease.

Speaker Change: So Joe, we'll start with you.

Joe Mcfarland: In addition to being a tremendous customer resource, in-store mode also helps free up associates so they can spend more time selling and focusing on customers who need help. And we're already working on the next innovations to the in-store mode to further streamline the shopping experience. Our PPI initiatives are also enabling us to reduce returns, which are now at historic lows for our company. There are a number of factors driving these results. Beginning the returns desk, associates are using our modern omnichannel system, which makes the process as easy as a quick scan, with the system immediately accounting for return polls.

Speaker Change: In addition to being a tremendous customer resource, in-store mode also helps free up associates so they can spend more time selling and focusing on customers who need help.

Speaker Change: And we're already working on the next innovations to the in-store mode to further streamline the shopping experience.

Bill Bulls: In tools, we're expanding our collection of private branded Cobalt tools with a 24-volt paint sprayer, multi-material cutter and finish nailer. And with our introduction of client tools and their new Kinect system, which is an impact rated system of sockets, drivers and ratchets that are compatible with both hand tools and power tools. This system is proprietary to Kine, the number one brand for electricians and HVAC professionals, and Kinect is also exclusive to lows in the home center channel where we now have the largest assortment of Kine tools in home improvement reach. Hill.

Speaker Change: Our PPI initiatives are also enabling us to reduce returns, which are now at historic lows for our company. There are a number of factors driving these results.

Speaker Change: Beginning at the returns desk, associates are using our modern omni-channel system, which makes the process as easy as a quick scan, with the system immediately accounting for return policies.

Joe Mcfarland: Second, we're collecting more precise information on why an item was returned so we can work together with our vendors to address any issues and prevent returns from happening in the first place. Third, we've identified key inflection points in our supply chain to reduce damages on more fragile items like appliances to better ensure that they arrive in pristine condition; therefore, reducing returns. Even though we've already made substantial progress on our productivity journey, our team is already piloting some of the next round of innovations on our PPI roadmap.

Speaker Change: Second, we're collecting more precise information on why an item was returned so we can work together with our vendors to address any issues and prevent returns from happening in the first place.

Speaker Change: Third, we've identified key inflection points in our supply chain to reduce damages on more fragile items like appliances, to better ensure that they arrive in pristine condition, therefore reducing returns.

Bill Bulls: During the quarter, we were also pleased with the success of our Craftsman Days events, where we highlighted Craftsman products from multiple merchandising divisions, with more than a hundred products featured both in-store and online. As we look ahead to Q3 in the fall season, we have a strong product lineup ready for the fall, starting with Halloween. It's bigger than ever before, with everything from new animatronics to inflatables, along with fall cleaning and fall harvest, and with the decor that can last the entire fall season. It is already available online and in-store.

Speaker Change: Even though we've already made substantial progress on our productivity journey, our team is already piloting some of the next round of innovations on our PPI roadmap. I'm looking forward to sharing more details about these initiatives at our Analyst and Investor Conference in December .

Joe Mcfarland: I'm looking forward to sharing more details about these initiatives at our analyst and investor conference in December.

Strategy this quarter, allowing us to deliver mid-single-digit positive comps in pro and

or gaining share specifically in the categories of DIY and pro.

Joe Mcfarland: Shifting years now to pro where we continue to gain momentum with our core small to mid-sized pro customer as we delivered mid single-digit positive pro comps this quarter. The recent investments we've made in jobsite delivery and high velocity proskees are paying dividends, making it easier for us to fulfill larger orders and quickly replenish inventory within our store. And we're delivering outsized growth in pro online sales as pros appreciate the enhanced online shopping experience that we've created specifically for them. Looking ahead, we were pleased to hear from pros in our recent survey that their backlogs remain healthy and consistent with last year.

Speaker Change: Shifting gears now to Pro, where we continue to gain momentum with our core small to mid-sized Pro customer, as we delivered mid single-digit positive Pro comps this quarter.

Speaker Change: And we will be incredibly disciplined with our expense management. We will achieve this by improving our operational efficiency through our PPI initiatives and making the right investments in our total home strategy.

Bill Bulls: Shifting gears, we continue to deliver on our perpetual productivity improvement or our PPI initiatives. Our marketing team is rebranding our retail media network program to a simpler platform where we help our brand partners meet a wide range of marketing objectives. From performance on shelf and new product launches to seasonal promotions and multi-product sales. We're also pleased with the progress we've made working with our suppliers to take out costs that we absorbed over the last few years. We continue to work together with our suppliers to claw back these costs while also looking to reinvest into our marketing and merchandising strategies to drive traffic and sales.

Speaker Change: The recent investments we've made in job site delivery and high-velocity pro SKUs are paying dividends, making it easier for us to fulfill larger orders and quickly replenish inventory within our store.

Speaker Change: Although we are unable to call the date for the recovery and home improvement, we are confident that we will be in a strong position to take share when the market begins to inflect.

Speaker Change: And we're delivering outsized growth in pro online sales, as pros appreciate the enhanced online shopping experience that we've created specifically for them.

Speaker Change: Looking ahead, we were pleased to hear from pros in our recent survey that their backlogs remain healthy and consistent with last year. And what's also encouraging is that 75% of pros are confident in landing new business.

Joe Mcfarland: And what's also encouraging is that 75 percent of pros are confident in landing new business.

Joe Mcfarland: Our EVP of Pro and Home Services quant events will discuss the next phase of our pro growth strategy at the December analyst and investor conference.

Quant Adevents: our ep of pro and home services quant adevents will discuss the next phase of our pro growth strategy at the december analyst and investor conference

Bill Bulls: As I wrap up, I want to once again thank our supplier partners and our merchants for their partnership and hard work in bringing our customers the best brands, innovative products, and compelling offers that offer value and new solutions for our customer's home improvement needs.

Joe Mcfarland: Before I wrap up, I want to thank our associates who contributed to our disaster relief efforts to help customers recover from storms, including hurricanes, Burrow and Debbie. Lowest command center, merchandising teams, and supply chain teams went into action to pre-stage merchandise at key locations to be able to quickly respond to customers' needs both before and after the storms. I'd like to extend my appreciation to all of our associates for their tireless efforts to serve our communities in their time of need.

Speaker Change: Before I wrap up, I want to thank our associates who contributed to our disaster relief efforts to help customers recover from storms, including Hurricanes Burroughs and Debbie.

Speaker Change: Lowe's command center, merchandising teams, and supply chain teams went into action to pre-stage merchandise at key locations to be able to quickly respond to customers needs both before and after the storms.

Joe Mcfarland: Thank you, and now I'll turn the call over to Joe. Thanks, Bill.

Joe Mcfarland: Good morning, everyone. I'd like to start by recognizing our front line associates. Their dedication to serving our customers is reflected in continued improvement in our customer satisfaction scores over last year. And while we continue to elevate the customer experience, we also manage staffing well in a dynamic environment and achieve greater payroll productivity. We achieve this improvement in customer service and productivity by continuing to shift associate time from non-customer-facing areas to focus on selling and assisting customers.

Speaker Change: In closing, I want to thank our frontline associates for their dedication to our customers and communities.

Speaker Change: One of the best parts of my job is visiting stores every week. And in the first half of this year, I've personally visited all 15 geographic regions.

Speaker Change: I'd like to extend my appreciation to all of our associates for their tireless efforts to serve our communities in their time of need. And now, let me turn it over to Brandon.

Brandon Sink: And now let me turn it over to Brandon. Thank you, Joe.

Speaker Change: Distoral business gives me an opportunity to personally thank our wonderful associates for their hard work and provide me with invaluable insights into how we can continually enhance our customer experience.

2.9% comparable sales growth online.

I get the foundation of your question, but one thing we can confirm for sure is that

Robby, this is Brandon.

history that would suggest a faster recovery one way or the other in pro or DIY side?

Speaker Change: And thank you for joining us.

Speaker Change: No, Robbie, thanks for the question.

Brandon Sink: And good morning, everyone. Beginning with our Q2 results, we generated gap diluted earnings per share of $4.17. In the quarter, we recognized a pre-tax gain of $43 million on deferred consideration associated with the 2022 sale of our Canadian retail business. Excluding this benefit, we delivered adjusted diluted earnings per share of $4.17. My comments from this point forward will include certain non-GAAP comparisons that exclude this benefit, where applicable. Second quarter sales were $23.6 billion, with comparable sales down 5.1%. Comp sales were pressured by continued softness and DIY bigger ticket projects, in line with our expectations. Also, unfavorable weather pressured sales in seasonal categories.

This demonstrates the importance of these strategic investments and shows that our Total

our pro business is growing, so we do believe that we're taking share just based on the

So you mentioned PPI.

Zach, this is Brandon.

Speaker Change: And while we've made a lot of progress, we're only in the middle innings of the productivity journey, a lot of runways still in front of us.

Brandon: Thank you Joe and good morning everyone. Beginning with our Q2 results, we generated GAP diluted earnings per share of $4.17.

Speaker Change: Thank you again for joining us this morning.

Home Strategy is gaining traction even in this pressured macro environment.

maturation of the strategic initiatives that you heard from me, Joe, and Bill.

Brandon: And I've talked about things in the past, front end transformation.

Brandon: In the quarter, we recognized a pre-tax gain of $43 million on deferred consideration associated with the 2022 sale of our Canadian retail business.

Speaker Change: And with that, I will now turn the call over to Bill.

Joe Mcfarland: Which leads me to a question we often hear from our investors. Namely, do our perpetual productivity improvement or PPI initiatives negatively impact our customer experience? Let me address that head on. We found that the opposite is true. For a number of years now, we've been working smarter with tech-enabled solutions that make our associates more productive while enhancing customer service at the same time. The new in-store mode on our mobile app is a great example.

As we look at the DIY, the best way for me to explain and answer the question is our

Brandon: We're not even 50% through our front end transformation.

Bill: Thanks, Marvin.

Brandon: Excluding this benefit, we delivered adjusted diluted earnings per share of $4.10.

We're really proud of the progress that we've

Brandon: This is not only focused on the operations side, but also the sales side.

Brandon: And so we work hand in hand.

Brandon: Things like our activity-based labor model that we continue to invest in. We've continued to refine the advanced labor management tools that we're using today.

Brandon: my comments from this point forward will include certain non-gaap comparisons that exclude this benefit where applicable

sales are much more concentrated in bigger ticket DIY discretionary purchases.

made with PPI and broader expense management.

Brandon: Second quarter sales were $23.6 billion with comparable sales down 5.1% from the same period last year.

Brandon: And also the MST program that has added 30,000 plus associates to the sales floor.

Brandon: And so as the teams continue to work together, we continue to see a lot of runway ahead, streamlining the back end processes are still in front of us and a lot more to go.

Brandon: Second quarter sales were $23.6 billion with comparable sales down 5.1 percent.

We're offsetting over $500 million in associate

Brandon: While we're pleased that we delivered positive comps and pro and online sales, we continue to manage through softness and DIY demand.

Joe Mcfarland: When customers enter our store, they can enable in-store mode using the Lowes.com app on their phone, providing them with the detailed product and location information to help them navigate the store with ease. In addition to being a tremendous customer resource, in-store mode also helps free up associates so they can spend more time selling and focusing on customers who need help. And we're already working on the next innovations to the in-store mode to further streamline the shopping experience.

Brandon: Comp sales were pressured by continued softness in DIY bigger ticket projects in line with our expectations.

Brandon: Although this remains a challenging industry backdrop for the homeowner, I'm pleased with our team's ability to effectively manage the business.

Brandon: This is reflected in our discipline expense management across the company, along with continual progress on our Perpetual Productivity Improvement, or PPI, initiatives. These efforts helped us respond to the pullback in DIY discretionary projects and unpredictable weather across the country to deliver better-than-expected flow-through while improving the customer experience.

Brandon: Later in the call, Joe will provide more detail on our improved customer service results in Q2.

Brandon: We're also encouraged to see results from our ongoing investments in our Total Home Strategy this quarter, allowing us to deliver mid-single-digit positive comps in Pro and 2.9% comparable sales growth online. This demonstrates the importance of these strategic investments and shows that our total home strategy is gaining traction even in this pressured macro environment.

Brandon: Our resilient small to medium pro customers are responding to the way we've transformed our product and service offerings to meet their needs. Bill and Jill will provide more detail on our successful pro initiatives later in the call.

Brandon Sink: Comparable average ticket was up 0.8%, helped by strength and pro-heavy categories as well as less average selling price pressure and appliances as we begin the cycle the normalization of promotions within the castle. Comparable transactions decline 5.9% with pressure from DIY projects spend as well as lower seasonal transactions, partly offset by growth and pro transactions. Our monthly comps were down 6.4% in May, 4.1% in June, and 4.9% in July. Colder and wetter weather in May was quickly followed by intense heat across much of the country in June and July, with both weather patterns pressuring outdoor spring activity.

Brandon: Also, unfavorable weather, pressured sales, and seasonal categories.

Brandon: When it comes to online sales, we delivered growth across all three business areas, driven by continued improvement in conversion rates, as customers responded to our compelling offers, and to our new expanded same day delivery options that are now available on multiple platforms.

Brandon: Comparable average ticket was up 0.8% helped by strength in pro-heavy categories as well as less average selling price pressure in appliances as we begin the cycle the normalization of promotions within the category.

And when you look at big ticket discretionary projects in the second quarter, the DIY demand

Brandon: Comparable transactions declined 5.9 percent with pressure from DIY project spend as well as lower seasonal transactions partly offset by growth and pro transactions.

Joe Mcfarland: Our PPI initiatives are also enabling us to reduce returns, which are now at historic lows for our company. There are a number of factors driving these results. Beginning the returns desk, associates are using our modern omnichannel system, which makes the process as easy as a quick scan with the system immediately accounting for return calls. 2nd, we're collecting more precise information on why an item was returned so we can work together with our vendors to address any issues and prevent returns from happening in the first place. 3rd, we've identified key inflection points in our supply chain to reduce damages on more fragile items like appliances to better ensure that they arrive in pristine condition, therefore reducing returns.

Brandon: Our monthly comps were down 6.4% in May, 4.1% in June , and 4.9% in July .

Brandon: Colder and wetter weather in May was quickly followed by intense heat across much of the country in June and July , with both weather patterns pressuring outdoor spring activity.

Brandon Sink: Gross margin was 33.5% in the second quarter, down 19 basis points from last year due to continuing supply chain investments, partly offset by lower transportation costs and ongoing PPI initiatives. Adjusted SGNA of 17.3% of sales delivered 87 basis points due to sales delivered, as well as the cycling of a favorable legal settlement. These impacts were partially offset by continued enterprise-wide PPI efforts and our quick pivot to manage expenses in line with sales that were adversely impacted by inconsistent weather trends. Adjusted operating margin rate of 14.4% declined 114 basis points, and the adjusted effective tax rate of 24.2% was in line with prior year.

Speaker Change: Gross margin was 33.5% in the second quarter down 19 basis points from last year due to continuing supply chain investments partly offset by lower transportation costs and ongoing PPI initiatives.

Joe Mcfarland: Even though we've already made substantial progress on our productivity journey, our team is already piloting some of the next round of innovations on our PPI roadmap. I'm looking forward to sharing more details about these initiatives at our analyst and investor conference in December.

Speaker Change: Adjusted SG&A of 17.3% of sales de-levered 87 basis points due to sales de-leverage as well as the cycling of a favorable legal settlement.

Speaker Change: These impacts were partially offset by continued enterprise-wide PPI efforts and our quick pivot to manage expenses in line with sales that were adversely impacted by inconsistent weather trends.

Joe Mcfarland: Shifting years now to Pro, where we continue to gain momentum with our core small to mid-sized pro-customer as we delivered mid single-digit positive pro-coms this quarter. The recent investments we've made in jobsite delivery and high velocity proskies are paying dividends, making it easier for us to fulfill larger orders and quickly replenish inventory within our store. And we're delivering outsized growth in pro-online sales as pros appreciate the enhanced online shopping experience that we've created specifically for them.

Speaker Change: adjusted operating margin rate of fourteen point four percent declinine one hundred and fourteen basis points in the adjusted effective tax rate of twenty-four point two percent was in line with prior year

Brandon Sink: Inventory into the quarter at 16.8 billion, down 581 million compared to Q2 of last year, as we continue to align inventory levels with the man while also investing in high velocity pro items. Turning now to capital allocation, during the quarter we generated 2.7 billion in free cash flow. We repurchased 4.4 million shares for $1 billion and paid $629 million in dividends at $1.10 per share. We also announced a 5% increase to $1.15 per share for the dividend paid on August 7. Capital expenditures totaled $426 million as we continue to invest in modernizing our technology infrastructure and our strategic growth priorities.

Speaker Change: Inventory ended the quarter at $16.8 billion, down $581 million compared to Q2 of last year, as we continue to align inventory levels with demand while also investing in high-velocity pro items.

Joe Mcfarland: Looking ahead, we were pleased to hear from pros in our recent survey that their backlogs remain healthy and consistent with last year. And what's also encouraging is that 75% of pros are confident in landing new business.

Speaker Change: And so I'll toss it over to Bill for.

Our resilient small-to-medium pro customers are responding to the way we've transformed

was softest in those categories and in those projects.

wages, inflationary pressures, and strategic investments that we're making here.

As it relates to the interest rate environment, so for us, it's difficult to know at what absolute

Speaker Change: We have very effectively leveraged our partnership with MESI to gain exposure to our new DIY loyalty program, My Lowe's Rewards.

Speaker Change: Turning now to Capital Allocation.

Speaker Change: During the quarter, we generated $2.7 billion in free cash flow.

Speaker Change: We repurchased 4.4 million shares for $1 billion and paid $629 million in dividends at $1.10 per share.

Joe Mcfarland: Our EVP of Pro and Home Services Quantay Vance will discuss the next phase of our pro-growth strategy at the December analyst and investor conference. Before I wrap up, I want to thank our associates who contributed to our disaster relief efforts to help customers recover from storms, including hurricanes, burrow, and Debbie. Lowest command center, merchandising teams and supply chain teams went into action to pre-stage merchandise at key locations to be able to quickly respond to customers' needs both before and after the storms. I'd like to extend my appreciation to all of our associates for their tireless efforts to serve our communities in their time of need.

Speaker Change: We also announced a 5% increase to $1.15 per share for the dividend paid on August 7th.

Speaker Change: Capital expenditures totaled $426 million as we continue to invest in modernizing our technology infrastructure and our strategic growth priorities.

Brandon Sink: Adjusted debt to EBITDA are finished the quarter at 3.03 times, and we delivered a return on invested capital above 30%.

Speaker Change: Adjusted debt to EBITDAR finished the quarter at 3.03 times and we delivered a return on invested capital above 30%.

Brandon Sink: Now turning to our financial outlook. Sales in the first half of the year performed largely in line with our expectations. But, as Marvin mentioned, the home improvement backdrop remains challenging, and consumer sentiment remains weak.

Speaker Change: Yeah, thanks, Joe.

our product and service offerings to meet their needs.

As you mentioned, we're still roughly approximately 75% DIY, so any pullback in these big ticket

In 2024,

interest rate level we're going to see our consumers fully engaged or how long the demand will lag.

Speaker Change: You know, Robbie, on the merch side, you know, I hit on a couple of them in my prepared remarks, you know, we working on costs with suppliers is an ongoing, you know, process and merchants do that, you know, on a daily basis, you know, through, you know, product line reviews, business reviews, but assortment productivity is, you know, part of what, you know, we do on a on a weekly basis, and making sure that we've got the right stuff in the stores and online.

Joe will provide more detail on our successful pro initiatives later in the call.

discretionary categories is really more of a disproportionate impact to us.

the roadmap covers all aspects of the company, stores, merchandising, supply chain, technology,

The actual rate cuts that we're

Speaker Change: I hit on retail media network, that's, you know, part of what we're doing as well, making sure that you know, working with our vendor partners to look at different options in regards to how we put marketing strategies together, our private brand work that we've been doing over the last six years to, you know, focus on, you know, opportunities of where we can put private brands into our assortments, those opportunities to put, you know, those products into our assortments typically come with a higher margin.

Speaker Change: Now turning to our financial outlook.

Speaker Change: Sales in the first half of the year performed largely in line with our expectations.

So I don't know that we're losing share in DIY as much as the dynamic of these big discretionary

Brandon Sink: And now, let me turn it over to Brandon. Thank you, Joe, and good morning, everyone. Beginning with our Q2 results, we generated gap deluded earnings per share of $4.17. In the quarter, we recognized a pre-tax gain of $43 million on deferred consideration associated with the 2022 sale of our Canadian retail business. Excluding this benefit, we delivered adjusted deluded earnings per share of $4.10. My comments from this point forward will include certain non-gap comparisons that exclude this benefit were applicable.

Speaker Change: Good morning, everyone.

Speaker Change: But as Marvin mentioned, the home improvement backdrop remains challenging and consumer sentiment remains weak.

Brandon Sink: Based on these factors, we are updating our full-year 2024 outlook. We are now expecting sales in the range of 82.7 to 83.2 billion, with comparable sales in a range of down 3.5% to down 4%. We also now expect full year adjusted operating margin in a range of 12.4% to 12.5%. As we continue to tightly manage expenses while also investing in our strategic priorities. Additionally, we expect full year net interest expense of approximately $1.4 billion and to repay a $450 million bond maturity in SAP. September. We also expect capital expenditures of approximately two billion and an adjusted effective income tax rate of approximately 24.5%.

projects in the quarter affected us.

Speaker Change: Based on these factors, we are updating our full year 2024 outlook.

When it comes to online sales, we delivered growth across all three business areas, driven

And that's really the way we're looking at it.

by continued improvement in conversion rates as customers responded to our compelling offers

Speaker Change: We are now expecting sales in the range of $82.7 to $83.2 billion with comparable sales in a range of down 3.5% to down 4%.

Speaker Change: we also now expect full year adjusted operating margin a range of twelve point four percent to twelve point five percent as we continue to tightly manage expenses while also investing in our strategic priorities

Speaker Change: Despite continuing softness in DIY discretionary demand, we're pleased that we delivered positive online comps and mid-single digit positive pro-coms this quarter.

Brandon Sink: Second quarter sales were $23.6 billion with comparable sales down 5.1%. Comp sales were pressured by continued softness in DIY, bigger ticket projects, in line with our expectations. Also, unfavorable weather pressured sales in seasonal categories. Comparable average ticket was up 0.8% helped by strength and pro-heavy categories as well as less average selling price pressure and appliances as we begin the cycle of the normalization of promotions within the castle. Comparable Transactions Decline 5.9% with pressure from DIY projects spend as well as lower seasonal transactions, partly offset by growth and pro-transactions.

Speaker Change: additionally we expect full year net interest expense of approximately one point four billion and to repay a four hundred and fifty million dollar bond maturity in september

Bill: We now have the right brands for pros, the right inventory quantities, and the right product assortments to meet the needs of this demanding customer.

Speaker Change: We also expect capital expenditures of approximately $2 billion and an adjusted effective income tax rate of approximately 24.5%.

Speaker Change: Our strong pro performance in this challenging macro environment means that our efforts to transform the pro-customer experience are working.

Brandon Sink: This results in an updated outlook for adjusted diluted earnings per share of approximately $11.70 to $11.90.

Speaker Change: This results in an updated outlook for adjusted diluted earnings per share of approximately $11.70 to $11.90.

Brandon Sink: Now to assist you with your modeling, here are a few points to consider for the back half of the year. We are expecting third and fourth quarter comp sales to be roughly 200 basis points better than our second quarter results, given the easier prior year compares. And we also expect operating margin rate for the second half to be roughly in line with prior year, with Q3 approximately 70 basis points below prior year rate and Q4 to be approximately 50 basis points above prior year rate. The quarterly differences are driven by the timing of merchandising PPI initiatives as we turn through our inventory, as well as comparisons to prior year incentive compensation expense and year-end discretionary bonuses.

Speaker Change: And so that offers that opportunity to put, you know, a better performing product in the assortment.

and to our new expanded same-day delivery options that are now available on multiple

Now here's the good news.

our back office expense infrastructure.

seeing, we absolutely, as we sit here today, see pent up demand in the business.

platforms.

But on the flip side, when we look at consumer

Speaker Change: Now, to assist you with your modeling, here are a few points to consider for the back half of the year.

Speaker Change: Now turning to our results in building products, where we delivered above average comps in rough plumbing, electrical and mill work, and positive comps in building materials driven by continued growth in pro across all building materials subdivisions. Within rough plumbing, we also drove strong results in some hot weather categories, like air circulation in HVAC, and we continued deliver strong results in water heaters.

sentiment, that continues to remain weak.

Speaker Change: We are expecting 3rd and 4th quarter comp sales to be roughly 200 basis points better than our 2nd quarter results given the easier prior year compares.

We are hopeful that the lower rates, the drops that we're seeing are going to have a dual

impact of one, relieving pressure on consumers, and then secondly, driving existing home sales activity.

Speaker Change: And we also expect operating margin rate for the second half to be roughly in line with prior year, with Q3 approximately 70 basis points below prior year rate, and Q4 to be approximately 50 basis points above prior year rate.

Speaker Change: The quarterly differences are driven by the timing of merchandising PPI initiatives as we turn through our inventory, as well as comparisons to prior year incentive compensation expense and year-end discretionary bonuses.

Brandon Sink: Growth margin was 33.5% in the second quarter, down 19 basis points from last year due to continuing supply chain investments, partly offset by lower transportation costs and ongoing PPI initiatives. Adjusted SGNA of 17.3% of sales delivered 87 basis points due to sales delivered as well as the cycling of a favorable legal settlement. These impacts were partially offset by continued enterprise-wide PPI efforts and our quick pivot to manage expenses in line with sales that were adversely impacted by inconsistent weather trends.

Brandon Sink: And finally, we are reconfirming our capital allocation priorities. We will continue to invest in the business to drive long-term growth while maintaining a 35% targeted dividend payout ratio and then use the remaining cash flows to fund share repurchases. This disciplined approach to capital allocation, combined with improved operating performance, almost tripled ROIC over the past five years.

But the reality is, you

Speaker Change: And finally, we are reconfirming our capital allocation priorities.

Speaker Change: Just one warm weather example, we recently rolled out Mr.

Speaker Change: This disciplined approach to capital allocation, combined with improved operating performance, almost tripled ROIC over the past five years.

Brandon Sink: In closing, we are confident in our ability to execute at a high level as we navigate these near-term market uncertainties while making the right investments in our total home strategy, all while continuing to drive sustainable shareholder value.

Speaker Change: Now let me tell you about how we're leading the way with innovation and home improvement.

Speaker Change: So those are just a few examples on the merch, That sounds great.

know, when we look at the lock-in effect, the majority of homeowners are still at 4%.

Speaker Change: Lowe's is working with Apple to help customers visualize and design their dream kitchens using Apple Vision Pro.

Speaker Change: This past quarter, we piloted an in-store design experience for our customers in three test markets, were with the help from a Lowe's associate, customers could wear the Apple Vision Pro and use the Lowe's Style Studio app to explore and customize hundreds of kitchen designs in 3D using products, fixtures, and appliances all available at Lowe's.

Speaker Change: This is just one example of how we're leaning into innovation while we're also working with leading platforms like NVIDIA, OpenAI, and Palantir to develop AI solutions for both our customers and our associates to help us improve how we sell, shop, and how we work.

Speaker Change: In closing, we are confident in our ability to execute at a high level as we navigate these near-term market uncertainties while making the right investments in our total home strategy, all while continuing to drive sustainable shareholder value.

Speaker Change: Cool Mini Split air conditioners and 1200 stores.

Brandon Sink: Adjusted operating margin rate of 14.4% declined 114 basis points and the adjusted effective tax rate of 24.2% was in line with prior year. Inventory into the quarter at 16.8 billion, down 581 million compared to Q2 of last year, as we continue to align inventory levels with the man while also investing in high-velocity pro-items. Turning now to capital allocation, during the quarter we generated 2.7 billion in free cash flow. We repurchased 4.4 million shares for $1 billion and paid $629 million in dividends at $1.10 per share.

Unknown Executive: And with that, we will open it up for your questions. Thank you. We're now ready for questions. If you'd like to ask a question, press star one on your telephone keypad. To destroy your question, press star two.

Speaker Change: Before I close, let me give you an update on the trends we're seeing in the macro environment.

Speaker Change: Thanks, Robbie.

In Q2, we added Uber Eats to our list of delivery partners, which also includes DoorDash,

You heard Joe and Bill kind of reference a number

Mortgage rates are less.

Speaker Change: At the beginning of the year, our full year outlook reflected our expectation that macro and consumer trends in 2024 would be similar to the back half in 2023. That assessment has turned out to be accurate, and yet there still remains a great deal of uncertainty, particularly around interest rates and inflation.

Speaker Change: And the preference for spending on services, especially for the more affluent consumer, has persisted much longer than expected.

Speaker Change: That said, the three core drivers of our business remain strong. Home prices continue to appreciate, which is sustaining historically high levels of home equity.

Speaker Change: These ductless systems are known for their advanced technology, energy efficiency and ease of insulation, which means our DIY customers can now install their own mini HVAC system without having to hire a professional installer.

Speaker Change: And with that, we will open it up for your questions.

Speaker Change: We will offer our customers value and differentiation whenever and however they choose to shop.

Speaker Change: Our next questions are from the line of David Bellinger with Mizuho Securities.

Speaker Change: Disposable personal income is now growing faster than inflation, and the aging housing stock means people will need to make repairs and improvements in their homes.

of things going on there.

So even if we do see, you

Speaker Change: When you combine those factors with trends like a large number of millennial-forming households, baby boomers aging in place, and people continuing to work from home, we remain optimistic about the medium- to long-term outlook of the home improvement industry. And in the meantime, our operating philosophy in this challenging home improvement macro-environment is very straightforward.

know, some level of decrease that we do believe there still may be a reluctance to engage.

Speaker Change: We will continue to invest in technology and innovation.

Speaker Change: Thank you. We're now ready for questions. If you'd like to ask a question, press star 1 on your telephone keypad. To withdraw your question, press star 2. In order to allow questions for as many individuals as possible, please limit yourself to one question and one follow-up.

Unknown Executive: In order to allow questions for as many individuals as possible, please send yourself to one question and one follow-up.

Christopher Horvers: Our first question is from the civilian government with Morgan Stanley. We just hear your question. Good morning everyone.

And I would say we have great alignment across the organization

So we're staying close to it.

Speaker Change: Our first question is from Simeon Gutman with Morgan Stanley . Please proceed with your question.

Fitbit, and Instacart, in addition to our last-mile technology partner, OneRail, provides

to continue to maintain that discipline.

Beyond the

Speaker Change: Although we are unable to call the date for the recovery in home improvement, we are confident that we'll be in a strong position to take share when the market begins to inflate.

Speaker Change: Good morning.

a fully integrated solution available on Lowe's.com and in-store.

Speaker Change: In closing, I want to thank our frontline associates for their dedication to our customers and community.

incremental sales with different types of customers, especially younger generations

Marvin Ellison: I have one question about top line and then second about margin. So the first question on the spread between DIY and pro. I don't think we have that for every quarter, but call it a 15 point spread. It looks like the highest number in a long time, if that's fair, and it would imply you're taking share in pro, but it looks like you're losing some in DIY. Is that fair? And then, if you look across geography, how does the spread vary? You know, could it have a function of the pro spread? Is it a function of DIY? And then what's causing that spread to vary, if so?

As we continue to evolve our omni-channel strategy, we've learned that having multiple

Speaker Change: One of the best parts of my job is visiting stores every week, and in the first half of this year, I've personally visited all 15 geographic regions. These store visits give me an opportunity to personally thank our wonderful associates for their hard work and provide me with invaluable insights into how we can continually enhance our customer experience.

delivery platforms extend our reach into both urban and suburban areas and helps us drive

Speaker Change: morning everyone i have one question about top line and then second about margin

who are more digitally savvy.

We're also reaching a broader customer base and making a deeper connection with our new

and existing customers through our marketing campaigns featuring sports icons like Lionel

Brandon Sink: We also announced a 5% increase to $1.15 per share for the dividend paid on August 7. Capital expenditures totaled $426 million as we continue to invest in modernizing our technology infrastructure and our strategic growth priorities. Adjusted debt to EBITDA are finished the quarter at 3.03 times and we delivered a return on invested capital above 30%. Now turning to our financial outlook, sales in the first half of the year performed largely in line with our expectations. But as Marvin mentioned, the home improvement backdrop remains challenging and consumer sentiment remains weak.

Messi, widely recognized as the best soccer player in the world.

We have very effectively leveraged our partnership with Messi to gain exposure to our new DIY

Simion Gutman: So the first question on the spread between DIY and pro.

Speaker Change: I don't think we have that for every quarter, but call it 15-point spread.

Speaker Change: It looks like the highest number in a long time, if that's fair.

Speaker Change: and it would imply you're taking Sharon Pro.

Speaker Change: But it looks like you're losing some in DIY. Is that fair? And then if you look across geographies, how does this spread vary? You know, is it a function of the pro spread? Is it a function of DIY? And then what's causing that spread to vary, if so?

Marvin Ellison: Thanks.

loyalty program, MyLowe's Rewards.

rates, you know, Marvin reiterated the primary drivers of our business, and that's been consistent.

Overall, we're very pleased with our MyLowe's Rewards loyalty program, which just launched

Marvin Ellison: This is Marvin. I'll take the first part of that. I think what's difficult to determine in home improvement is where you're actually losing or gaining share specifically in the categories of DIY and pro. I get the foundation of your question, but one thing we can confirm for sure is that our pro business is growing, so we do believe that we're taking share just based on the maturation of the strategic initiatives that you heard from me, Joe, and Bill. As we look at the DIY, the best way for me to explain and answer the question is our sales are much more concentrated in bigger ticket DIY discretionary purchases, and when you look at big ticket discretionary projects in the second quarter, the DIY demand was softest in those categories and in those projects.

Speaker Change: Thank you again for joining us this morning and with that I will now turn the call over to Bill.

Speaker Change: Thanks for taking the call.

nationwide in March, and through this program, we've learned more about our customers'

So we're balancing rate

lifestyle and purchasing trends, which will allow us to curate meaningful offers for them

Speaker Change: Thanks.

Speaker Change: Thanks Marvin and good morning everyone.

Speaker Change: So again, good continued progress on the pro of mid-single digits.

Sen: See, this is Marvin. I'll take the first part of that. I think what's difficult for us...

Sen: Despite continuing softness in DIY discretionary demand, we're pleased that we delivered positive online comps and mid-single-digit positive pro comps this quarter.

Speaker Change: Now let's shift gears to home decor.

Speaker Change: to determine and home improvement is where you actually losing our gaining share specifically in the categories of diy and pro i get the foundation of your question but one thing we can confirm for sure is that our pro business is growing so we do believe that we're taking share

activity with, you know, some broader recovery that we see across some of these other metrics that we track very closely.

Speaker Change: What's the next iteration for your pro customer?

Speaker Change: We continue to see persistent pressure and bigger ticket DIY discretionary projects, in flooring and kitchen and bath, consistent with the trends that began in third quarter of 2023, and we continue to lead the industry in appliances, and we are pleased with our overall performance where we delivered above average comps in double digit growth in pro sales. When you put it all together, we have the whole package for customer shopping for new appliances.

Brandon Sink: Based on these factors, we are updating our full year 2024 outlook. We are now expecting sales in the range of 82.7 to 83.2 billion with comparable sales in a range of down 3.5% to down 4%. We also now expect full year adjusted operating margin in a range of 12.4% to 12.5% as we continue to tightly manage expenses while also investing in our strategic priorities. Additionally, we expect full year net interest expense of approximately $1.4 billion and to repay a $450 million bond maturity in September, on September.

Speaker Change: We now have the right brands for pros, the right inventory quantities, and the right product assortments to meet the needs of this demanding customer.

Speaker Change: Are there additional levers we can see take shape?

Speaker Change: Our strong pro performance in this challenging macro environment means that our efforts to transform the pro customer experience are working.

Speaker Change: Now turning to our results in building products, where we delivered above-average comps in rough plumbing, electrical, and millwork, and positive comps in building materials, driven by continued growth in pro across all building materials subdivisions. Within rough plumbing, we also drove strong results in some hot weather categories, like air circulation and HVAC, and we continue to deliver strong results in water heaters.

Speaker Change: We have the widest assortment of the leading brands. We have a simple and seamless shopping experience, both in store and online, and we have a best in class fulfillment solution with next day and two day delivery options, thanks to our multi-year investment in our market delivery infrastructure.

Thanks, Brandon.

And as Joe mentioned, increasingly able to enhance

Speaker Change: Just based on the maturation of the strategic initiatives that you heard from me, Joe and Bill, as we look at the DIY, the best way for me to explain and answer the question is

Speaker Change: Just one warm weather example.

our customer experience while also driving productivity with tech-driven solutions.

I don't want to front-run the Analyst Day too much, but you have talked

Speaker Change: Maybe more brands, loyalty, working upstream with somewhat larger pros, and does Lowe's do anything today in terms of trade credit with the pro customers?

Speaker Change: We continue to bring the most innovative products to market, like the low-exclusive, high-sense convertible, four-door refrigerator, which has a fingerprint-resistant finish and an extra storage drawer with different temperature settings that can be controlled over Wi-Fi from your mobile phone.

about a long-term margin for this business of about 14.5%.

Speaker Change: is our sales are much more concentrated.

I'll toss to Marvin.

Given where we are today and

Speaker Change: in bigger ticket diy discretionary reppurchases and when you look at big ticket discretionary projects in the second quarter

Speaker Change: In paint, we are now partnering with Sherwin Williams to offer customers free, same-day delivery nationwide. Since painting is the number one home improvement project, we're making it easy and convenient for customers to order paint and paint supplies online and get it all delivered quickly right to their door. This delivery option is just another added convenience, especially if you happen to run short or out of supplies in the middle of a painting project.

Anything else you want to add there?

Speaker Change: The DIY demand was soft as...

Marvin Ellison: As you mentioned, we're still roughly approximately 75% of DIY, so any pullback in these big ticket discretionary categories is really more of a disproportionate impact to us. So, I don't know that we're losing share in DIY as much as the dynamic of these big discretionary projects in the quarter affected us, and that's really the way we're looking at it.

Yeah, I'm going to just let Joe and Bill talk a little bit about PPI.

Speaker Change: In those categories and in those projects.

Speaker Change: You know, as you mentioned, we're still roughly, approximately...

Speaker Change: Now let's talk about hard lines.

Speaker Change: We're unfavorable weather pressure traditional spring seasonal categories like Lawn and Garden and seasonal and outdoor living. Given our DIY customer mix, sales pressure in these two DIY dominant categories greatly impacted overall comp sales for the quarter.

Brandon Sink: We also expect capital expenditures of approximately $2 billion and an adjusted effective income tax rate of approximately 24.5%. This results in an updated outlook for adjusted deluded earnings per share of approximately $11.70 to $11.90. Now to assist you with your modeling here are a few points to consider for the back half of the year. We are expecting third and fourth quarter comp sales to be roughly 200 basis points better than our second quarter results given the easier prior year compares.

To Brandon's point,

Speaker Change: 75% DIY so any pullback in these big-ticket discretionary categories

Speaker Change: is really more of a disproportionate impact to us. So I don't know that we're losing share in DIY as much as the dynamic of these big discretionary projects in the quarter affected us. And that's really the way we're looking at it. Now, here's the good news.

Speaker Change: In outdoor power equipment, the addition of Toro now gives us the strongest lineup in the industry, along with John Deere, Aaron's, Ego, Craftsman, Huskivarna, Cobalt and Skill, no one can beat it.

Marvin Ellison: Now here's the good news. The good news is we feel great about our assortment, we'll merchandise and perspective, we feel great about our pricing, our execution, our marketing, and we believe this is just a macro issue that we're dealing with relative to DIY big ticket discretionary. So when we look at Q2, even though it was a challenging economic environment, we feel great that we could grow mid single digit positive constant pro, we could deliver almost 3% growth online, and we're still managing through macro headwinds with DIY discretionary spend. So we believe that when the DIY market inflicts at some point in the future, we're in a perfect position to take overall market share in home improvement because of the strength we're seeing in pro and online.

Speaker Change: We recently rolled out Mr.

Speaker Change: Now, David, thank you for the question.

now and in the future.

The good news is we feel great about our assortment.

we are incredibly pleased with the progress that we've made.

the changes that have occurred since you first provided that outlook, I'm curious if it's

Speaker Change: Cool mini split air conditioners in 1,200 stores. These ductless systems are known for their advanced technology, energy efficiency, and ease of insulation, which means our DIY customers can now install their own mini HVAC system without having to hire a professional installer.

Initially, our productivity

Speaker Change: Now let's shift gears to home decor.

Speaker Change: I think first, if we could take a step back and think about what we've done thus far.

Now let me tell you about how we're leading the way with innovation and home improvement.

And now we've

still the right way to think about the business long-term and what level of top-line and near-term

Speaker Change: In tools, we're expanding our collection of private branded Cobalt tools with a 24-volt paint sprayer, multi-material cutter and finish nailer.

Brandon Sink: And we also expect operating margin rate for the second half to be roughly in line with prior year with Q3 approximately 70 basis points below prior year rate and Q4 to be approximately 50 basis points above prior year rate. The quarterly differences are driven by the timing of merchandising PPI initiatives as we turn through our inventory as well as comparisons to prior year incentive compensation expense and year end discretionary bonuses.

improvement initiatives were focused almost exclusively on store operations.

Lowe's is working with Apple to help customers visualize and design their dream kitchens

Speaker Change: We continue to see persistent pressure in bigger ticket DIY discretionary projects in flooring and kitchen and bath, consistent with the trends that began in third quarter of 2023, and we continue to lead the industry in appliances and we are pleased with our overall performance where we delivered above average comps and double digit growth in pro sales.

From a merchandising perspective, we feel great about our pricing, our execution, our

created a culture where every functional area is driving their own PPI initiatives to not

recovery do you think we need to see to reach that level?

Speaker Change: The good news is we feel great about our assortment.

Speaker Change: When you put it all together, we have the whole package for customer shopping for new appliances.

Speaker Change: And with our introduction of client tools and their new Kinect system, which is an impact rated system of sockets, drivers and ratchets that are compatible with both hand tools and power tools.

Speaker Change: We have the widest assortment of the leading brands.

Speaker Change: From a merchandising perspective, we feel great about our pricing.

Speaker Change: We have a simple and seamless shopping experience, both in-store and online, and we have a best-in-class fulfillment solution with next-day and two-day delivery options, thanks to our multi-year investment in our market delivery infrastructure, and we continue to bring the most innovative products to market, like the Lowe's exclusive HiSense convertible four-door refrigerator, which has a fingerprint-resistant finish, and an extra storage drawer with different temperature settings that can be controlled over Wi-Fi from your mobile phone.

marketing, and we believe this is just a macro issue that we're dealing with relative to

Yeah, we'll hold off on getting too much into that detail.

Speaker Change: In paint, we're now partnering with Sherwin-Williams to offer customers free same day delivery nationwide. Since painting is the number one home improvement project, we're making it easy and convenient for customers to order paint and paint supplies online and get it all delivered quickly right to their door. This delivery option is just another added convenience. Especially if you happen to run short or out of supplies in the middle of a painting project.

Speaker Change: Our execution, our marketing, and we believe this is just a macro issue that we're dealing with relative to DIY big ticket discretionary.

DIY big ticket discretionary.

Speaker Change: This system is proprietary to Kine, the number one brand for electricians and HVAC professionals, and Kinect is also exclusive to lows in the home center channel where we now have the largest assortment of Kine tools in home improvement reach.

Speaker Change: Now let's talk about hard lines, where unfavorable weather pressured traditional spring seasonal categories like lawn and garden and seasonal and outdoor living, given our DIY customer mix. Sales pressure in these two DIY dominant categories greatly impacted overall comp sales for the quarter.

using Apple Vision Pro.

So when we look at Q2, even though it was a challenging economic environment, we feel

only drive improvements in the business and productivity, but also just driving overall

I think the punchline, Zach,

Speaker Change: In outdoor power equipment, the addition of Toro now gives us the strongest lineup in the industry, along with John Deere, Ahrens, Ego, Craftsman, Husqvarna, Cobalt and Skill.

This past quarter, we piloted an in-store design experience for our customers in three

Speaker Change: No one can beat it.

test markets where, with the help from a Lowe's associate, customers could wear the Apple

Speaker Change: In tools, we're expanding our collection of private branded cobalt tools with a 24-volt paint sprayer, multi-material cutter, and finish nailer.

Vision Pro and use a Lowe's-style studio app to explore and customize hundreds of kitchen

Speaker Change: And with our introduction of Klein Tools and their new Connect system, which is an impact rated system of sockets, drivers, and ratchets, that are compatible with both hand tools and power tools.

designs in 3D using products, fixtures, and appliances all available at Lowe's.

Speaker Change: So when we look at...

Speaker Change: This system is proprietary to Klein, the number one brand for electricians and HVAC professionals, and Connect is also exclusive to Lowe's in the Home Center channel, where we now have the largest assortment of Klein tools in home improvement retail.

Speaker Change: As we look ahead to Q3 in the fall season, we have a strong product lineup ready for the fall, starting with Halloween. It's bigger than ever before, with everything from new animatronics to inflatables, along with fall cleaning and fall harvest, and with the decor that can last the entire fall season.

great that we could grow mid-single-digit positive content pro.

is that the framework still holds.

Speaker Change: Q2, even though it was a challenging economic environment.

Speaker Change: We feel great that we could grow mid-single-digit positive comps and pros. We could deliver almost 3% growth online.

Speaker Change: It is already available online and in-store.

This is just one example of how we're leaning into innovation while we're also working with

We could deliver almost 3% growth online, and we're still managing through macro headwinds

efficiencies.

It is, as we look relative to what we talked about

Speaker Change: Shifting gears, we continue to deliver on our perpetual productivity improvement for our PPI initiative.

Speaker Change: Our marketing team is rebranding our Retail Media Network program to a simpler platform where we help our brand partners meet a wide range of marketing objectives. From performance on shelf and new product launches to seasonal promotions and multi-product sales.

Speaker Change: We're also pleased with the progress we've made working with our suppliers to take out costs that we absorbed over the last few years. We continue to work together with our suppliers to claw back these costs while also looking to reinvest into our marketing and merchandising strategies to drive traffic and sales.

Speaker Change: Hill.

with DIY discretionary spend.

Speaker Change: and we're still med through macro headwinds with di discretionary span so we believe that when the diw market inflects at some point in the future

So we believe that when the DIY market inflects at some point in the future, we're in a perfect

position to take overall market share and home improvement because of the strength we're

Brandon Sink: And finally, we are reconfirming our capital allocation priorities. We will continue to invest in the business to drive long-term growth while maintaining a 35% targeted dividend payout ratio and then use the remaining cash flows to fund share repurchases. This disciplined approach to capital allocation combined with improved operating performance almost tripled ROIC over the past five years.

Speaker Change: We're in a perfect position.

seeing in pro and online.

Speaker Change: to take overall market share and home improvement because of the strength we're seeing in pro and online.

Brandon Sink: So then I'll let Brandon take the second part of course.

Speaker Change: Thank you, and now I'll turn the call over to Joe.

So with that, I'll let Brandon take the second part of the question.

I'm going to let Joe talk a bit about operations, and then Bill will talk

in December of 22, I think the degree of step-back now that we've seen in 23 and now that what

about merchandising and what we're going to be seeing not only in the back half of the

Brandon Sink: Yes, I mean your question on geographic differences is really pretty consistent.

Speaker Change: Thanks, Bill, and good morning, everyone.

Yes, I mean, your question on geographic differences, really pretty consistent.

year, but going forward.

Speaker Change: so dedid i live brand and take it take the second yes mme in your question on geographic difference in is really pretty consistent marvin mentioned the growth in pro that's driven by both transactions and ticket but when we look across our geographic divisions very consistent performance

Speaker Change: I'd like to start by recognizing our frontline associates. Their dedication to serving our customers is reflected in continued improvement in our customer satisfaction scores over last year.

Speaker Change: And while we continue to elevate the customer experience, we also manage staffing well in a dynamic environment and achieve greater payroll productivity. We achieve this improvement in customer service and productivity by continuing to shift associate time from non-customer facing areas to focus on selling and assisting customers, which leads me to a question we often hear from our investors.

Brandon Sink: Marvin mentioned the growth in pro that's driven by both transactions and ticket, but when we look across our geographic divisions, very consistent performance and taking share regionally consistently there. And then on the DIY side, again, really no notable geographic differences outside of the hurricane impact that we saw around the July time frame with hurricane barrel coming through the Houston geography. But other than that, really consistent.

Speaker Change: Namely, do our Perpetual Productivity Improvement, or PPI, initiatives negatively impact our customer experience?

Speaker Change: And one of the things that we identified from the very beginning of this transformation was the fact that we needed a very consistent and coherent approach to how we serve the pro customer.

Marvin mentioned the growth in pro.

Speaker Change: And it really started with service levels in the store because regardless of what level of fulfillment and fulfillment capabilities you have in home improvement, your stores will still be an incredibly important part of the fill-in project nature need for the pro customer.

Speaker Change: And so our service levels were so par and best, and so Joe and team have done an incredible job of elevating those standards.

Speaker Change: We rolled out our loyalty program a little over a year ago, and then we rolled out a more sophisticated CRM platform.

That's driven by both transactions and ticket, but when we look across our geographic divisions,

So Joe, we'll start with you.

Speaker Change: And then we had to get our product assortment right.

Speaker Change: And now we're continuing to build on all of those things with more job site fulfillment.

Speaker Change: We had customers who no longer shopped us because there were brands that they were loyal to that literally had stopped selling to Lowe's. And so Bill and his team has done an equally incredible job of bringing those brands back to us.

Speaker Change: And so QuantA Advance, our EVP of pro and home services at our upcoming Analyst and Investor Conference is going to lay out our long-term vision of where we plan to take pro.

Speaker Change: We're incredibly excited about our pro customer.

Speaker Change: You know, Bill noted in his prepared comments just the success of our relationship with Client Tools.

Speaker Change: And that's going to have a lot to do with identifying segments of pro that we are barely scratching the surface today from a share standpoint that we're going to start to pursue in addition to ways we're going to enhance fulfillment and how we're going to be able to bring a more digitally friendly relationship with pros so they could have a larger selection of product choices and do it in a more seamless nature.

Speaker Change: And Client was one of those customers that when we arrived was no longer doing business with Lowe's.

Speaker Change: And it remains the number one brand for electrical and HVAC pros.

Speaker Change: It is already available online and in-store.

very consistent performance in taking share regionally consistently there.

No, Robbie, thanks for the question.

Speaker Change: And then we had to get committed to our inventory levels.

And while we've made a lot of progress, we're only in

Speaker Change: We talk a lot about job-lock quantities, but we had to do that in a way that we gave pros confidence.

the middle innings of the productivity journey.

Speaker Change: And also in a way that we would not leave our stores vulnerable for large purchases that we could replenish quickly.

A lot of runway is still in front of us.

Speaker Change: And so after we established those foundational things, we knew that the next step was printing stickiness where you would give those customers a reason to shop us versus the competition.

Speaker Change: And as I said earlier, we believe strongly that the pressure that we're feeling with the discretionary big ticket DIY is in large part a macro influence issue.

And then on the DIY side, again, too, really no notable geographic differences outside

And

Speaker Change: And so as we now have momentum with the pro, momentum with our digital strategy, we believe that when a marketplace inflects and the DIY customer starts to have a stronger confidence in making those discretionary purchases, that we're going to have the full flywheel effect of our market share gain.

Marvin: and taking share regionally consistently there. And then on the DIY side, again, to really no notable geographic differences outside of the hurricane impact that we saw around the July timeframe with Hurricane Beryl coming through the Houston geography, but other than that, really consistent.

Marvin: In the meantime, we're going to be incredibly disciplined on these key parts of our business, but we're very excited about what we're doing in pro, but more importantly, what we're going to be doing in the future.

Speaker Change: Shifting gears, we continue to deliver on our perpetual productivity improvement or our PPI initiatives.

Unknown Executive: In closing, we are confident in our ability to execute at a high level as we navigate these near-term market uncertainties while making the right investments in our total home strategy all while continuing to drive sustainable shareholder value. And with that, we will open it up for your questions. Thank you. We're now ready for questions. If you'd like to ask a question, press star one on your telephone keypad. To destroy your question, press star two. In order to allow questions for as many individuals as possible, please send yourself to one question and one follow up.

of the hurricane impact that we saw around the July timeframe with Hurricane Beryl coming

through the Houston geography.

But other than that, really consistent.

Okay, and then my follow up on margin, it looks like in the second half, the conversion

Speaker Change: Okay, and then my follow-up on margin, it looks like in the second half, the conversion or the relationship between the comp and the margin.

Speaker Change: Our marketing team is rebranding our retail media network program to a simpler platform where we help our brand partners meet a wide range of marketing objectives. From performance on shelf and new product launches to seasonal promotions and multi-product sales.

Sydney Ingellman: Our first question is from Sydney Ingellman with Morgan Stanley. We'll just use your question.

or the relationship between the comp and the margin, it looks a little weaker than maybe

the first half.

Brandon Sink: It doesn't look terrible given the comp, but it looks a little weaker.

It doesn't look terrible given the comp, but it looks a little weaker.

Speaker Change: It looks a little weaker than maybe the first half. It doesn't look terrible given the comp, but it looks a little weaker.

So I want to ask if that's because of anything that Lowe's is doing differently, how you're

Brandon Sink: So I want to ask if that's because of anything that Loads is doing differently, how you're managing your business, how you're making investments, or is it simply a function of those things, Brandon, you mentioned some of the laps of incentive comp, and I think there was one other thing. So is it internal or external? It's really the latter, you know. The updated four year operating margin outlook is very consistent and look at it annually with our rule of thumb: 14 basis points of contraction on the downside for every point of comp to climb. And as you mentioned, second half quarterly differences are driven mainly by the timing of the Merch PPI initiatives as we turn through the callbacks.

Speaker Change: so can i want to ask if that's because of anything that he loses doing differently how you're managing your businessis how you're making investments or is it simply a function of those things brand and you mentioned some of the lapse

managing your business, how you're making investments, or is it simply a function of

those things?

And you mentioned some of the lapse of incentive comp, and I think there was one other thing.

Marvin Ellison: Good morning everyone. I have one question about top line and then second about margin. So the first question on the spread between DIY and Pro. I don't think we have that for every quarter but call it 15 point spread. It looks like the highest number in a long time if that's fair. And it would imply you're taking share in Pro. But it looks like you're losing some in DIY. Is that fair?

So is it internal or external?

Speaker Change: of Incentive Comp. And I think there was one other thing. So is it internal or external?

Yes, and it's really the latter, you know, the updated four-year operating margin outlook

Marvin Ellison: And then if you look across geography, how does the spread vary? Could it have a function of the Pro spread? Is it a function of DIY? And then what's causing that spread to vary if so? Thanks. Sydney, this is Marvin. I'll take the first part of that. I think what's difficult plus to determine in home improvement is where you're actually losing a gaining share specifically in the categories of DIY and Pro.

Speaker Change: as in it's really the latter updated for your operating margin outlook is very consistent and look at it angry with our rule of thumb

is very consistent when you look at it annually with our rule of thumb, 14 basis points of

contraction on the downside for every point of comp decline.

Speaker Change: 14 basis points of contraction on the downside for every point of comp decline.

And as you mentioned, second half quarterly differences are driven mainly by the timing

of the merge PPI initiatives as we turn through the callbacks.

Speaker Change: And as you mentioned, second half quarterly differences are driven mainly by the timing of the MerchPPI initiatives as we turn through the callbacks.

Brandon Sink: And then what we're cycling over as it relates to prior year incentive compensation, we caught out last year, $140 million of front line bonuses that we paid in Q4. So it's really a function of those two things: gross margins for the year, as we've said consistently. We expect roughly flat for the full year, and that's what's embedded in the operating margin outlook.

And then what we're cycling over as it relates to prior year incentive compensation, we called

Speaker Change: And then what we're cycling over as it relates to prior year incentive compensation, we called out last year $140 million of frontline bonuses that we paid in Q4. So it's really a function of those two things.

out last year $140 million of frontline bonuses that we paid in Q4.

So it's really a function of those two things.

Gross margins for the year, as we've said consistently, we expect roughly flat for the

Speaker Change: Thank you, and now I'll turn the call over to Joe.

Joe Mcfarland: Thanks, Bill.

Speaker Change: Gross margins for the year, as we've said consistently, we expect roughly flat for the full year, and that's what's embedded in the operating margin outlook.

full year.

And that's what's embedded in the operating margin outlook.

Perfect.

Unknown Executive: Perfect.

Thanks.

Unknown Executive: Thanks.

Unknown Executive: Good luck.

Good luck.

Thank you.

Steven Zaccone: Thank you. Our next question to the line of Steven Zico with City.

Our next question is from the line of Stephen Saccone with Citi.

I've talked about things in the past, front-end transformation.

we're seeing in 24 is a little bit worse than our original expectations.

Speaker Change: Perfect. Thanks. Good luck.

Speaker Change: Let me address that head on.

Speaker Change: Thanks, Marvin.

Joe: Good morning, everyone.

Marvin Ellison: I get the foundation of your question but one thing we can confirm for sure is that our pro business is growing so we do believe that we're taking share just based on the maturation of the strategic initiatives that you heard from me, Joe and Bill. As we look at the DIY, the best way for me to explain and answer the question is our sales are much more concentrated in bigger ticket DIY discretionary purchases.

Speaker Change: thank you

Please proceed with your questions.

Steven Zaccone: Who's to see with your question? Great. Good morning. Thanks very much for taking my question. I wanted to follow up on just understanding the guidance cut as well because it seems like the pro business is kind of outperforming expectations. So if you have a dig a little deeper into the DIY side of the business, may parse through some of the categories on home decor and hard lines. What's really the biggest change to your outlook? And given the fact that sales have been coming in a little bit weaker than expected for longer, does that temper your view on a potential recovery in DIY demand?

Stephen Aco: Our next question is from the line of Steven Zaccone with Citi. Please proceed with your questions.

Great.

Stephen Aco: We found that the opposite is true.

Stephen Aco: That's very helpful.

Good morning.

But we're not going

Stephen Aco: For a number of years now, we've been working smarter, with tech enabled solutions that make our associates more productive, while enhancing customer service at the same time. The new in-store mode on our mobile app is a great example. When customers enter our store, they can enable in-store mode using the Lowe's.com app on their phone, providing them with the detailed product and location information to help them navigate the store with ease. In addition to being a tremendous customer resource, in-store mode also helps free up associates so they can spend more time selling and focusing on customers who need help, and we're already working on the next innovations to the in-store mode to further streamline the shopping experience.

Thanks very much for taking my question.

Stephen Aco: Our PPI initiatives are also enabling us to reduce returns, which are now at historic lows for our company. There are a number of factors driving these results. Beginning at the returns desk, associates are using our modern omnichannel system, which makes the process as easy as a quick scan, with the system immediately accounting for return policy.

I wanted to follow up on just understanding the guidance cut as well, because it seems

Stephen Tusa: Great. Good morning. Thanks very much for taking my question. I wanted to follow up on just understanding the guidance cut as well, because it seems like the pro business is kind of outperforming expectations.

like the pro business is kind of outperforming expectations.

So if you had to dig a little deeper into the DIY side of the business, maybe parse

Joe: I'd like to start by recognizing our front line associates. Their dedication to serving our customers is reflected in continued improvement in our customer satisfaction scores over last year.

through some of the categories on home decor and hard lines, what's really the biggest

Speaker Change: So if you had to dig a little deeper into the DIY side of the business, maybe parse through some of the categories on home decor and hard lines, what's really the biggest change to your outlook?

change to your outlook?

Joe: And while we continue to elevate the customer experience, we also manage staffing well in a dynamic environment and achieve greater payroll productivity. We achieve this improvement in customer service and productivity by continuing to shift associate time from non-customer-facing areas to focus on selling and assisting customers.

Marvin Ellison: And when you look at big ticket discretionary projects in the second quarter, the DIY demand was softest in those categories than in those projects. As you mentioned, we're still roughly approximately 75% of DIY. So any pullback in these big ticket discretionary categories is really more of a disproportionate impact to us. So I don't know that we're losing share in DIY as much as the dynamic of these big discretionary projects in the quarter affected us.

And given the fact that sales have been coming in a little bit weaker than expected for longer,

Speaker Change: And given the fact that sales have been coming in a little bit weaker than expected for longer, does that temper your view on a potential recovery in DIY demand?

does that temper your view on a potential recovery in DIY demand?

So Stephen, thank you for the question.

We're not even 50% through

to call the turn or the inflection point.

Speaker Change: Which leads me to a question we often hear from our investors. Namely, do our perpetual productivity improvement or PPI initiatives negatively impact our customer experience?

Marvin Ellison: So, Steven, thank you for the question.

Speaker Change: And I also want to ask the rural store performance, and I'm not sure if you called that out in the prepared remarks.

I'll take the first part of it.

our front-end transformation.

We do believe there's a lot of pent-up demand.

Brandon Sink: I'll take the first part of it. Look, I think for us when we think about our guidance change for the year, it really comes down to just being proven and being cautious based on the macro environment and the overall customer sentiment specifically around big ticket DIY discretionary spend. We were all aware that we have an environment of elevated interest rates and inflation, and because of that, the DIY customer is just on the sidelines waiting for some form of an inflection to take place. So we can't call when that's going to happen, but we felt based on what we saw in the second quarter that it was proven just to take a cautious approach to our guidance for the second half.

Speaker Change: Even though we've already made substantial progress on our productivity journey, our team is already piloting some of the next round of innovations on our PPI roadmap.

Speaker Change: I'm looking forward to sharing more details about these initiatives at our Analyst and Investor Conference in December.

Look, I think for us, when we think about our guidance change for the year, it really

This is not only focused on the operations side, but also

We do have a lot of confidence in the medium- to long-term drivers.

Speaker Change: Let me address that head on.

Speaker Change: So, Steven, thank you for the question. I'll take the first part of it. Look, I think for us...

When we do get back

Speaker Change: When we think about our guidance change...

comes down to just being prudent and being cautious based on the macro environment and

the sales side.

to that mid-single-digit recovery and comp that we've traditionally seen in home improvement,

And so we worked hand-in-hand.

Speaker Change: We found that the opposite is true.

Speaker Change: For the year, it really comes down to just being prudent and being cautious based on the macro environment and the overall customer sentiment, specifically around big ticket DIY discretionary spend.

leading platforms like NVIDIA, OpenAI, and Palantir to develop AI solutions for both

the overall customer sentiment, specifically around big ticket DIY discretionary spend.

Things like our activity-based labor model

our customers and our associates to help us improve how we sell, shop, and how we work.

that we continue to invest in. We continue to refine the advanced labor management tools

Speaker Change: For a number of years now, we've been working smarter with tech-enabled solutions that make our associates more productive while enhancing customer service at the same time. The new in-store mode on our mobile app is a great example. When customers enter our store, they can enable in-store mode using the Lowes.com app on their phone, providing them with the detailed product and location information to help them navigate the store with ease.

Marvin Ellison: And that's really the way we're looking at it. Now here's the good news. The good news is we feel great about our assortment, we'll merchandise and perspective, we feel great about our pricing, our execution, our marketing. And we believe this is just a macro issue that we're dealing with relative to DIY big ticket discretionary. So when we look at Q2, even though it was a challenging economic environment, we feel great that we could grow mid single digit positive constant pro, we could deliver almost 3% growth online and we're still managing through macro headwinds with DIY discretionary spend.

Speaker Change: Shifting gears now to pro, where we continue to gain momentum with our core small to mid-sized pro customer, as we delivered mid-single digit positive pro comps this quarter. The recent investments we've made in job site delivery and high-velocity pro skews are paying dividends, making it easier for us to fulfill larger orders and quickly replenish inventory within our store. And we're delivering outsized growth in pro online sales, as pros appreciate the enhanced online shopping experience that we've created specifically for them.

Speaker Change: Is there any change in trend there?

Speaker Change: In addition to being a tremendous customer resource, in-store mode also helps free up associates so they can spend more time selling and focusing on customers who need help.

Before I close, let me give you an update on the trends we're seeing in the macro environment.

We're all aware that we have an environment of elevated interest rates and inflation.

that we're using today.

we believe we can outpace that with the initiatives that we have in place.

Speaker Change: Looking ahead, we were pleased to hear from pros in our recent survey that their backlogs remain healthy and consistent with last year.

Speaker Change: And then secondly, there's been some mention of faster delivery times, one day, two day shipping to those markets for major ecommerce player.

Speaker Change: And we're already working on the next innovations to the in-store mode to further streamline the shopping experience.

Speaker Change: And what's also encouraging is that 75% of pros are confident in landing new business.

Speaker Change: Our EVP of Pro and Home Services, Quante Vance, will discuss the next phase of our Pro Growth Strategy at the December Analyst and Investor Conference.

Speaker Change: Before I wrap up, I want to thank our associates who contributed to our disaster relief efforts to help customers recover from storms, including Hurricanes Burroughs and Debbie. Lowe's Command Center, merchandising teams, and supply chain teams went into action to pre-stage merchandise at key locations to be able to quickly respond to customers' needs both before and after the storm.

Speaker Change: We're all aware that we have an environment of elevated interest rates and inflation and because of that...

Speaker Change: I'd like to extend my appreciation to all of our associates for their tireless efforts to serve our communities in their time of need.

Speaker Change: How should we think about any potential impact for the more rural Lowe's store base, just given that development?

And because of that, the DIY customer is just on the sidelines waiting for some form of

And also the MST program that is added at 30,000 plus associates to

And the degree and

the sales floor.

Speaker Change: Our PPI initiatives are also enabling us to reduce returns, which are now at historic lows for our company. There are a number of factors driving these results. Beginning the returns desk, associates are using our modern omnichannel system, which makes the process as easy as a quick scan with the system immediately accounting for return calls. 2nd, we're collecting more precise information on why an item was returned so we can work together with our vendors to address any issues and prevent returns from happening in the first place.

Speaker Change: The DIY customer is just on the sidelines waiting for some form of an inflection to take place.

an inflection to take place.

the timing of the expansion on operating margin, again, is going to be contingent on the pace

So we can't call when that's going to happen, but we felt based on what we saw in the second

in which that top-line recovers.

Speaker Change: 3rd, we've identified key inflection points in our supply chain to reduce damages on more fragile items like appliances to better ensure that they arrive in pristine condition, therefore reducing returns.

Speaker Change: We can't call when that's going to happen, but we felt, based on what we saw in the second quarter, that it was prudent just to take a cautious approach to our guidance.

quarter, that it was prudent just to take a cautious approach to our guidance for the

Got it.

second half.

Brandon Sink: And really, that's what we decided to do.

And really, that's what we decided to do.

I'll let Brandon take the rest of your question.

Brandon Sink: I'll let Brandon take the rest of the question.

Speaker Change: For the second half and really that's what we decided to do. I'll let Brandon, you know, take the rest of the course

Speaker Change: And now, let me turn it over to Brandon.

Speaker Change: Well, the great thing about our gig network and the work that we've done online is that we're serving all customers and giving them ability to get same day, next day fulfillment across all of our partners.

Brandon Sink: Steven, this brand just a little more context on the guide. As we mentioned in the prepared remarks, the first half really largely is in line with our expectations when we exclude the weather impacts that we experienced. And as we looked into the second half, just as Marvin just said, we still continue to see a very cautious consumer home improvement backdrop that remains challenged. And for those reasons, we decided to make an adjustment to the guide, and it does capture ongoing both DIY and pro trends. And we're continuing to manage through the DIY challenges in the big ticket discretionary, but we are still seeing strength, especially in the small to medium pro, and that's reflected.

Stephen, this is Brandon.

Thanks for the time.

Speaker Change: We feel really good about what's happening in our rural markets.

Just a little more context on the guide.

Yeah.

Speaker Change: They perform to our expectations.

Speaker Change: We are piloting a lot of unique and different initiatives in some of these stores. And you could argue that we're pressure testing some of these locations to see, you know, what works and what does not work.

At the beginning of the year, our full-year outlook reflected our expectation that macro

As we mentioned in the prepared remarks, first half really largely in line with our expectations

Rob, we have time for one more question.

Speaker Change: One thing I will tell you is that we're still very excited about what we're doing with our WorkAware initiative, specifically with Carhartt.

Speaker Change: Steven, this is Brandon. Just a little more context on the guide. As we mentioned in the prepared remarks, first half really largely in line with our expectations when you exclude the weather impacts that we experienced.

Oh, yes.

Speaker Change: We're excited with what we're seeing with our pet food and pet initiative overall.

Our final question comes from Brian Nagel with Oppenheimer.

Speaker Change: Even though we've already made substantial progress on our productivity journey, our team is already piloting some of the next round of innovations on our PPI roadmap.

Marvin Ellison: So we believe that when the DIY market inflicts at some point in the future, we're in a perfect position to take overall market share and home improvement because of the strength we're seeing in pro and online. So then I'll let Brandon take the second part of work. Yes, I mean, your question on geographic differences is really pretty consistent. Marvin mentioned the growth in pro. That's driven by both transactions and ticket. But when we look across our geographic divisions, very consistent performance and taking share regionally consistently there.

Speaker Change: And what we're seeing with just ATV and other activities our rural customers participate in.

Hi.

Speaker Change: But we're pleased with our rural performance.

Speaker Change: We're pleased that we're able to take this digital gig platform and serve customers in both urban, suburban, and rural areas.

when you exclude the weather impacts that we experienced.

Good morning.

Thanks for taking my question.

So my first question, I guess it's a bit of

a follow-up to that.

Speaker Change: Thank you, Joe, and good morning, everyone.

and consumer trends in 2024 would be similar to the back half in 2023.

And as we looked into the second half, just as Marvin just said, we still continue to

The prior question was on rates.

Speaker Change: Beginning with our Q2 results, we generated GAAP diluted earnings per share of $4.17. In the quarter, we recognized a pre-tax gain of $43 million on deferred consideration associated with the 2022 sale of our Canadian retail, Excluding this benefit, we delivered adjusted diluted earnings per share of $4.10.

I'm going to go the different direction.

Speaker Change: My comments from this point forward will include certain non-GAAP comparisons that exclude this benefit where applicable.

That assessment has turned out to be accurate, and yet there still remains a great deal of

see a very cautious consumer home improvement backdrop that remains challenged.

Speaker Change: And as we looked into the second half, just as Marvin just said, you know, we still continue to see a very cautious consumer.

Speaker Change: I'm looking forward to sharing more details about these initiatives at our analyst and investor conference in December.

uncertainty, particularly around interest rates and inflation.

And for those reasons, we decided to make an adjustment to the guide.

In terms of housing specifically, we're seeing significant implications as a result of a

Marvin Ellison: And then on the DIY side, again, to really no notable geographic differences outside of the hurricane impact that we saw around the July time frame with Hurricane Barrel coming through the Houston Geography, but other than that really consistent.

lock-in effect.

Marvin: Home Improvement Backdrop that remains challenged and for those reasons we decided to make an adjustment to the guide.

Simply put, people aren't moving nearly as often as they typically do because current

And it does capture ongoing both DIY and pro trends.

mortgage rates are so much higher than their existing rates.

Marvin: And we're just continuing to build on that.

And as a consequence, housing turnover is hovering near its lowest levels since the

Marvin: And we'll provide more context, you know, when we get together in December.

Speaker Change: Shifting years now to Pro, where we continue to gain momentum with our core small to mid-sized pro-customer as we delivered mid single-digit positive pro-coms this quarter. The recent investments we've made in jobsite delivery and high velocity proskies are paying dividends, making it easier for us to fulfill larger orders and quickly replenish inventory within our store. And we're delivering outsized growth in pro-online sales as pros appreciate the enhanced online shopping experience that we've created specifically for them.

mid-1990s.

Marvin: But we think rural is going to be a significant part of our growth strategy.

And the preference for spending on services, especially for the more affluent consumer,

Marvin: Got it.

And we're continuing to manage through the DIY challenges and the big ticket discretionary.

Marvin: Thank you very much.

Speaker Change: Looking ahead, we were pleased to hear from pros in our recent survey that their backlogs remain healthy and consistent with last year.

Marvin: And it does capture ongoing both DIY and pro trends. And we're continuing to manage through the DIY challenges and the big ticket discretionary. But we are still seeing strength, especially in the small to medium pro, and that's reflected.

But we are still seeing strength, especially in the small to medium pro, and that's reflected.

has persisted much longer than expected.

Just as a reminder, we're cycling a pretty big DIY pullback, which started in Q3 of last

Marvin: Second quarter sales were $23.6 billion, with comparable sales down 5.1%. Comp sales were pressured by continued softness in DIY bigger ticket projects in line with our expectations.

That said, the three core drivers of our business remain strong.

Home prices continue to appreciate, which is sustaining historically high levels of home

equity.

Disposable personal income is now growing faster than inflation.

Marvin: Just as a reminder, we're cycling a pretty big DIY pullback, which started in Q3 of last year, again, as it relates to the big ticket discretionary. So the breakdown, as it relates to comp, we are expecting, just like we've seen here in the first half, roughly flat.

And the aging housing stock means people will need to make repairs and improvements in

year, again, as it relates to the big ticket discretionary.

their homes.

When you combine those factors with trends like a large number of millennial-forming

households, baby boomers aging in place, and people continuing to work from home, we

remain optimistic about the medium-to-long-term outlook of the home improvement

So the breakdown as it relates to comp, we are expecting, just like we've seen here in

industry.

And in the meantime, our operating philosophy in this challenging home improvement

macroenvironment is very straightforward.

We will continue to invest in technology and innovation.

One of the best parts of my job is visiting stores every week, and in the first half of

the first half, roughly flat average ticket.

We'll offer our customers value and differentiation whenever and however they choose

this year, I've personally visited all 15 geographic regions.

to shop, and we will be incredibly disciplined with our expense management.

Brandon Sink: Okay, and then my follow-up on margin, it looks like in the second half the conversion or the relationship between the comp and the margin, it looks a little weaker than maybe the first half. It doesn't look terrible given the comp, but it looks a little weaker. So I want to ask if that's because of anything that loads is doing differently, how you're managing your business, how you're making investments, or is it simply a function of those things, Brandon, you mentioned some of the laps of incentive comp, and I think there was one other thing.

These store visits give me an opportunity to personally thank our wonderful associates

We will achieve this by improving our operational efficiency through our PPI initiatives and

In the second half, as the pro growth is offsetting some appliance pricing pressure that we're

for their hard work and provide me with invaluable insights into how we can continually enhance

making the right investments in our total home strategy.

our customer experience.

Although we are unable to call the date for the recovery in home improvement, we are confident

that we'll be in a strong position to take share when the market begins to inflect.

Marvin: Average ticket in the second half as the pro growth is offsetting some appliance pricing pressure that we're seeing.

In closing, I want to thank our frontline associates for their dedication to our customers

and communities.

seeing.

Brandon Sink: And then we expect to see the transactions as the offset; that's where the pressures at, and we continue to expect that to be challenged as homeowners less engaged with home improvement activity in the second half. So that's a little bit more of a breakdown as it relates to second half guys.

And then we expect to see the transactions as the offset.

That's where the pressure's at.

Marvin: And then we expect to see the transactions as the offset, that's where the pressure is at, and we continue to expect that to be challenged as the homeowner is less engaged with home improvement activity in the second half. So that's a little bit more of a breakdown as it relates to the second half guide.

And we continue to expect that to be challenged as the homeowner's less engaged with home

improvement activity in the second half.

Steven Zaccone: That's helpful. Thanks for that extra color.

That's helpful.

Look, I think you as an operator, we as investors are waiting for a more accommodative rate

to underpin better demand within home improvement.

Bill Boltz: I have a brief follow-up just on pricing. You know, there's been focus on pricing and the risk of promotions impacting the industry if demand stays weak. You actually thought ticket growth in the quarter, but do you see that as a risk at all, just pricing and promotions kind of trickling into the industry if demand stays weak?

Speaker Change: That's helpful. Thanks for that extra color. I have a brief follow-up just on pricing.

Speaker Change: there's been focused on pricing and the risk of promotions impacting the industry if demand dayss week you actually saw ticket growth in the quarter but do you see that as a risk at all just pricing and promotions kind of trickling into the industry of demand play week

Brandon Sink: So is it internal or external? It's really the ladder, you know, the updated four-year operating margin outlook is very consistent and look at it annually with our rule of thumb, 14 basis points of contraction, you know, on the downside for every point of comp to climb. And as you mentioned, second half quarterly differences are driven mainly by the timing of the Merch PPI initiatives as we turn through the callbacks, and then what we're cycling over as it relates to prior year incentive compensation, we called out last year, $140 million of front line bonuses that we paid in Q4. So it's really a function of those two things. Gross margins for the year, as we've said consistently, we expect roughly flat for the full year and that's what's embedded in the operating margin outlook.

Bill Boltz: Yes, Steven, this is Bill. So, you know, we actually see our, you know, the promotional activity, you know, remaining relative is stable. You know, when you get around certain events, Memorial Day, July 4th, et cetera, you know, you've got offers that are seasonally relevant, and we try to make, you know, sure that we're out there, you know, meeting the consumer at that time as well. And so, you know, when you look at Q3, we've got Labor Day in front of us. So we're going to be out there making sure that we've got seasonally relevant offers that are out there for that time as we shift gears into the fall season.

Speaker Change: Yes, Steven, this is Bill. So, you know, we actually see our, you know, the promotional...

Speaker Change: Activity, you know, remaining relatively stable.

Speaker Change: when you get around certain events for moral day july fourth etc

Speaker Change: You know, you've got offers that are out there that are seasonally relevant and we try to make, you know, make sure that we're out there, you know, meeting the consumer at that time as well. And so...

Thanks for that extra color.

And so as the teams continue to work together, we continue to see a lot

So the way I'll ask the question is, as you

of runway ahead.

look at your business, we've seen this malaise continuing to take hold, maybe even intensify

over the past several quarters.

Speaker Change: You know when you look at Q3 we've got Labor Day in front of us so we're going to be out there making sure that we've got seasonally relevant offers that are out there for that time as we shift gears into the fall season but

Brandon Sink: But, you know, from a promotional activity, you know, we're relatively stable. And, you know, we're seeing on the appliance side that, you know, we're back to, you know, more of a normal activity as it relates to how the appliance industry is going to market. So, nothing really, you know, out of the norm in state.

Unknown Executive: Perfect. Thanks. Good luck. Thank you.

Speaker Change: from from a promotional activity we're relatively stable and

Steven Zako: Our next question to the line of Steven Zako with City. Who's to see you with your question? Great.

Speaker Change: We're seeing on the appliance side that, you know, we're back to, you know, more of a normal activity as it relates to how the appliance industry is going to market. So nothing really, you know, out of the norm.

Marvin Ellison: Good morning. Thanks very much for taking my question. I wanted to follow up on just understanding the guidance cut as well, because it seems like the pro business is kind of outperforming expectations. So if you have a dig a little deeper into the DIY side of the business may parse through some of the categories on home decor and hard lines, what's really the biggest change to your outlook? And given the fact that sales have been coming in all the weaker than expected for longer, does that temper your view on a potential recovery in DIY demand?

I have a brief follow up just on pricing.

Brandon Sink: And this is the brand. And I would just reinforce that the ticket increase is not a function of pricing so much as it's just the strength that we're seeing in the pro business, which is lifting ticket. And then, as Bill mentioned, the cycling of the promo environment and appliances, you know, broadly speaking, is it really surprising? Environment really largely stable here? The last couple of years, there's always, you know, pockets of activity that we see, but the ticket's been, you know, in the pricing environment, it's been largely consistent since 2022. And the industry continues to be disciplined and rational.

Speaker Change: And what's also encouraging is that 75% of pros are confident in landing new business.

Speaker Change: This is Brandon. I would just reinforce that the ticket increase is not a function of pricing so much as it's just

Speaker Change: Our EVP of Pro and Home Services Quantay Vance will discuss the next phase of our pro-growth strategy at the December analyst and investor conference.

Bill: The strength that we're seeing in the pro business, which is lifting ticket, and as Bill mentioned.

You know, there's been focus on pricing and the risk of promotions impacting the industry if demand stays weak.

Bill: the cycling of the promo environment and appliances

Speaker Change: Broadly speaking, as it relates to pricing environment, really largely stable here over the last couple of years.

Speaker Change: Before I wrap up, I want to thank our associates who contributed to our disaster relief efforts to help customers recover from storms, including hurricanes, burrow, and Debbie.

Speaker Change: pockets of activity that we see but the ticketss been in the pricing environment been largely consistent since two thousand and twenty two and that industry continues to be disciplin in rational so for those reasons we expect the ticket to continue to hold as we look across the second half of the year

Unknown Executive: So, for those regions, we expect the ticket to continue to hold as we look across the second half of the year. Okay. Thanks for the detail.

Speaker Change: Lowest command center, merchandising teams and supply chain teams went into action to pre-stage merchandise at key locations to be able to quickly respond to customers' needs both before and after the storms.

Marvin Ellison: So Steven, thank you for the question. I'll take the first part of it. Like I think for us, when we think about our guidance change for the year, it really comes down to just being proven and being cautious based on the macro environment and the overall customer sentiment specifically around big ticket DIY discretionary spend. We were all aware that we have an environment of elevated interest rates and inflation. And because of that, the DIY customer is just on the sidelines waiting for some form of an inflection to take place.

Speaker Change: I'd like to extend my appreciation to all of our associates for their tireless efforts to serve our communities in their time of need.

Unknown Executive: Best luck in the second half.

Unknown Executive: And Stephen.

Speaker Change: Okay, thanks for the detail. Best of luck in the second half.

Christopher Horvers: The next question is from the line of Christopher Hovers with JP Morgan. Please show us here with your question. Thanks. And good morning. So first clarification to confirm you expect 3Q and 4Q comms to be basically the same or sequentially improving over the year related to that. How much? How much do you think whether actually was a headwind to comp in the second quarter, and any comment on where you are trending quarter to date relative to the updated expectations?

Speaker Change: Our next questions are from the line of Zach Fadem with Wells Fargo.

Thank you again for joining us this morning, and with that, I will now turn the call over

Where are the incremental risks?

Speaker Change: Thanks, Steven.

christopher horbor: Our next questions are from the line of Christopher Horvers with J.P. Morgan. Please proceed with your questions.

to Bill.

You actually saw ticket growth in the quarter.

Where could the business

christopher horbor: thanks and good morning so first a clarification to confirm you expect three q and four q compss to be that basically the same or or sequentially improving over the year

Thanks, Marvin, and good morning, everyone.

But do you see that as a risk at all?

actually get weaker here before we get that rate relief, if you will?

Speaker Change: Related to that, how much do you think weather actually was a headwind to comp in the second quarter and any comment on where you are trending quarter to date relative to the updated expectations?

Marvin Ellison: So we can't call when that's going to happen, but we felt based on what we saw in the second quarter that it was prudent just to take a cautious approach to our guidance for the second half. And really, that's what we decided to do. I'll let Brandon take the rest of the question. Steven, this brand is just a little more context on the guide. As we mentioned in the prepared remarks, first half really largely in line with our expectations when we exclude the weather impacts that we experienced.

Despite continuing softness in DIY discretionary demand, we're pleased that we delivered positive

Brandon Sink: So Chris, first part of your question, the comps are relatively even in split when you look at Q3 and Q4 as it relates to what's embedded in the guide. And then, you know, the question on weather impact in particular is it impacted our DIY seasonal business. So, you know, we did see unfavorable weather in Q2 at pressured sales, cold and wet, wet weather in May followed by the intense heat that we saw in June and July.

Speaker Change: So Chris, first part of your question, the comps are relatively evenly split when you look at Q3 and Q4 as it relates to what's embedded in the guide. And then, you know, the question on whether...

Speaker Change: And now, let me turn it over to Brandon.

Brandon Sink: Thank you, Joe, and good morning, everyone.

Brandon Sink: Beginning with our Q2 results, we generated gap deluded earnings per share of $4.17. In the quarter, we recognized a pre-tax gain of $43 million on deferred consideration associated with the 2022 sale of our Canadian retail business. Excluding this benefit, we delivered adjusted deluded earnings per share of $4.10.

Speaker Change: Also, unfavorable weather, pressured sales, and seasonal cataclysm.

Speaker Change: impact and in particular has impacted our DIY seasonal business. So, you know, we did see unfavorable weather in Q2 at pressured sales, cold and wet weather in May, followed by the intense heat that we saw in June and July . Just as a reminder, we are cycling over a strong seasonal performance last year, Q2. We saw that especially in live goods and smaller outdoor projects. And the outside of just seasonal, the intense weather also impacted other outdoor, call it non-seasonal projects like exterior paint and vacuum.

Speaker Change: Comparable Average Ticket was up 0.8%, helped by strength in pro-heavy categories as well as less average selling price pressure in appliances as we begin to cycle the normalization of promotions within the category.

Brandon Sink: My comments from this point forward will include certain non-gap comparisons that exclude this benefit were applicable.

Marvin Ellison: And as we looked into the second half, just as Marvin just said, you know, we still continue to see a very cautious consumer home improvement backdrop that remains challenged. And for those reasons, we decided to make an adjustment to the guide. And it does capture ongoing both DIY and pro trends. And we're continuing to manage through the DIY challenges in the big ticket discretionary. But we are still seeing strength, especially in the in the small to medium pro, and that's reflected.

Brandon Sink: Just as a reminder, we are cycling over a strong seasonal performance last year Q2. We saw that, especially in live goods and smaller outdoor projects. And the outside of just seasonal, the intense weather also impacted other outdoor call it non seasonal projects like exterior painted back. And then the last thing I'll call out, you know, we did see pressure in big ticket discretionary seasonal categories like patio and grills, but that was largely expected as we've been managing. You know, those seasonal buys down to more recent trends that we've seen. So that was the pressure that was mainly, you know, where we saw the deceleration in comps from as we moved from June to July.

Speaker Change: Comparable transactions declined 5.9% with pressure from DIY project spend, as well as lower seasonal transactions, partly offset by growth in pro transactions. Our monthly comps were down 6.4% in May, 4.1% in June, and 4.9% in July. Colder and wetter weather in May was quickly followed by intense heat across much of the country in June and July, with both weather patterns pressuring outdoor spring activities.

Speaker Change: Second quarter sales were $23.6 billion with comparable sales down 5.1%. Comp sales were pressured by continued softness in DIY, bigger ticket projects, in line with our expectations. Also, unfavorable weather pressured sales in seasonal categories. Comparable average ticket was up 0.8% helped by strength and pro-heavy categories as well as less average selling price pressure and appliances as we begin the cycle of the normalization of promotions within the castle.

online comps and mid-single-digit positive pro comps this quarter.

Speaker Change: And then the last thing I'll call out, you know, we did see pressure and big ticket discretionary seasonal categories like patio and grills, but that was largely expected as we've been managing, you know, those seasonal buys down to more recent trends that we've seen. So that was the pressure that was mainly, you know, where we saw the deceleration in COPS.

Speaker Change: Comparable Transactions Decline 5.9% with pressure from DIY projects spend as well as lower seasonal transactions, partly offset by growth and pro-transactions.

Marvin Ellison: And just as a reminder, we're cycling a pretty big DIY pullback which started in two, three of last year again as it relates to the big ticket discretionary. So the breakdown, as it relates to comp, we are expecting, just like we've seen here in the first half, roughly flat average ticket in the second half as the pro growth is offsetting some appliance pricing pressure that we're seeing. And then we expect to see the transactions as the offset.

We now have the right brands for pros, the right inventory quantities, and the right

Speaker Change: Growth margin was 33.5% in the second quarter, down 19 basis points from last year due to continuing supply chain investments, partly offset by lower transportation costs and ongoing PPI initiatives.

Brandon Sink: And then I would say, as it relates to your question on all this, very much plan out, you know, through here the first two plus weeks, very much in line with what we've guided to Q3.

Speaker Change: from as we move from June to July . And then I would say as it relates to your question on August , very much playing out, you know, through here, the first two plus weeks very much in line with what we've got in the Q3.

Speaker Change: Adjusted SGNA of 17.3% of sales delivered 87 basis points due to sales delivered as well as the cycling of a favorable legal settlement.

Marvin Ellison: That's where the pressure is at. And we continue to expect that to be challenged as homeowners less engaged with home improvement activity in the second half. So that's a little bit more of a breakdown as it relates to second half guys. That's helpful. Thanks for that extra color. I have a brief follow-up just on pricing. You know, there's been focused on pricing and the risk of promotions impacting the industry if demand stays weak.

Brandon Sink: Understood.

Brandon Sink: And then in terms of the gross margin outlook, so it would seem like you're basically expecting gross margin to be down again, you know, perhaps, you know, more significantly in the third quarter as we, that fair, and then as you think about the flow of the vendor club acts, this would imply that really the club acts are starting in the fourth quarter and then we'll sort of continue into the first half of 2025. Thanks very much. Yeah, Chris, so not down. We are expecting it to be up both in Q3 and Q4 of this year, but again, on the year roughly flat.

Speaker Change: Understood. And then, in terms of the gross margin outlooks, it would seem like...

Speaker Change: Adjusted operating margin rate of 14.4% declined 114 basis points and the adjusted effective tax rate of 24.2% was in line with prior year.

Speaker Change: Inventory into the quarter at 16.8 billion, down 581 million compared to Q2 of last year, as we continue to align inventory levels with the man while also investing in high-velocity pro-items.

Speaker Change: You're basically expecting gross margin to be down again.

Speaker Change: Turning now to capital allocation, during the quarter we generated 2.7 billion in free cash flow. We repurchased 4.4 million shares for $1 billion and paid $629 million in dividends at $1.10 per share. We also announced a 5% increase to $1.15 per share for the dividend paid on August 7.

Speaker Change: Capital expenditures totaled $426 million as we continue to invest in modernizing our technology infrastructure and our strategic growth priorities.

Speaker Change: you know perhaps you know more significantly in the third quarter as we is that fair and then as you think about the flow of the vendor clawbacks this would imply that really the club backs are starting in the fourth quarter and then wewillll sort of continue to the first half of two thousand and twenty five

Marvin Ellison: You actually thought ticket growth in the quarter, but do you see that as a risk at all, just pricing and promotions kind of trickling into the industry of demand stays weak? Yes, Steven, this is Bill. So, you know, we actually see our, you know, the promotional activity, you know, remaining relatively stable. You know, when you get around certain events, Memorial Day, July 4th, et cetera, you know, you've got offers that are out there that are seasonally relevant.

product assortments to meet the needs of this demanding customer.

Speaker Change: Adjusted debt to EBITDA are finished the quarter at 3.03 times and we delivered a return on invested capital above 30%.

Speaker Change: Now turning to our financial outlook, sales in the first half of the year performed largely in line with our expectations.

Speaker Change: Thanks very much.

Chris: Yeah, Chris, so not down. We are expecting it to be up both in Q3 and Q4 of this year, but again, on the year, roughly flat.

Speaker Change: But as Marvin mentioned, the home improvement backdrop remains challenging and consumer sentiment remains weak.

Brandon Sink: And I'll mention just a couple of the pushes and poles. We continue to make the splatching and investments nearly complete with the rollout of market delivery investments we're making early in his own pro fulfillment. And then, as you mentioned, the merchant supply chain, PPI initiatives, the callback is going to continue to benefit. And it really starts to accelerate in Q3, Q4. And as you mentioned, turning into 25, there's a lag defect there just with how that turns through inventory. Transportation costs continues to be a good guy for us as we leverage our scale and then credit and shrink.

Chris: Gross margin was 33.5% in the second quarter, down 19 basis points from last year due to continuing supply chain investments, partly offset by lower transportation costs and ongoing PPI needs.

Chris: Adjusted SG&A of 17.3% of sales de-levered 87 basis points due to sales de-leverage as well as the cycling of a favorable legal settle.

Speaker Change: I'll mention just a couple of the pushes and pulls. We continue to make the supply chain investments nearly complete with the rollout of market delivery investments we're making early innings on pro-fulfillment. And then as you mentioned, the merchant supply chain, PPI initiatives.

Speaker Change: Based on these factors, we are updating our full year 2024 outlook. We are now expecting sales in the range of 82.7 to 83.2 billion with comparable sales in a range of down 3.5% to down 4%. We also now expect full year adjusted operating margin in a range of 12.4% to 12.5% as we continue to tightly manage expenses while also investing in our strategic priorities. Additionally, we expect full year net interest expense of approximately $1.4 billion and to repay a $450 million bond maturity in September, on September.

Marvin Ellison: And we try to make, you know, make sure that we're out there, you know, meeting the consumer at that time as well. And so, you know, when you look at Q3, we've got Labor Day in front of us. So we're going to be out there making sure that we've got seasonally relevant offers that are out there for that time as we shift gears into the fall season. But, you know, from a, from a promotional activity, you know, we're relatively stable.

Speaker Change: We also expect capital expenditures of approximately $2 billion and an adjusted effective income tax rate of approximately 24.5%.

Now turning to our results in building products, where we delivered above average comps in rough plumbing, electrical, and millwork, and positive comps in building materials, driven by continued growth in pro across all building materials subdivisions.

Within rough plumbing, we also drove strong results in some hot weather categories, like air circulation and HVAC, and we continued to deliver strong results in water heaters.

Just one warm weather example, we recently rolled out Mr.

Cool mini split air conditioners in 1,200 stores.

These ductless systems are known for their advanced technology, energy efficiency, and ease of insulation, which means our DIY customers can now install their own mini HVAC system without having to hire a professional installer.

Now let's shift gears to home decor.

Given our DIY customer mix, sales pressure in these two DIY dominant categories greatly impacted overall comp sales for the quarter.

We continue to see persistent pressure in bigger ticket DIY discretionary projects in flooring and kitchen and bath, consistent with the trends that began in third quarter of 2023.

In outdoor power equipment, the addition of Toro now gives us the strongest lineup in the industry.

And we continue to lead the industry in appliances, and we are pleased with our overall performance where we delivered above average comps and double digit growth in pro sales.

Along with John Deere, Aaron's, Ego, Craftsman, Husqvarna, Cobalt, and Skill, no one can beat it.

When you put it all together, we have the whole package for customers shopping for new appliances.

Speaker Change: The callback is going to continue to benefit, and it really starts to accelerate in a Q3, Q4, and as you mentioned, turning into 25, there's a lag effect there just with how that turns through inventory.

In tools, we're expanding our collection of private branded Cobalt tools with a 24-volt paint sprayer, multi-material cutter, and finish nailer.

We have the widest assortment of the leading brands.

And with our introduction of Klein Tools and their new Connect system, which is an impact rated system of sockets, drivers, and ratchets that are compatible with both hand tools and power tools,

We have a simple and seamless shopping experience, both in store and online, and we have a best in class fulfillment solution with next day and two day delivery options, thanks to our multi-year investment in our market delivery infrastructure.

this system is proprietary to Klein, the number one brand for electricians and HVAC professionals.

And we continue to bring the most innovative products to market, like the Lowe's exclusive HiSense convertible four door refrigerator, which has a fingerprint resistant finish and an extra storage drawer with different temperature settings that can be controlled over Wi-Fi from your mobile phone.

And Connect is also exclusive to Lowe's in the Home Center channel, where we now have the largest assortment of Klein Tools in home improvement retail.

In paint, we're now partnering with Sherwin-Williams to offer customers free same day delivery nationwide.

During the quarter, we were also pleased with the success of our Craftsman Days events, where we highlighted Craftsman products from multiple merchandising divisions, with more than 100 products featured both in-store and online.

Since painting is the number one home improvement project, we're making it easy and convenient for customers to order paint and paint supplies online and get it all delivered quickly right to their door.

As we look ahead to Q3 in the fall season, we have a strong product lineup ready for the fall, starting with Halloween. It's bigger than ever before, with everything from new animatronics to inflatables, along with fall cleaning and fall harvest, and with the decor that can last the entire fall season.

This delivery option is just another added convenience, especially if you happen to run short or out of supplies in the middle of a painting project.

It is already available online and in-store.

Now let's talk about hard lines, where unfavorable weather pressured traditional spring seasonal categories like lawn and garden and seasonal and outdoor living.

Marvin Ellison: And, you know, we're seeing on the appliance side that, you know, we're back to, you know, more of a normal activity as it relates to how the appliance industry is going to market. So, nothing really, you know, out of the norm in state. And this is the brand. And I would just reinforce the ticket increase is not a function of pricing so much as it's just the strength that we're seeing in the pro business, which is lifting ticket.

As I wrap up, I want to once again thank our supplier partners and our merchants for their partnership and hard work in bringing our customers the best brands, innovative products, and compelling offers that offer value and new solutions for our customers' home improvement needs.

Speaker Change: Transportation costs continues to be a good guy for us as we leverage our scale and then credit and shrink.

Brandon Sink: Expect those to be roughly flat for the full year and a great job by the teams managing the pressures in those two lines. So you're seeing that largely, those things played out here in Q2 with the progression that we saw nicely from Q1 to Q2. And those same things roughly play out for the full year. Thank you.

Speaker Change: Expect those to be roughly flat for the full year and a great job by the teams managing the pressures in those two lines. So you're seeing that largely those things played out here in Q2 with the progression that we saw nicely from Q1 to Q2. And those same things roughly play out for the full year.

Marvin Ellison: And then as Bill mentioned, the cycling of the promo environment and appliances, you know, broadly speaking, is it really surprising environment really largely stable here. The last couple of years, there's always, you know, pockets of activity that we see, but the ticket's been, you know, in the pricing environment, it's been largely consistent since 2022. And the industry continues to be disciplined and rational. So, for those reasons, we expect the ticket to continue to hold as we look across the second half of the year. Okay. Thanks for the detail. Best luck in the second half.

Unknown Executive: Have a great Labor Day. Thanks, Chris.

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

Brian, this is Brian.

Speaker Change: Thank you. Have a great Labor Day.

And look, mortgage rates are obviously coming down. We expect that

Steven Zako: And Stephen.

Scott Ciccarelli: Thanks, questions from the line of Scott Chicarelli with Truest Securities.

Chris: thanks chris

Thanks, Bill, and good morning, everyone.

to continue to come down further as we turn into 25.

I'd like to start by recognizing our frontline associates. Their dedication to serving our customers is reflected in continued improvement in our customer satisfaction scores over last year.

And while we continue to elevate the customer experience, we also manage staffing well in a dynamic environment and achieve greater payroll productivity. We achieve this improvement in customer service and productivity by continuing to shift associate time from non-customer-facing areas to focus on selling and assisting customers.

Speaker Change: Our next question is from the line of Scot Ciccarelli with Truist Securities. Please proceed with your question.

Scott Ciccarelli: Good morning, guys. I guess high level question on your earnings, Algo. This will be basically the third year of negative comps.

Speaker Change: Hey, good morning.

Just pricing and promotions kind of trickling into the industry if demand stays weak?

But, you know, we look at consumer

And so, you know, when you look at Q3, we've got Labor Day in front of us, so we're going to be out there making sure that we've got seasonally relevant offers that are out there for that time as we shift gears into the fall season.

sentiment, existing home sales, housing affordability.

But, you know, from a promotional activity, you know, we're relatively stable, and we're seeing on the appliance side that, you know, we're back to, you know, more of a normal activity as it relates to how the appliance industry is going to market.

Those are still concerns.

We continue to see

Speaker Change: Good morning, guys. I guess, high-level question on your earnings, Algo. This will be basically the third year of negative comps, and I guess, you know, theoretically, if comps were to stay negative in 25, is there a point where deleverage actually accelerates because of the fixed-cost nature of your model?

Brandon Sink: And I guess theoretically, if comp were to stay negative in 25, is there a point where D leverage actually accelerates because of the fixed cost nature of your model? Yeah, I would say, Scott, we expect our kind of rule of thumb and the algorithm. We expect that. That still holds. And it's directional. And it applies mainly to the fiscal year. We still see plus 10 basis points on the upside for every incremental point of comp. And then 15 basis points on the downside. That's what's reflected in our full-year guide. And we're working really hard to kind of stay consistent with that.

Christopher Hovers: The next question is from the line of Christopher Hovers with JP Morgan. This is you with your question. Thanks and good morning. So first of clarification, to confirm you expect 3Q and 4Q comms to be the, basically the same or sequentially improving over the year related to that. How much, how much do you think whether actually was a headwind to comp in the second quarter and any comment on where you are trending quarter to date relative.

Speaker Change: Yeah, I would say, Scott, we expect our kind of rule of thumb and the algorithm, we expect that that still holds, and it's directional, and it applies mainly to the fiscal year.

Speaker Change: We still see plus 10 basis points on the upside for every incremental point of comp, and then 15 basis points on the downside. That's what's reflected.

Brandon Sink: It's not a natural output. And with all the work we've been doing across the portfolio with PPI. And then you know, your efforts are overall road map.

Speaker Change: in our full year guide and we're working really hard to conate consistent with that it's not a natural output

Christopher Hovers: To the updated expectations. So Chris, first part of your question, the comps are relatively even split when we look at Q3 and Q4 as it relates to what's embedded in the guide. And then, you know, the question on whether impact in particular is it impacted our DIY seasonal business. So, you know, we did see unfavorable weather in Q2 at pressured sales, cold and wet, wet weather in May followed by the intense heat that we saw on June and July.

Speaker Change: Adjusted operating margin rate of 14.4%, declined 114 basis points, and the adjusted effective tax rate of 24.2% was in line with prior years.

Which leads me to a question we often hear from our investors, namely, do our perpetual productivity improvement or PPI initiatives negatively impact our customer experience?

Speaker Change: This results in an updated outlook for adjusted deluded earnings per share of approximately $11.70 to $11.90. Now to assist you with your modeling here are a few points to consider for the back half of the year. We are expecting third and fourth quarter comp sales to be roughly 200 basis points better than our second quarter results given the easier prior year compares. And we also expect operating margin rate for the second half to be roughly in line with prior year with Q3 approximately 70 basis points below prior year rate and Q4 to be approximately 50 basis points above prior year rate. The quarterly differences are driven by the timing of merchandising PPI initiatives as we turn through our inventory as well as comparisons to prior year incentive compensation expense and year end discretionary bonuses.

Speaker Change: With all the work we've been doing across the portfolio with PPI.

Brandon Sink: We'll talk more about 20 to 25 in December, but really the framework still holds. Everything we've been driving from a PPI standpoint, offsetting investments we're making in gross margin on the SG&A side; same thing investing or offsetting investments that we're making in wages, inflationary pressures, strategic investments. And it really comes down to the fixed cost leverage and our ability to grow top line. But when we do that, we believe we stay consistent with that framework, and we can see the expansion. Helpful.

Let me address that head-on.

Speaker Change: And then, you know, you referenced our overall roadmap, we'll talk more about 2025 in December , but really the framework still holds. Everything we've been driving from a PPI standpoint, offsetting investments we're making in gross margin on the SG&A side, same thing, investing, or offsetting investments that we're making in wages, inflationary pressures.

Speaker Change: And finally, we are reconfirming our capital allocation priorities.

Speaker Change: We will continue to invest in the business to drive long-term growth while maintaining a 35% targeted dividend payout ratio and then use the remaining cash flows to fund share repurchases. This disciplined approach to capital allocation combined with improved operating performance almost tripled ROIC over the past five years.

Speaker Change: In closing, we are confident in our ability to execute at a high level as we navigate these near-term market uncertainties while making the right investments in our total home strategy all while continuing to drive sustainable shareholder value.

Christopher Hovers: Just as a reminder, we are cycling over a strong seasonal performance last year Q2. We saw that, especially in live goods and smaller outdoor projects. And the outside of just seasonal, the intense weather also impacted other outdoor, call it non seasonal projects like exterior painted back. And then the last thing I'll call out, you know, we did see pressure and big ticket discretionary seasonal categories like patio and grills, but that was largely expected as we've been managing.

Speaker Change: Strategic Investments and it really comes down to the fixed cost leverage and our ability to grow top line, but when we do that, we believe we stay consistent with that framework and we can see the expansion.

Speaker Change: And with that, we will open it up for your questions.

Speaker Change: Thank you.

Brandon Sink: And then just a quick follow-up. Did additional changes to incentive comp have significant impact on second quarter and your back half outlook? In other words, is that something we have to kind of consider as we think about, you know, 25 earnings outlook? You know, very consistent.

Speaker Change: helpful and then just a quick fall up did additional changes to incentive compp have significant impact on second quarter and your back half outlook other otherwords is that something we have to kind of consider as we think about now twenty-five earnings outlook

Speaker Change: We're now ready for questions.

Brandon Sink: The only thing from an incentive compensation standpoint is what I referred to with the noise in Q4 on the 140 discretionary payout in Q4, but largely could consist of there, nothing that would need to change or be factored in.

Speaker Change: If you'd like to ask a question, press star one on your telephone keypad.

Christopher Hovers: You know, those seasonal buys down to more recent trends that we've seen. So that was the pressure that was mainly, you know, where we saw the deceleration in comps from as we moved from June to July. And then I would say as a relates to your question on all this very much playing out, you know, through here the first two plus weeks very much in line with what we've got into Q3.

Speaker Change: No, very consistent. The only thing from an incentive compensation standpoint is what I referred to with the noise in Q4 on the 140 discretionary payout in Q4, but largely consistent there, nothing that would need to change or be factored in.

Speaker Change: To destroy your question, press star two.

Speaker Change: In order to allow questions for as many individuals as possible, please send yourself to one question and one follow up.

Unknown Executive: Great. Thanks a lot, guys.

So nothing really, you know, out of the norm.

pressure there.

Unknown Executive: Thanks for your question.

Luus: great thanks luus

Katharine McShane: Our next questions are from the line of Kate McShane with Goldman Sachs. Please excuse me for your question. Hi, good morning. Thanks for taking our question. We were wondering if you could speak to how you're managing your inventory levels. I know inventory was down on a dollar basis in the quarter, but how are you thinking about inventory in the context of maybe a slightly more cautious demand environment in the second half as well as possibly having to manage a higher ocean free environment. Yeah, Kate, we're really pleased with the ability to, you know, to manage inventory.

Luus: Um, if we assume the Fed starts easing in the next couple of months, what level of rate cut or rate level?

Kate Macchine: next question next questions are from the line of kate macchine with goldman s please your question

Speaker Change: Our first question is from Sydney Ingellman with Morgan Stanley.

Brandon Sink: Understood. And then in terms of the gross margin outlook, so it would seem like you're basically expecting gross margin to be down again, you know, perhaps, you know, more significantly in the third quarter as we, that fair, and then as you think about the flow of the vendor club acts, this would imply that really the club acts are starting in the fourth quarter and then we'll sort of continue into the first half of 2025.

We've found that the opposite is true.

Consumers are still showing a preference for services versus goods, especially,

Speaker Change: We'll just use your question.

you know, in home improvement.

Kate Macchine: ihigh good morning thanks for taking our question we were wondering if you could speak to howyou're managing your inventory levels i know inventory was down on a dollar basis in the quarter but how are you thinking about inventory in the context of maybe a slightly more cautious demand environment in the second half as well as possibly having to manage a higher ocean freightenvironment

And improvement in these macro trends, we should see and drive

Kate Macchine: Inventory ended the quarter at $16.8 billion, down $581 million compared to Q2 of last year, as we continue to align inventory levels with demand while also investing in high-velocity pro-life.

Kate Macchine: Do you think is the right level to start stimulating demand in the category again?

Kate Macchine: Turning now to capital allocation.

Kate Macchine: During the quarter, we generated $2.7 billion in free cash. We repurchased 4.4 million shares for $1 billion and paid $629 million in dividends at $1.10 per share. We also announced a 5% increase to $1.15 per share for the dividend paid on August 7th.

Kate Macchine: Capital expenditures totaled $426 million as we continue to invest in modernizing our technology infrastructure and our strategic growth priorities.

Speaker Change #102: we're really pleased with the ability of team to manage inventory we continue to manage it with the sales trends that we're seeing

Brandon Sink: We continue to manage it with the sales trends that we're seeing. You know, inventory decline faster than sales; inventory is down, you know, 3.3% year every year. We remain focused on making the investments in and pro depth and brands to support and accelerate the pro growth that we've talked about. We feel like we're in a great position on in stock levels and then from a seasonal inventory standpoint, also in a good spot as we've managed the seasonal buys to the trends we're seeing. And I think you also mentioned, you know, freight rates from a transportation standpoint, we continue to see lower transportation costs as we leverage our scale to drive the lower rates that we've seen with our carriers.

Speaker Change: Good morning everyone.

Brandon Sink: Thanks very much. Yeah, Chris, so not down, we are expecting it to be up both in Q3 and Q4 of this year, but again, on the year roughly flat. And I'll mention just a couple of the pushes and poles. We continue to make the splotching and investments nearly complete with the row out of market delivery. Investments will make in early earnings on the pro-fulfillment. And then as you mentioned, the merchant splotching, PPI initiatives, the callback is going to continue to benefit and it really starts to accelerate in a Q3, Q4.

Speaker Change: I have one question about top line and then second about margin.

Speaker Change #103: You know, the inventory declined faster than sales. Inventory's down, you know, 3.3% year-over-year. We remain focused on making the investments in pro-depth and brands and support and accelerate the pro-growth that we've talked about.

Speaker Change: So the first question on the spread between DIY and Pro.

Speaker Change: I don't think we have that for every quarter but call it 15 point spread.

sustained increase in discretionary projects and DIY traffic.

So particularly in the bigger

ticket categories, which is what we're watching for, that's the inflection that we expect.

But in terms of the timing and our ability to call that, that's what's unclear to us at this point.

Speaker Change: It looks like the highest number in a long time if that's fair.

Speaker Change #103: We feel like we're in a great position in stock levels and then from a seasonal inventory standpoint, also in a good spot as we've managed the seasonal buys to the trends we're seeing. And I think you also mentioned freight rates. From a transportation standpoint, we continue to see lower.

Speaker Change: And it would imply you're taking share in Pro.

Speaker Change #103: Adjusted debt to EBITDAR finished the quarter at 3.03 times and we delivered a return on invested capital above 30%. Now turning to our financial outlook. Sales in the first half of the year performed largely in line with our expectations.

Speaker Change #103: But as Marvin mentioned, the home improvement backdrop remains challenging and consumer sentiment remains weak.

Speaker Change #103: Based on these factors, we are updating our full year 2024 outcome. We are now expecting sales in the range of $82.7 to $83.2 billion, with comparable sales in a range of down 3.5% to down 4%. We also now expect full year adjusted operating margin in a range of 12.4% to 12.5% as we continue to tightly manage expenses while also investing in our strategic priorities. Additionally, we expect a four-year net interest expense of approximately $1.4 billion and to repay a $450 million bond maturity in September.

Speaker Change #103: We also expect capital expenditures of approximately $2 billion and an adjusted effective income tax rate of approximately $24.5 billion.

Speaker Change #103: This results in an updated outlook for adjusted diluted earnings per share of approximately $11.70 to $11.90. Now, to assist you with your modeling, here are a few points to consider for the back half of the year. We are expecting 3rd and 4th quarter comp sales to be roughly 200 basis points better than our 2nd quarter results given the easier prior year compare. And we also expect operating margin rate for the second half to be roughly in line with prior year, with Q3 approximately 70 basis points below prior year rate, and Q4 to be approximately 50 basis points above prior year rate.

Speaker Change #103: Quarterly differences are driven by the timing of merchandising PPI initiatives as we turn through our inventory, as well as comparisons to prior year incentive compensation expense and year-end discretionary bonus.

Speaker Change: But it looks like you're losing some in DIY.

Brandon Sink: And as you mentioned, turning into 25, there's a lag defect there just with how that turns through inventory. Transportation costs continues to be a good guy for us as we leverage our scale and then credit and shrink. Expect those to be roughly flat for the full year and a great job by the team's managing the pressures in those two lines. So you're seeing that largely, those things played out here in Q2 with the progression that we saw nicely from Q1 to Q2. And those same things roughly play out for the full year.

Speaker Change #103: transportation costsas we've leveragedour scale to drive the lower rates that weve seen with our carriers

Marvin Ellison: You know, mostly insulated from that because we have contract pricing, and we see those favorable rates kind of extending through the first part of 2025. So we expect the favorability that we've seen in Q2 to kind of extend through the remainder of the year, and that's baked in our gross margin.

Speaker Change: Is that fair?

Unknown Executive: Thank you.

Speaker Change #103: mostly inlated from that because we have contract pricing and we see those favorable rates kind of extending through the first part of two twent five we expect the favorability that we've seen qtwo tokind ofextend through the rederof the year and that's aked in our gross margin guide

Speaker Change: And then if you look across geography, how does the spread vary?

Marvin Ellison: And Kate, this is Marvin.

Speaker Change #103: And finally, we are reconfirming our capital allocation priorities. We will continue to invest in the business to drive long-term growth, while maintaining a 35% targeted dividend payout ratio, and then use the remaining cash flows to fund share repurchase. This disciplined approach to capital allocation, combined with improved operating performance, almost tripled ROIC over the past five years.

Speaker Change #103: And is there anything in your history that would suggest, a faster recovery one way or the other in pro or DIY.

So, Brian, this is Marvin.

Speaker Change #103: In closing, we are confident in our ability to execute at a high level as we navigate these near-term market uncertainties while making the right investments in our total home strategy, all while continuing to drive sustainable shareholder value.

Speaker Change: Could it have a function of the Pro spread?

Marvin Ellison: One thing we don't talk a lot about is how we converted our regional distribution centers to be more of a flow through a product versus stocking a product. You go back to six years ago, these RDCs were basically the traditional hub and spoke distribution centers that basically held and stored inventory and replenished stores. And that really put a lot of pressure on turns and over over inventory position. But over the years, the team has converted that to being majority flow. So we're just becoming more of a cross stock type of environment, and we have a very small percent of the image over being stock. You know, debt will continue to evolve over time.

Speaker Change #104: in case is marg one thing we don't talk a lot about is how we ve converted our original distribution centatersors to be more of a flow-through a product versus stocking a product if you go back

Speaker Change: Is it a function of DIY?

I'll take another angle at your question.

Scott Chicarelli: Have a great Labor Day. Thanks, Chris.

Speaker Change #104: to six years ago, these RDCs were basically the traditional hub-and-spoke

Speaker Change: And then what's causing that spread to vary if so?

Scott Chicarelli: Thanks, questions from the line of Scott Chicarelli with Truest Securities. Please excuse your questions.

Speaker Change #104: Zach, this is Brandon.

Speaker Change #104: As it relates to the interest rate environment, so for us, it's difficult to know at what absolute interest rate level we're going to see our consumers fully engage or how long the demand will lag.

Speaker Change #104: The actual rate cuts that we're seeing, we absolutely, as we sit here today, see pent-up demand in the business, but on the flip side, when we look at consumer sentiment, that continues to remain weak.

Speaker Change #104: We are hopeful that the lower rates, the drops that we're seeing, are going to have a dual impact of, one, relieving pressure on consumers, and then, secondly, driving existing home sales activity, but the reality is, you know, when we look at the lock-in effect, the majority of homeowners are still at 4%.

Speaker Change #104: Mortgage rates are less, so even if we do see, you know, some level of decrease, we do believe there still may be a reluctance to engage.

Speaker Change #104: Distribution Centers that basically held and stored inventory and replenished stores and that really put a lot of pressure on terms and overall inventory position.

Speaker Change: Thanks.

Scott Chicarelli: Good morning, guys. I guess high level question on your earnings algo. This will be basically the third year of negative comps. And I guess theoretically, if comp were to stay negative in 25, is there a point where D-Leverage actually accelerates because of the fixed cost nature of your model? Yeah, I would say Scott, we expect our kind of rule of thumb and the algorithm. We expect that that still holds and it's directional and it applies mainly to the fiscal year.

Marvin Ellison: Sydney, this is Marvin.

Speaker Change: I'll take the first part of that.

Speaker Change: I think what's difficult plus to determine in home improvement is where you're actually losing a gaining share specifically in the categories of DIY and Pro.

Speaker Change #104: but over the years the team has converted that to being majority flow so we're just becoming more of a cross-stock type of environment and we have very small percent of the inventory being stocked you know that will continue to evolve over time

Speaker Change #104: So, you know, we're staying close to it.

Speaker Change: I get the foundation of your question but one thing we can confirm for sure is that our pro business is growing so we do believe that we're taking share just based on the maturation of the strategic initiatives that you heard from me, Joe and Bill.

Marvin Ellison: And as Brandon noticed, we continue to make investments and finalize our build out about market delivery that also puts us in a great position to continue to be the industry leader in appliances. This is what I'm having to hold that inventory the way we did years ago in the back of every store. So there are a cost of things that we're working on that's going to give us the ability to improve our insight position, but also improve our turns at the same time.

Speaker Change: As we look at the DIY, the best way for me to explain and answer the question is our sales are much more concentrated in bigger ticket DIY discretionary purchases.

Speaker Change #104: and as brand om not as we continue to make investments and finalize our build-out of our market delivery that also puts us in a great position

Speaker Change: And when you look at big ticket discretionary projects in the second quarter, the DIY demand was softest in those categories than in those projects.

Scott Chicarelli: And we still see plus 10 basis points on the upside for every incremental point of comp and then 15 basis points on the downside. That's what's reflected in our full year guide. And we're working really hard to kind of stay consistent with that. It's not a natural output. And with all the work we've been doing across the portfolio with PPI. And then you know, your efforts are overall road map.

Speaker Change #104: to continue to be the industry leader in appliances without having to hold that inventory the way we did years ago in the back of every store. So there are constant things that we're working on that's going to give us the ability to improve our insight position but also improve our turns at the same time.

Speaker Change: As you mentioned, we're still roughly approximately 75% of DIY.

Speaker Change: So any pullback in these big ticket discretionary categories is really more of a disproportionate impact to us.

Speaker Change: So I don't know that we're losing share in DIY as much as the dynamic of these big discretionary projects in the quarter affected us.

Speaker Change: And that's really the way we're looking at it.

And so for us, obviously,

Speaker Change: Now here's the good news. The good news is we feel great about our assortment, we'll merchandise and perspective, we feel great about our pricing, our execution, our marketing.

Unknown Executive: Thank you.

Speaker Change: And we believe this is just a macro issue that we're dealing with relative to DIY big ticket discretionary.

Brandon Sink: We'll talk more about 25 in December. But you know, really the framework still holds. Everything we've been driving from a PPI standpoint offsetting investments we're making in gross margin on the SG&A side. Same thing, investing or offsetting investments that we're making in wages, inflationary pressures, strategic investments. And it really comes down to the fixed cost leverage in our ability to grow top line. But when we do that, we believe we stay consistent with that framework and we can see the expansion.

And, Steven, this is Brandon.

we don't have a crystal ball to call the inflection when that will happen.

Speaker Change #105: thank you

Robert Ohmes: Our next question is from the line of Robbie Ohms with Bank of America.

Speaker Change #105: And with that, we will open it up for your, Thank you.

Speaker Change #105: Beyond the rates, you know, Marvin reiterated the primary drivers of our business, and that's been consistent, so we're balancing rate activity with, you know, some broader recovery that we see across some of these other metrics that we track very closely.

Speaker Change: So when we look at Q2, even though it was a challenging economic environment, we feel great that we could grow mid single digit positive constant pro, we could deliver almost 3% growth online and we're still managing through macro headwinds with DIY discretionary spend.

I would just reinforce that the ticket increase is not a function of pricing so much as it's just the strength that we're seeing in the pro business, which is lifting ticket, and then, as Bill mentioned, the cycling of the promo environment and appliances.

You know, broadly speaking, as it relates to pricing environment, really largely stable here over the last couple of years. There's always, you know, pockets of activity that we see, but the ticket's been, you know, and the pricing environment's been largely consistent since 2022,

Speaker Change: So we believe that when the DIY market inflicts at some point in the future, we're in a perfect position to take overall market share and home improvement because of the strength we're seeing in pro and online.

Robert Ohmes: Please just use your questions. Oh, thanks for taking my question. You know, really just to two quick questions just on the back half and just going forward from here. The PPI initiatives have been amazing, you know, on the expense side.

roby ommes: Our next question is from the line of Robert Ohmes with Bank of America. Please proceed with your questions.

Nor to Brandon's earlier

roby ommes: We're now ready for questions.

roby ommes: Yeah, we'll hold off on getting too much into that detail.

roby ommes: If you'd like to ask a question, press star 1 on your telephone keypad.

roby ommes: To withdraw your question, press star 2.

roby ommes: oh thanks for taking my question you know really just done to two quick questions just on the back happ and just going forward from your the p p initiatives have been amazing you know on the expense side you know how much room is leftghed at what point

Speaker Change: So then I'll let Brandon take the second part of work.

Speaker Change: Yes, I mean, your question on geographic differences is really pretty consistent.

Brandon Sink: You know, how much room is left at what point do you get to diminishing returns on that in terms of managing expenses and when we look at the back half, is it really more incentive comp and bonus comparisons that, you know, support, you know, SNA being lower than it might otherwise be versus, you know, PPI initiative. is.

comments, you know, can we pinpoint what rate environment we have to be in before it starts

Speaker Change #107: do you get to diminishing returns on that in terms of managing expenses and when we look at the back half is it really war incentive comp and bonus comparisons that

Brandon Sink: Helpful. And then just a quick follow up. Did additional changes to incentive comp have significant impact on second quarter and your back half outlook? In other words, is that something we have to kind of consider as we think about 25 earnings outlooks. You know, very consistent. The only thing from a incentive compensation standpoint is what I referred to with the noise in Q4 on the 140 discretionary payout in Q4, but largely could consist of there nothing that would need to change or be factored in.

Robbie Ohms: Great. Thanks a lot, guys. Thanks question.

Speaker Change #107: In order to allow questions for as many individuals as possible, please limit yourself to one question and one follow-up.

Speaker Change #108: Support, SG&A being lower than it might otherwise be versus PPI initiatives.

and the industry continues to be disciplined and rational.

to positively affect this DIY discretionary pullback for big tickets?

Unknown Executive: Unknown Executive, Michael Lasser, Scott Ciccarelli, Robert Ohmes, Jonathan Matuszewski,

Brandon Sink: Robby, this is Brandon. So you mentioned PPI. We're really proud of the progress that we've made with PPI and broader expense management. We're all setting over $500 million in associate wages, inflationary pressures, and strategic investments that we're making here.

Speaker Change #108: Our first question is from Simeon Gutman with Morgan Stanley.

Speaker Change #108: I think the punchline, Zach, is that the framework still holds.

Brian Moynihan: robby hood this is brain and signion p we're really proudof the progress that we've made with pi broader expense management

Brian Moynihan: Good morning, everyone.

Brian Moynihan: It is, you know, as we look relative to what we talked about in December of 22, I think the degree of step back now that we've seen in 23, and now that what we're seeing in 24 is a little bit, you know, worse than our original expectations.

Brian Moynihan: I have one question about top line and then second about margin.

Brian Moynihan: But, you know, we're not going to call the turn or the inflection point, we do believe there's a lot of pent up demand, we do have a lot of confidence in the medium to long term drivers.

Speaker Change #110: We're offsetting over $500 million in associate wages, inflationary pressures, and strategic investments that we're making here.

Brandon Sink: In 2024, the roadmap covers all aspects of the company's stores, merchandising, supply chain technology, and our back office expense infrastructure. You heard Joe and Bill kind of reference a number of things going on there. And I would say we have great alignment across the organization to continue to maintain that discipline. And as Joe mentioned, increasingly able to enhance our customer experience while also driving productivity with tech-driven solutions.

Speaker Change #110: The first question on the spread between DIY and pro.

Speaker Change #110: When we do get back to kind of that mid single digit recovery and comp that we've traditionally seen in home improvement, we believe we can outpace that with the initiatives that we have in place.

Brian Moynihan: In 2024, the roadmap covers all aspects of the company, stores, merchandising.

Kate Mcshane: Our next questions are from the line of Kate McShane with Goldman Sachs. Please excuse me for your question. Hi. Good morning. Thanks for taking our question. We were wondering if you could speak to how you're managing your inventory levels. I know inventory was down on a dollar basis in the quarter, but how are you thinking about inventory in the context of maybe a slightly more cautious demand environment in the second half as well as possibly having to manage a higher ocean free environment.

Brian Moynihan: I don't think we have that for every quarter, but call it 15 point spread.

Brian Moynihan: And the degree and the timing of the expansion on operating margin, again, is going to be contingent on, you know, the pace in which that top line recovers, got it.

Brian Moynihan: Supply Chain Technology, our back office expense.

Brian Moynihan: It looks like the highest number in a long time, if that's fair.

Brian Moynihan: Thanks for the time.

Joe Bill: infrastructure you heard Joe and Bill kind of reference a number of things going on there

Joe Bill: Rob, we have time for one more question.

Joe Bill: And I would say we have great alignment across the organization to continue to maintain that discipline. And as Joe mentioned, increasingly able to enhance our customer experience while also driving productivity with tech-driven solutions.

For a number of years now, we've been working smarter, with tech-enabled solutions that make our associates more productive while enhancing customer service at the same time.

Joe Bill: And it would imply you're taking share in pro, but it looks like you're losing some in DIY.

Joe Bill: Yes, sir.

The new in-store mode on our mobile app is a great example. When customers enter our store, they can enable in-store mode using the Lowes.com app on their phone, providing them with the detailed product and location information to help them navigate the store with ease.

In addition to being a tremendous customer resource, in-store mode also helps free up associates so they can spend more time selling and focusing on customers who need help.

Marvin Ellison: So I'll toss Marvin. Anything else you want to add there? Yeah, I'm going to just let Joe and Bill talk a little bit about PPI. To Brandon's point, I mean, we are incredibly pleased with the progress that we've made. Initially, our productivity improvement initiatives were focused almost exclusively on store operations. And now we've created a culture where every functional area is driving their own PPI initiatives to not only drive improvements in the business and productivity, but also just driving overall efficiencies.

And we're already working on the next innovations to the in-store mode to further streamline the shopping experience.

Joe Bill: Is that fair?

Joe Bill: Our final question comes from Brian Nagel with Oppenheimer.

Our PPI initiatives are also enabling us to reduce returns, which are now at historic lows for our company. There are a number of factors driving these results. Beginning at the returns desk, associates are using our modern omni-channel system, which makes the process as easy as a quick scan with the system immediately accounting for return policy.

Second, we're collecting more precise information on why an item was returned, so we can work together with our vendors to address any issues and prevent returns from happening in the first place.

Joe Bill: um

Kate Mcshane: Kate, we're really pleased with the ability to, you know, to manage inventory. We continue to manage it with the sales trends that we're seeing, you know, inventory decline faster than sales, inventory is down, you know, 3.3% year every year. We remain focused on making the investments in and pro depth and brands to support and accelerate the pro growth that we've talked about. We felt like we're in a great position on in stock levels and then from a seasonal inventory standpoint, also in a good spot as we've managed the seasonal buys to the trends we're seeing and I think you also mentioned, you know, freight rates from a transportation standpoint, we continue to see lower transportation costs as we've leveraged our scale to drive the lower rates that we've seen with our carriers.

Marv: I'll toss Marvin anything else you want to add there. Yeah I'm gonna just let Joe and Bill talk a little bit about PPI. To Brandon's point, I mean we are incredibly pleased with the progress

Marv: And then if you look across geographies, how does this spread vary, you know, is it a function of the pro spread?

Marv: Hi, good morning.

Third, we've identified key inflection points in our supply chain to reduce damages on more fragile items, like appliances, to better ensure that they arrive in pristine condition, therefore reducing returns.

Marv: Is it a function of DIY?

Speaker Change #113: that we' made initially our productivity improvement initiatives were focused almost exclusively on store operations and now we've created a culture where every functional area is driving their own p initiatives

Speaker Change: Marvin mentioned the growth in pro. That's driven by both transactions and ticket.

Speaker Change: But when we look across our geographic divisions, very consistent performance and taking share regionally consistently there.

Joe Bill: to not only drive improvements in the business and productivity but also just drive an overall efficiencies i'm b joe talk alittle bit about operations

Joe Mcfarland: I'm going to let Joe talk a bit about operations, and then Bill talk about merchandising and what we're going to be seeing not only in the back half of the year, but going forward. So Joe, we'll start with you. So, Robbie, thanks for the question. And well, we've made a lot of progress. We're only in the middle of the productivity journey. A lot of runways still in front of us. Now talk about things in the past, running transformation. We're not even 50% through our front-end transformation. This is not only focused on the operation side, but also the sales side.

So for those reasons, we expect the ticket to continue to hold as we look across the second half of the year.

Bill: And then Bill will talk about merchandising and what we're going to be seeing, not only in the back half of the year, but going forward. So, Joe, we'll start with you. No, Robbie. Thanks for the question. And while we've made a lot of progress, we're only in the middle innings of the productivity journey. A lot of runway is still in front of us. And I've talked about things in the past, front-end transformation. We're not even 50% through our front-end transformation. This is not only focused on, you know, the operations side, but also the sales side. And so we worked hand-in-hand, you know, things like our activity-based labor model that we continue to invest in. We've continued to refine the advanced labor management tools that we're using today. And also the MST program that is added.

Okay.

Bill: And then what's causing that spread to vary?

Bill: Thanks for taking my question.

Even though we've already made substantial progress on our productivity journey, our team is already piloting some of the next round of innovations on our PPI roadmap.

Thanks for the detail.

Speaker Change: And then on the DIY side, again, to really no notable geographic differences outside of the hurricane impact that we saw around the July time frame with Hurricane Barrel coming through the Houston Geography, but other than that really consistent.

Kate Mcshane: You know, mostly insulated from that because we have contract pricing and we see those favorable rates kind of extending through the first part of 2025. So we expect the favorability that we've seen in Q2 to kind of extend through the remainder of the year and that's baked in our gross margin.

Bill: Simeon says Marvin, I'll take the first part of that.

Bill: So my first question, and this is a bit of a follow up to that, the prior question was on rates, I'm going to go the different direction.

I'm looking forward to sharing more details about these initiatives at our Analyst and Investor Conference in December.

Best of luck in the second half.

Bill: I think what's difficult for us to determine in home improvement is where you're actually losing or gaining share specifically in the categories of DIY and pro.

Speaker Change: Okay, and then my follow-up on margin, it looks like in the second half the conversion or the relationship between the comp and the margin, it looks a little weaker than maybe the first half.

Thanks, Steven.

Bill: I get the foundation of your question, but one thing we can confirm for sure is that our pro business is growing.

The next questions are from the line of Christopher Horvitz with J.P. Morgan.

Speaker Change: It doesn't look terrible given the comp, but it looks a little weaker.

Marvin Ellison: And Kate, this is Marvin. One thing we don't talk a lot about is how we've converted our regional distribution centers to be more of a flow through a product versus stocking a product. You go back to six years ago, these RDCs were basically the traditional hub and spoke distribution centers that basically held and stored inventory and replenished stores and that really put a lot of pressure on turns and over over inventory position.

Marvin Ellison: But over the years, the team has converted that to being majority flow. So we're just becoming more of a cross stock type of environment and we have very small percent of the image over being stock, you know, debt will continue to evolve over time. And as Brandon noticed, we continue to make investments and finalize our build out about market delivery that also puts us in a great position to continue to be the industry leader and appliances without having to hold that inventory the way we did years ago in the back of every store. So there are a cost of things that we're working on that's going to give us the ability to improve our insight position, but also improve our turns at the same time.

Bill: So we do believe that we're taking share just based on the maturation of the strategic initiatives that you heard from me, Joe and Bill.

Joe Mcfarland: And so we worked hand-in-hand; you know, things like our activity-based labor model that we continue to invest in. We continue to refine the advanced labor management tools that we're using today. And also the MST program that is added at 30,000 plus associates to the sales floor. And so, as a team, continue to work together. We continue to see a lot of runway ahead, you know, spring line to back end processes are still in front of us and a lot more to go.

Bill: As we look at the DIY, the best way for me to explain and answer the question is our sales are much more concentrated in bigger ticket DIY discretionary purchases.

Bill: And when you look at big ticket discretionary projects in the second quarter, the DIY demand was softest in those categories and in those projects.

Bill: As you mentioned, we're still roughly approximately 75% DIY. So any pullback in these big ticket discretionary categories is really more of a disproportionate impact to us.

Bill: and that 30,000 plus associates.

Bill: to the sales lo so as a team continued to work together we continue to see a lot of runway ahead streamllineed the back-end processes are still in front of us and a lot more to go and so i'll talkss it over to build for

Bill: So I don't know that we're losing share in DIY as much as the dynamic of these big discretionary projects in the quarter affected us.

Streamlining the back-end processes are still in front of us and a lot

Bill: And that's really the way we're looking at it.

more to go.

Bill Boltz: And so I'll toss it over to Bill for, yeah, thanks, Joe. You know, Robbie, on the Merck side, you know, I hit on a couple of them in my prepared remarks. You know, we working on costs with suppliers is an ongoing, you know, process, and merchants do that, you know, on a daily basis, you know, through, you know, product line reviews, business reviews. But sort of productivity is, you know, part of what, you know, we do on an act on a weekly basis and making sure that we've got the right stuff in the stores and online.

Bill: Now, here's the good news.

Bill: Look, I think, you know, you as an operator, we as investors are waiting for a more accommodative rate environment to underpin better demand within home improvement.

And so I'll toss it over to Bill for...

Bill: thanks dr rob on the merside

Speaker Change #114: h on a couple ofthem in my prepared remarks ly working on costs with suppliers is an ongoing

Speaker Change #115: You know, process and merchants do that, you know, on a daily basis.

Speaker Change #116: through product line reviews business reviews

Speaker Change #117: But assortment productivity is, you know, part of what, you know, we do on a weekly basis and making sure that we've got the right stuff in the stores and online.

Bill Boltz: I hit on retail media network. That's, you know, part of what we're doing as well, making sure that, you know, working with our vendor partners to look at different options in regards to how we've put marketing strategies together. Our private brand work that we've been doing over the last six years to, you know, focus on, you know, opportunities of where we can put private brands into our assortments. Those opportunities to put, you know, those products into our assortment typically come with a higher margin. And so that offers that opportunity to put, you know, their, you know, performing product into assortment.

Speaker Change #117: I hit on retail media network. That's, you know, part of what we're doing as well, making sure that

Speaker Change #117: The good news is we feel great about our assortment.

Speaker Change #117: working with our vendor partners to do a look at different options in regards to how we put marketingand strategies together our private brand work that we've been doing over the last six years to focus on opportunities of where we can put private brands intoour assortments

Robbie Ohms: Our next question is from the line of Robbie Ohms with Bank of America. Please see with your questions. Oh, thanks for taking my question. You know, really just to two quick questions just on the back half and just going forward from here, the the PPI initiatives have been amazing, you know, on the expense side. You know, how much room is left at what point do you get to diminishing returns on that in terms of managing expenses?

Speaker Change #117: Those opportunities to put, you know, those products into our assortment typically come with a higher margin and so that offers that opportunity to put, you know, a better performing product in the assortment. So those are just a few examples on the Merck site.

Unknown Executive: So it's just a few examples on the Thanks, Simeon. It sounds great.

Please proceed with your questions.

Yeah, thanks, Joe.

Scott Ciccarelli: Peter Benedict, Seth Sigman, David Bellinger, Unknown Executive, Michael Lasser, Scott Ciccarelli,

Speaker Change #117: From a merchandising perspective, we feel great about our pricing, our execution, our marketing.

Unknown Executive: Thanks so much, guys. Thanks, Robbie.

Robbie Ohms: And when we look at the back half, is it really more incentive comp and bonus comparisons that, you know, support, you know, you know, SGNA being lower than it might otherwise be versus, you know, PPI initiative, is. Robby, this is Brandon. So you mentioned PPI. We're really proud of the progress that we've made with PPI and broader expense management. We're all setting over $500 million in associate wages, inflationary pressures, and strategic investments that we're making here.

Speaker Change #118: it sounds great thanks so much guys

David Bellinger: Our next questions are from a lot of David Bellinger with Mizuho Security. Let's just see with your questions.

Rob: Thanks, Robbie.

David Bellalansht: mynext questions are fir line of david beballlansht with u hostsecurities please just see with your questions

Shifting gears now to pro, where we continue to gain momentum with our core small to mid-sized pro customer, as we delivered mid-single-digit positive pro comps this quarter.

Thanks, and good morning.

Marvin Ellison: Hey, good morning. Thanks for taking the question. So again, good continued progress on the pro of mid-single digit. What's the next iteration for your pro customer? Are there additional levers we can see take shape? Maybe more brands, loyalty, working upstream with somewhat larger pros? And does Loads do anything today in terms of trade credit with the pro customer base?

Speaker Change #121: agoodmorning thanks for sayking the question so again good continued progress on the pro of mid-single digits

Speaker Change: So I want to ask if that's because of anything that loads is doing differently, how you're managing your business, how you're making investments, or is it simply a function of those things, Brandon, you mentioned some of the laps of incentive comp, and I think there was one other thing.

Speaker Change #100: So is it internal or external?

David Bellinger: what's the next iteration for your pro customer that are there additional levevers we can see take shape maybe more brand loyalty working up stream but somewhat larger pros and as low as do anything today in terms of trade credit with the pro customer base

Brandon Sink: It's really the ladder, you know, the updated four-year operating margin outlook is very consistent and look at it annually with our rule of thumb, 14 basis points of contraction, you know, on the downside for every point of comp to climb.

The recent investments we've made in job site delivery and high-velocity pro SKUs are paying dividends, making it easier for us to fulfill larger orders and quickly replenish inventory within our store.

So first, a clarification.

And Robbie, on the merch side, I hit on a couple of them in my prepared

Robert Ohmes: Unknown Executive, Michael Lasser, Scott Ciccarelli, Unknown Executive, Michael Lasser,

Marvin Ellison: No, hey, David, thank you for the question. I think first, if we could take a step back and think about what we've done thus far. And one of the things that we identified from the very beginning of this transformation was the fact that we needed a very consistent and coherent approach to how we serve the pro customer, and it really started with service levels in the store because regardless of what level of fulfillment and fulfillment capabilities you have in home improvement, your stores will still be an incredibly important part of the fill-in project nature need for the pro customer.

Robbie Ohms: In 2024, the roadmap covers all aspects of the company's stores, merchandising, supply chain technology, our back office expense infrastructure. You heard Joe and Bill kind of reference a number of things going on there. And I would say we have great alignment across the organization to continue to maintain that discipline. And as Joe mentioned, increasingly able to enhance our customer experience while also driving productivity with tech driven solutions. So I'll toss Marvin, anything else you want to add there?

David Bellinger: And we believe this is just a macro issue that we're dealing with relative to DIY big ticket discretionary.

David Bellinger: So the last question is, as you look at your business, and we've seen this malaise continuing to take hold, maybe even intensify over the past several quarters, what are the incremental risks?

David Bellinger: So when we look at Q2, even though it was a challenging economic environment, we feel great that we could grow mid single digit positive content pro.

David Bellinger: We could deliver almost 3% growth online and we're still managing through macro headwinds with DIY discretionary spend.

Speaker Change #123: now heydays thank you for the question i think first if we could take a step back in

remarks.

Jonathan Matuszewski: Unknown Executive, Michael Lasser, Scott Ciccarelli,

Speaker Change #123: So we believe that when the DIY market inflects at some point in the future, we're in a perfect position to take overall market share and home improvement because of the strength we're seeing in pro and online.

Speaker Change #123: Where could the business actually get weaker here before we get that, Great relief, if you will.

Speaker Change #123: and think about what we've done

To confirm, you expect 3Q and 4Q comps to be basically the same or sequentially improving over the year?

Working on costs with suppliers is an ongoing process and merchants do that on

Peter Benedict: Unknown Executive, Unknown Executive,

Speaker Change #124: dbor and one of the things that we identified from the very beginning of this transformation was the fact that we needed a very consistent and coing our approach

Related to that, how much do you think weather actually was a headwind to comp in the second quarter?

a daily basis through product line reviews, business reviews.

Seth Sigman: Unknown Executive,

David Bellinger: © BF-WATCH TV 2021

Speaker Change #124: So with that, I'll let Brandon take the second part.

Speaker Change #124: Brian, this is Brandon.

Speaker Change #124: Yes, I mean, your question on geographic differences really pretty consistent.

Speaker Change #124: Marvin mentioned the growth in pro that's driven by both transactions and ticket.

Speaker Change #124: to how we serve the pro customer and really started with service levels in the store because regardless of what level of fulfillment and fulfillment capabilities you have in home improvement your stores will still be an incredibly important part of the fill in

Speaker Change #124: But when we look across our geographic divisions, we're seeing very consistent performance and taking share regionally consistently there.

Speaker Change #124: And then on the DIY side, again, to really no notable geographic differences outside of the hurricane impact that we saw around the July timeframe with Hurricane Beryl coming through the Houston geography.

Speaker Change #101: And as you mentioned, second half quarterly differences are driven mainly by the timing of the Merch PPI initiatives as we turn through the callbacks, and then what we're cycling over as it relates to prior year incentive compensation, we called out last year, $140 million of front line bonuses that we paid in Q4. So it's really a function of those two things.

Robbie Ohms: Yeah, I'm going to just let Joe and Bill talk a little bit about PPI. To Brandon's point, I mean, we are incredibly pleased with the progress that we've made. Initially, our productivity improvement initiatives were focused almost exclusively on store operations. And now we've created a culture where every functional area is driving their own PPI initiatives to not only drive improvements in the business and productivity, but also just driving overall efficiencies. I'm going to let Joe talk a bit about operations and then Bill talk about merchandising and what we're going to be seeing, not only in the back half of the year, but going forward.

And any comment on where you are trending quarter to date relative to the updated expectations?

So, Chris, first part of your question, the comps are relatively evenly split when you look at Q3 and Q4 as it relates to what's embedded in the guide.

Speaker Change #101: Gross margins for the year, as we've said consistently, we expect roughly flat for the full year and that's what's embedded in the operating margin outlook.

Marvin Ellison: And so our service levels were so far at best, and so Joe and team have done an incredible job of elevating those standards. And then we had to get our product assortment right. We had customers who no longer shopped us because there were brands that they were loyal to that literally had stopped selling to loads. And so building his team has done an equally incredible job of bringing those brands back to us. You know, Bill noted in his prepared comments just the success of our relationship with client tools, and client was one of those customers that when we arrived was no longer doing business with loads, and it remains the number one brand for electrical and HVAC pros.

Speaker Change #124: Project Nature need for the pro customer and so our service levels were so par at best and so Joe and team have done an incredible job of elevating those standards. Then we had to get our product assortment right.

Speaker Change #101: Perfect.

And then, you know, the question on weather impact in particular has impacted our DIY seasonal business.

But assortment productivity

Speaker Change #101: Thanks.

Bill: We had customers who no longer shopped us because there were brands that they were loyal to that literally had stopped selling to Lowe's. And so Bill and his team has done an equally incredible job of bringing those brands back to us. Bill noted in his prepared comments.

Speaker Change #101: Good luck.

And then the last thing I'll call out, you know, we did see pressure in big ticket discretionary seasonal categories like patio and grills, but that was largely expected as we've been managing, you know, those seasonal buys down to more recent trends that we've seen.

is part of what we do on a weekly basis and making sure that we've got the right stuff

in the stores and online.

I hit on retail media network.

Speaker Change #101: Thank you.

Robbie Ohms: So Joe, we'll start with you. So Robbie, thanks for the question. And well, we've made a lot of progress. We're only in the middle endings of the productivity journey, a lot of runways still in front of us. Now, talk about things in the past, running transformation. We're not even 50% through our front end transformation. This is not only focused on the operation side, but also the sales side. And so we worked hand in hand in the things like our activity based labor model that we continue to invest in.

Speaker Change #125: Just the success of our relationship with Client Tools, and Client was one of those customers that when we arrived was no longer doing business.

Speaker Change #101: Our next question to the line of Steven Zako with City.

That's part of what we're doing

Speaker Change #125: with Lowe's and it remains the number one brand.

Marvin Ellison: And then we had to get committed to our inventory levels. We talked a lot about job lock quantities, but we had to do that in a way that we gave pros confidence. And also in a way that we would not leave our stores vulnerable for large purchases that we could replenish quickly. And so after we established those foundational things, we knew that the next step was printing, sticking it where you would give those customers a reason to shop us versus the competition. We rolled out our loyalty program a little over a year ago, and then we rolled out a more sophisticated CRM platform.

Speaker Change #126: for Electrical and HVAC Pros. And then we had to get committed to our inventory levels. We talk a lot about job log quantities, but we had to do that in a way that we gave pros confidence.

Speaker Change #126: and also in a way that we would not leave our stores vulnerable for large purchases that we could replenish quickly.

Speaker Change #126: But other than that, really consistent.

as well, making sure that working with our vendor partners to look at different options

Speaker Change #126: Okay, and then my follow-up on margin, it looks like in the second half, the conversion of the relationship.., looks a little weaker than, First look at the first half.

Speaker Change #126: and so after we established those foundational things we knew that the next step was

Robbie Ohms: We continue to refine the advanced labor management tools that we're using today. And also the MST program that is added at 30,000 plus associates to the sales floor. And so as a team, continue to work together. We continue to see a lot of runway ahead, you know, spring line to back end processes are still in front of us and a lot more to go. And so I'll toss it over to Bill for, yeah, thanks, Joe.

in regards to how we put marketing strategies together.

Our private brand work that we've

Speaker Change #126: It doesn't look terrible given the comp, but it looks a little weak.

Speaker Change #126: pring stickkinginess where you would give those customers a reason to shop us versus a competition and roll out our loalty program a little er year ago and we roll out of more sophisticated

Speaker Change #126: So I want to ask if that's because of anything that Lowe's is doing, they're, how you're managing your business, how you're making investments or It's simply a function of those things, Brandon, you mentioned, some of the laps, of Incentive Comp.

Speaker Change #126: And I think there was one other thing.

Speaker Change #126: So is it internal or, Simeon, it's really the latter, you know, the updated four-year operating margin outlook is very consistent when you look at it annually with our rule of thumb, 14 basis points of contraction on the downside for every point of comp decline, and as you mentioned, second half quarterly differences are driven mainly by the timing of the Merch PPI initiatives as we turn through the callbacks, and then what we're cycling over as it relates to prior year incentive compensation, we called out last year $140 million of frontline bonuses that we paid in Q4, so it's really a function of those two things.

Speaker Change #126: Gross margins for the year, as we've said consistently, we expect roughly flat for the full year, and that's what's embedded in the operating margin outlook.

Speaker Change #126: Perfect.

Marvin Ellison: And now we're continuing to build on all of those things with more job site fulfillment.

Speaker Change #126: Thanks.

Speaker Change #126: crm platform and now we're continuing to build on all of those things with more job

Speaker Change #126: Good luck.

Marvin Ellison: And so Quanta advance our EVP of Pro and Home Services at our upcoming analyst and investor conference is going to lay out our long-term vision of where we plan to take Pro. And that's going to have a lot to do with identifying segments of pro that we are barely scratching the surface today from a share standpoint that we're going to start to pursue in addition to ways we're going to enhance fulfillment and how we're going to be able to bring a more digitally friendly relationship with pros so they could have a larger selection of product choices and do it in a more seamless nature.

been doing over the last six years to focus on opportunities of where we can put private

Speaker Change #126: site fulfillment

Speaker Change #126: Thank you.

Speaker Change #126: so quantteadvance our ep co-en-home services and our

Speaker Change #126: Our next question is from the line of Steven Zaccone with Citi.

Speaker Change #126: upcoming andys and investor conress is going to lay out our long-term vision

Robbie Ohms: You know, Robbie, on the Merck side, you know, I hit on a couple of them in my prepare remarks. You know, we working on costs with suppliers is an ongoing, you know, process and merchants do that, you know, on a daily basis, you know, through, you know, product line reviews, business reviews. But sort of productivity is, you know, part of what, you know, we do on an electronic weekly basis and making sure that we've got the right stuff in the stores and online.

Speaker Change #126: or where we plan to take pro and that's going to have a lot to do with identifying segments of pro that we are barely scratch in the surface today from a share standpoint that we're going to start

Speaker Change #126: to pursue in addition two ways we're going to enhance fulfillment and how we're going to be able to bring a more digitally friendly relationship withre pros that so they could have a largest selection of product choices and do it in a more seamless nature

And we're delivering outsized growth in pro online sales, as pros appreciate the enhanced online shopping experience that we've created specifically for them.

Looking ahead, we were pleased to hear from pros in our recent survey that their backlogs remain healthy and consistent with last year.

Marvin Ellison: We're incredibly excited about our Pro customer. And as I said earlier, we believe strongly that the pressure that we're filling with the discretionary big ticket DIY is, in large part, a macro influence issue. And so, as we now have momentum with the pro momentum with our digital strategy, we believe that when a marketplace influx and the DIY customer starts to have a stronger confidence in making those discretionary purchases, that we're going to have the full flywheel effect of our market share gain. In the meantime, we're going to be incredibly disciplined on these key parts of our business, but we're very excited about what we're doing in pro.

Robbie Ohms: I hit on retail media network. That's, you know, part of what we're doing as well, making sure that, you know, working with our vendor partners to look at different options in regards to how we put marketing strategies together, our private brand work that we've been doing over the last six years to, you know, focus on, you know, opportunities of where we can put private brands into our assortments, those opportunities to put, you know, those products into our assortment typically come with a higher margin. And so that offers that opportunity to put, you know, a better, you know, performing product into the assortment shows just a few examples on the merchant. That sounds great. Thanks so much, guys. Thanks, Robbie.

Speaker Change #126: Great, good morning.

And what's also encouraging is that 75% of pros are confident in landing new business.

brands into our assortments.

Our EVP of pro and home services, Quante Vance, will discuss the next phase of our pro growth strategy at the December Analyst and Investor Conference.

Those opportunities to put those products into our assortments

Before I wrap up, I want to thank our associates who contributed to our disaster relief efforts to help customers recover from storms, including Hurricanes Beryl and Debbie.

Speaker Change #126: Thanks very much for taking my question.

Lowe's Command Center, merchandising teams, and supply chain teams went into action to pre-stage merchandise at key locations to be able to quickly respond to customers' needs both before and after the storms.

I'd like to extend my appreciation to all of our associates for their tireless efforts to serve our communities in their time of need.

Speaker Change #126: we're incredibly excited about our pro customer as that' said earlier

So that was the pressure that was mainly, you know, where we saw the deceleration in comps from as we move from June to July.

And then I would say as it relates to your question on all this, very much playing out, you know, through here the first two plus weeks, very much in line with what we've got in the Q3.

Speaker Change #126: we believe strongly that the pressure that we're filling with the discretionary big ticket diy is in large part a macro influence issue

Understood.

Speaker Change #126: I wanted to follow up on just understanding the guidance cut as well, because it seems like the pro business is kind of outperforming expectations.

typically come with a higher margin.

Speaker Change #126: And so, as we now have momentum with the probe.

And so that offers that opportunity to put a better

performing product in the assortment.

So those are just a few examples on the merch.

Speaker Change #126: momentum with our digital strategy we believe that when a marketplace in flex and the drw customer starts to have a stronger confidence in making those discretionary purchases that we're going to have the full fly will effect of our market share gain

Speaker Change #126: So, if you had to dig a little deeper into the DIY side of the business, maybe parse through some of the categories on home decor and hardlines, what's really the biggest change to your outlook?

Speaker Change #126: And given the fact that sales have been coming in a little bit weaker than expected for longer, does that temper your view on a potential recovery in DIY?

Our next questions are from the line of David Bellinger with Mizuho Securities.

Please proceed

Speaker Change #126: In the meantime, we're going to be incredibly disciplined on these key parts of our business, but we're very excited about what we're doing in pro, but more importantly, what we're going to be doing in the future.

David Bellinger: Our next questions are from one of David Bellinger with Mizzouho Security. Let's just see with your questions.

Marvin Ellison: But more importantly, what we're going to be doing in the future.

Speaker Change #102: Who's to see you with your question?

Marvin Ellison: Thanks, Marvin. That's very helpful.

Speaker Change #126: So Steven, thank you for the question.

Speaker Change #102: Great.

Marvin Ellison: Okay, good morning. Thanks for taking the question. So again, good continued progress on the pro of mid-single digit. What's the next iteration for your pro customer? Are there additional levers we can see take shape, maybe more brands, loyalty, working upstream, somewhat larger pros, and does Lowe's do anything today in terms of trade credit with the pro customer base? No, David, thank you for the question. I think first, if we could take a step back and think about what we've done thus far.

Marvin Ellison: I also want to ask the Royal Store performance. I'm not sure if you call that out and have prepared remarks. Does any change in trend there?

Speaker Change #103: Good morning.

Speaker Change #126: i

Speaker Change #104: Thanks very much for taking my question.

Speaker Change #127: Thanks Marvin, that's very helpful. And then I also wanted to ask the rural store performance and I'm not sure if you called that out in the prepared remarks. Is there any change in trend there? And then secondly, there's been some mention of faster delivery times, one day, two day shipping to those markets for major e-commerce player. How should we think about any potential impact for the more rural Lowe's store base just given that development?

Speaker Change #105: I wanted to follow up on just understanding the guidance cut as well, because it seems like the pro business is kind of outperforming expectations.

And then in terms of the gross margin outlooks, it would seem like you're

Marvin Ellison: And then secondly, there's been some mention of Fester's delivery times, one day, two day shipping to those markets for major e-commerce players. How should we think about any potential impact for the more rural, low-store base just given that development? Well, the great thing about our gig network and the work that we've done online is that we're serving all customers and giving them the ability to get same-day, next-day fulfillment across all of our partners. We feel really good about what's happening in our rural markets. They perform to our expectations.

basically expecting gross margin to be down again, you know, perhaps, you know, more significantly

Speaker Change #105: So if you have a dig a little deeper into the DIY side of the business may parse through some of the categories on home decor and hard lines, what's really the biggest change to your outlook?

in the third quarter as we, is that fair?

And then as you think about the flow of the

vendor clawbacks, this would imply that really the clawbacks are starting in the fourth quarter

and then we'll sort of continue into the first half of 2025.

Speaker Change #128: Well, the great thing about our gig network and the work that we've done online is that we're serving all customers and giving them ability to get same-day, next-day fulfillment across all of our partners.

Marvin Ellison: And one of the things that that we identified from the very beginning of this transformation was the fact that we needed a very consistent and coherent approach to how we served the pro customer. And it really started with service levels in the store because regardless of what level of fulfillment and fulfillment capabilities you have in home improvement, your stores will still be an incredibly important part of the fill-in project nature need for the pro customer.

Speaker Change #129: We feel really good about what's happening in our rural markets. They perform to our expectations.

Marvin Ellison: We are piloting a lot of unique and different initiatives in some of these stories. And you could argue that we're pressure testing some of these locations to see what works and what does not work. One thing I will tell you is that we're still very excited about what we're doing when our work wear initiative, specifically with Carhartt. We're excited with what we're seeing with our pet food and pet initiative overall and what we're seeing with just ATV and other activities; our rural customers participate in. But we're pleased we're out a real performance. We're pleased we were able to take this digital gig platform and serve customers in both urban, suburban, and rural areas.

Speaker Change #129: we are posing a lot of unique indifferen initiatives

Speaker Change #130: In some of these stores, and you could argue that we're pressure testing some of these locations to see, you know, what works and what does not work.

Marvin Ellison: And so our service levels were so far at best and so Joe and team have done an incredible job of elevating those standards. And then we had to get our product assortment right. We had customers who no longer shopped us because there were brands that they were loyal to that literally had stopped selling to lows. And so building his team has done an equally incredible job of bringing those brands back to us.

Speaker Change #130: one thing i will tell you is that we're still very excited about what we're doing would our work where initiative specifically would carhard where we're excited with what we're seeing what our pet food and pet initiative overall and what we're seeing with just atv and and other activities are world customers

Speaker Change #130: Participate in, but we're pleased with our rural performance.

Speaker Change #130: we' please we ' able to take this digital gig platform and serve customers in both urbance of urbt and rural arearea and we're just continuing to build on that and we'll provide more context when we get together in december but we think rule is going to be a significant part of our growth strategy

Marvin Ellison: You know, Bill noted in his prepared comments just the success of our relationship with client tools and clients was one of those customers that when we arrived was no longer doing business with lows. And it remains the number one brand for electrical and HVAC pros. And then we had to get committed to our inventory levels. We talked a lot about job lock quantities, but we had to do that in a way that we gave pros confidence.

Marvin Ellison: And we're just continuing to build on that, and we'll provide more context when we get together in December. But we think rule is going to be a significant part of our growth strategy. Got it.

Thanks very much.

Unknown Executive: Thank you very much.

Marvin Ellison: And also in a way that we would not leave our stores vulnerable for large purchases that we could replenish quickly. And so after we established those foundational things we knew that the next step was printing, sticking it where you would give those customers a reason to shop us versus to competition. We rolled out our loyalty program a little over a year ago and then we rolled out a more sophisticated CRM platform.

Speaker Change #131: Got it. Thank you very much.

Zachary Fadem: Our next questions are from the line of Zach Fadham with Wells Fargo. Please continue with your questions. Hey, good morning. If we assume the Fed starts easing in the next couple of months, what level of rate cut or rate level do you think is the right level to start stimulating demand in the category again? And is there anything in your history that would suggest a faster recovery, one where the other in pro or DIY site?

Yeah.

with your questions.

Speaker Change #132: Our next questions are from the line of Zach Fadem with Wells Fargo. Please proceed with your questions.

Speaker Change #132: I'll take the first part of it.

Yeah, Chris.

Hey, good morning.

So not, not down.

Thanks for taking the question.

We are expecting it to be up both in Q3 and Q4 of

this year, but again, on the year, roughly flat.

Speaker Change #133: Hey, good morning. If we assume the Fed starts easing in the next couple of months, what level of rate cut or rate level do you think is the right level to start stimulating demand in the category again? And is there anything in your history that would suggest

Speaker Change #134: a faster recovery one way or the other in pro or DIY side.

Brandon Sink: Zach, this is Brandon. As it relates to the interest rate environment, for us, it's difficult to know at what absolute interest rate level. We're going to see our consumers fully engage, or how long the demand will lag the actual rate cuts that we're seeing. We absolutely, as we sit here today, see pent-up demand in the business, but on the flip side, when we look at consumer sentiment, that continues to remain weak. We are hopeful that the lower rates, the drops that we're seeing, are going to have a dual impact of one, relieving pressure on consumers and then secondly, driving existing home sales activity.

And now, let me turn it over to Brandon.

I'll mention just a couple of the pushes

So again, good continued progress on the pro

Marvin Ellison: And now we're continuing to build on all of those things with more job site fulfillment. And so quanta advance our EVP of pro and home services at our upcoming analyst and investor conference is going to lay out our long term vision of where we plan to take pro. And that's going to have a lot to do with identifying segments of pro that we are barely scratching the surface today from a share standpoint that we're going to start to pursue in addition to ways we're going to enhance fulfillment and how we're going to be able to bring a more digitally friendly relationship with pros so they could have a larger selection of product choices and do it in a more seamless nature.

Brand: this is brand and as it relates to the interest rate environment so for us it's difficult to know at what

and pulls.

of mid-single digits.

Brand: absolute interest rate level we're going to see our consumers fullyly engage or

We continue to make the splotching investments nearly complete with the rollout

What's the next iteration for your pro customer?

Speaker Change #136: You know, how long the demand will lag, the actual rate cuts that we're seeing. We absolutely, as we sit here today, see pent-up demand in the business, but on the flip side...

of market delivery investments we're making early innings on pro-fulfillment.

And then

Are there additional

Speaker Change #136: When we look at consumer sentiment, that continues to remain weak.

Speaker Change #136: we are hopeful that the lower rates the drops that we're seeing are going to have a du impact of one relieving pressure on consumers and then secondly

as you mentioned, the, the merchant supply chain, PPI initiatives, the callback is going

levers we can see take shape, maybe more brands, loyalty, working upstream with somewhat

to continue to benefit and it really starts to accelerate in a Q3, Q4.

And as you mentioned,

turning into 25, there's a lag effect there just with how that turns through inventory.

Brandon Sink: But the reality is, when we look at the lock-in effect, the majority of homeowners are still at 4% mortgage rates or less. So even if we do see some level of decrease, that we do believe there still may be a reluctance to engage. So you're staying close to it, beyond the rates, Marvin reiterated the primary drivers of our business, and that's been consistent. So we're balancing rate activity with some broader recovery that we see across some of these other metrics that we track very closely.

Speaker Change #136: driving existing home sales activity

larger pros?

Speaker Change #136: The reality is, when we look at the lock-in effect, the majority of homeowners are still at 4%. Mortgage rates are less. So even if we do see...

Marvin Ellison: We're incredibly excited about our pro customer. And as I said earlier, we believe strongly that the pressure that we're filling with the discretionary big ticket DIY is in large part a macro influence issue. And so as we now have momentum with the pro momentum with our digital strategy, we believe that when a marketplace influx and the DIY customer starts to have a stronger confidence in making those discretionary purchases that we're going to have the full flywheel effect of our market share gain. In the meantime, we're going to be incredibly disciplined on these key parts of our business, but we're very excited about what we're doing in pro.

Speaker Change #105: And given the fact that sales have been coming in all the weaker than expected for longer, does that temper your view on a potential recovery in DIY demand?

Marvin: some level decrease we do believe there still may be a reluctance to engage so you're staying close to it beyond the rates marvin reiterated the primary drivers of our business and that's been consistent

Speaker Change #106: So Steven, thank you for the question.

Marvin: So we're balancing rate activity with, you know, some broader recovery that we see across some of these other metrics that we track very closely.

Thank you, Joe, and good morning, everyone.

Transportation costs continues to be a good guy for us as we leverage our scale and then

And does Lowe's do anything today in terms of trade credit with a pro customer

base?

Brandon Sink: Got it, and thanks Brandon. I don't want to front run the analyst day too much, but you have talked about a long term margin for this business of about 14 and a half percent. Given where we are today and the changes that have occurred since you first provided that outlook, I'm curious if it's still the right way to think about the business long term. And what level of top line and your term recovery? Do you think we need to see to reach that level? Yeah, we'll hold off on getting too much into that detail. I think the punchline, Zach, is that the framework still holds. It is, you know, as we look relative to what we talked about in December of 22.

No.

Hey, David, thank you for the question.

Speaker Change #137: Got it.

Brand: Thanks, Brandon. And I don't want to front run the analyst day too much, but you have talked about a long term margin for this business of about 14.5%.

credit and shrink, expect those to be roughly flat for the full year and a great job by

I think first, if we could take a step back

the teams managing the pressures in those two lines.

and think about what we've done thus far.

So you're seeing that largely those

And one of the things that we identified from

the very beginning of this transformation was the fact that we needed a very consistent

Speaker Change #107: I'll take the first part of it.

things played out here in Q2 with the progression that we saw nicely from Q1 to Q2.

and coherent approach to how we serve the pro customer.

And it really started with service

levels in the store.

Speaker Change #138: given where we are today and the changes that has have occurred sincese you first provided that that outlook curious if it's still the right way to think about the business long term and what level of top line and near-term recovery do you think we need to see to reach that level

Because regardless of what level of fulfillment and fulfillment

Speaker Change #108: Like I think for us, when we think about our guidance change for the year, it really comes down to just being proven and being cautious based on the macro environment and the overall customer sentiment specifically around big ticket DIY discretionary spend.

Marvin Ellison: But more importantly, what we're going to be doing in the future. Thanks, Marvin. That's very helpful.

capabilities you have in home improvement, your stores will still be an incredibly important

part of the fill-in project nature need for the pro customer.

Marvin Ellison: I also want to ask the Royal Store Performance. I'm not sure if you call that out and have prepared remarks. Does any change in trend there? And then secondly, there's been some mention of festers delivery times one day, two day shipping to those markets for major e-commerce player. How should we think about any potential impact for the more rural, low store base just given that development? Well, the great thing about our gig network and the work that we've done online is that we're serving all customers and giving them ability to get same day, next day fulfillment across all of our partners.

Beginning with our Q2 results, we generated GAAP diluted earnings per share of $4.17.

And so our service levels

In the quarter, we recognized a pre-tax gain of $43 million on deferred consideration associated with the 2022 sale of our Canadian retail business.

were so par at best.

Excluding this benefit, we delivered adjusted diluted earnings per share of $4.10.

And so Joe and team have done an incredible job of elevating those

My comments from this point forward will include certain non-GAAP comparisons that exclude this benefit where applicable.

standards.

Comparable transactions declined 5.9% with pressure from DIY project spend as well as

And those

We talk a lot about

Second quarter sales were $23.6 billion, with comparable sales down 5.1%.

And then we had to get our product assortment right.

lower seasonal transactions, partly offset by growth in pro transactions.

same things roughly play out for the full year.

job lot quantities.

Speaker Change #138: Look, I think for us, when we think about our guidance change for the year, it really comes down to just being prudent, and being cautious based on the macro environment and the overall customer sentiment, specifically around big ticket DIY discretionary spend.

Comp sales were pressured by continued softness in DIY bigger ticket projects in line with our expectations.

We had customers who no longer shopped

Our monthly comps were down 6.4% in May, 4.1% in June, and 4.9% in July.

Thank you.

Also, unfavorable weather pressured sales in seasonal categories.

us because there were brands that they were loyal to that literally had stopped selling

Colder and wetter weather in May was quickly followed by intense heat across much of the

Have a great Labor Day.

Comparable average ticket was up 0.8%, helped by strength in pro-heavy categories,

to Lowe's.

country in June and July, with both weather patterns pressuring outdoor spring activity.

Thanks Chris.

as well as less average selling price pressure in appliances as we begin to cycle the normalization of promotions within the category.

And so Bill and his team has done an equally incredible job of bringing those

Gross margin was 33.5% in the second quarter, down 19 basis points from last year due to

Speaker Change #138: yes we'll hold off get too much into that detail i think the punch on zack is the framework

brands back to us.

continuing supply chain investments, partly offset by lower transportation costs and ongoing

You know, Bill noted in his prepared comments just the success of

pivot to manage expenses in line with sales that were adversely impacted by inconsistent

Our next question is from the line of Scott

PPI initiatives.

our relationship with Client Tools.

weather trends.

Adjusted SG&A of 17.3% of sales delevered 87 basis points due to sales deleverage as

And Client was one of those customers that when we arrived

Adjusted operating margin rate of 14.4% declined 114 basis points, and the adjusted effective

well as the cycling of a favorable legal settlement.

was no longer doing business with Lowe's.

tax rate of 24.2% was in line with prior year.

These impacts were partially offset by continued enterprise-wide PPI efforts and our quick

And it remains the number one brand for electrical

Inventory ended the quarter at $16.8 billion, down $581 million compared to Q2 of last year,

and HVAC pros.

And then we had to get committed to our inventory levels.

as we continue to align inventory levels with demand while also investing in high-velocity

Ciccarelli with Truist Securities.

Speaker Change #139: still holds it is as we look relative to what we talk about in december ' twenty two i think the degree of step back now that we've seen in twenty three and now that what we're seeing in twenty four a little bit

Please proceed with your question.

Brandon Sink: I think the degree is step back now that we've seen in 23 and now that what we're seeing in 24 is a little bit, you know, worse than our original expectations. But, you know, we're not going to call the turn or the inflection point. We do believe there's a lot of pin-up demand. We do have a lot of confidence in the medium, the long term drivers. When we do get back to kind of that mid single digit recovery and comp that we've traditionally seen in home improvement. We believe we can outpace that with the initiatives that we have in place in the degree and the timing of the expansion on operating margin again is going to be contingent on the pace in which that top line recovers.

Good morning guys.

I guess high level question on your earnings algo.

Speaker Change #139: worse than our original expectations but

This will be basically

the third year of negative comps.

And I guess, you know, theoretically if comps were to stay

Speaker Change #139: You know, we're not going to call the turn or the inflection point. We do believe there's a lot of pent-up demand. We do have a lot of confidence in the medium to long-term drivers.

negative in 25, is there a point where deleverage actually accelerates because of the fixed

But we had to do that in a way that we gave pros confidence.

And

also in a way that we would not leave our stores vulnerable for large purchases that

we could replenish quickly.

Marvin Ellison: We feel really good about what's happening in our real markets. They perform to our expectations. We are piloting a lot of unique and different initiatives in some of these stories and you could argue that we're pressure testing some of these locations to see what works and what does not work. One thing I will tell you is that we're still very excited about what we're doing when our work wear initiative specifically with car heart.

And so after we established those foundational things, we knew that the next step was creating

stickiness where you would give those customers a reason to shop us versus the competition.

We rolled out our loyalty program a little over a year ago.

And then we rolled out a

more sophisticated CRM platform.

Speaker Change #139: when we do get back to kind of that mid-single digit

And now we're continuing to build on all of those things

with more job site fulfillment.

And so QuantAdvance, our EVP of pro and home services at our upcoming Analyst and Investor

Speaker Change #139: recovery and comp that we've traditionally seen in home improvement we believe we can outpace that with the initiatives that we have in place and the degree and the timing of the expansion on operating margin again is going to be contingent on you know the pace in which that top line recovers

Conference is going to lay out our long-term vision of where we plan to take pro.

Unknown Executive: Got it.

pro items.

Brian Nagel: Rob, we have time for one more question. Nice.

Speaker Change #140: Got it. Thanks for the time.

Turning now to capital allocation.

And that's

Brian Nagel: Our final question comes from Brian Nagle with Oppenheimer. Good morning. Thanks for taking my question.

During the quarter, we generated $2.7 billion in free cash flow.

Roby: Rob, we have time for one more question. Our final question comes from Brian Nagel with Oppenheimer.

We repurchased 4.4 million shares for $1 billion and paid $629 million in dividends at $1.10

Marvin Ellison: We're excited with what we're seeing with our pet food and pet initiative overall. And what we're seeing with just ATV and other activities are real customers participate in, but we'll please route a real performance. We'll please we're able to take this digital gig platform and serve customers in both urban, suburban and rural areas and we're just continuing to build on that and we'll provide more context. You know, when we get together in December, but we think rule is going to be a significant part of our growth strategy. Got it.

per share.

cost nature of your model?

going to have a lot to do with identifying segments of pro that we are barely scratching

Roby: We're all aware that we have an environment of elevated interest rates and inflation.

We also announced a 5% increase to $1.15 per share for the dividend paid on August 7th.

Capital expenditures totaled $426 million as we continue to invest in modernizing our

Marvin Ellison: Thank you very much.

Roby: And because of that, the DIY customer is just on the sidelines waiting for some form of an inflection to take place.

Brian Nagel: So my first question, I guess it's a bit of fall, a bit of a fall up to that. The prior question was on rates. I'm going to go the different direction. I mean, look, I think you know, you was an operator. We as investors are you are waiting for a more accommodative rate environment underpin better demand within home improvement. So the last question is should look at your business. We've seen this. Malay's continuing to take hold. They've even intensified the past some of the quarters. Where are the incremental risks? You know, where could the business actually get weaker here before we get that.

Brian Nickel: good morning

Brian Nickel: thanks for taking my question

technology infrastructure and our strategic growth priorities.

Yeah, I would say Scott, we expect our kind

the surface today from a share standpoint that we're going to start to pursue in addition

Speaker Change #143: so my first question just a bit of fall a bit of a f up to that the progress was on rates over the different direction me look i think was an operator reason investors or you're waiting

of rule of thumb and the algorithm, we expect that that still holds and it's directional

and it applies mainly to the fiscal year.

Speaker Change #144: for a more accommodative rate environment to underpin better demand within home improvement. So the real last question is, as you look at your business, we've seen this.

Speaker Change #144: malay is continuing to take hold they be even tense ri thepastseveral quarters where are the incremental risks could the business actually get weaker here before we get that

Brandon Sink: Great relief, if you will.

Adjusted debt to EBITDAR finished the quarter at 3.03 times, and we delivered a return on

We still see plus 10 basis points on the upside

to ways we're going to enhance fulfillment and how we're going to be able to bring a

Brandon Sink: Brian, this is Brandon. You know, look, mortgage rates obviously coming down. We expect that to continue to come down further as we turn into 25. But we look at consumer sentiment, existing home sales, housing affordability; those are still concerns. We continue to see pressure. There consumers are still showing a preference for services versus goods, especially, you know, in home improvement and improvement needs macro trends. We should see and drive sustain and increase in discretionary projects and DIY traffic. So particularly in the bigger ticket categories, which is what we're watching for. That's the inflection that we expect.

Speaker Change #144: So we can't call when that's going to happen, but we felt, based on what we saw in the second quarter, that it was prudent just to take a cautious approach to our guidance, for the second half.

Speaker Change #144: You know, look, mortgage rates obviously coming down.

Zach Fadem: Our next questions are from the line of Zach Fadham with Wells Fargo. Please just use your questions. Hey, good morning.

Speaker Change #145: Great relief, if you will.

invested capital above 30%.

for every incremental point of comp and then 15 basis points on the downside.

more digitally friendly relationship with pros so they could have a larger selection

Brain: Brian , this is Brandon. You know, look, mortgage rates are obviously coming down. We expect that to continue to come down further as we turn into 25. But, you know, we look at consumer sentiment.

of product choices and do it in a more seamless nature.

Brandon Sink: If we assume the Fed starts easing in the next couple of months, what level of rate cut or rate level do you think is the right level to start stimulating demand and the category again? And is there anything in your history that would suggest a faster recovery, one where the other in pro or DIY side? Zach, this is Brandon as it relates to the interest rate environment. So for us, it's difficult to know at what absolute interest rate level.

Brain: Existing home sales, housing affordability, those are still concerns. We continue to see pressure.

Speaker Change #148: There, consumers are still showing a preference for services versus goods, especially, you know, in home improvement.

Speaker Change #108: We were all aware that we have an environment of elevated interest rates and inflation.

Brandon Sink: We're going to see our consumers fully engage or how long the demand will lag the actual rate cuts that we're seeing. And we absolutely, as we sit here today, see pen up demand in the business, but on the flip side, when we look at consumer sentiment, that continues to remain weak. We are hopeful that the lower rates, the drops that we're seeing are going to have a dual impact of one relieving pressure on consumers and then secondly, driving existing home sales activity.

Speaker Change #148: and improvement in these macro trends that we should see and drive sustain increase in discretionary projects and by traffic so particularly

Speaker Change #108: And because of that, the DIY customer is just on the sidelines waiting for some form of an inflection to take place.

Speaker Change #108: So we can't call when that's going to happen, but we felt based on what we saw in the second quarter that it was prudent just to take a cautious approach to our guidance for the second half.

Speaker Change #149: in the bigger ticket categories which is what we're watching for that's the inflection that we expect but in terms of the timing and our ability to call that that that's what's unclear to us at this point

That's what's

Marvin Ellison: But in terms of the timing and our ability to call that, that's what's unclear to us at this point.

reflected in our full year guide.

And we're working really hard to kind of stay consistent

Speaker Change #108: And really, that's what we decided to do.

Marvin Ellison: So, Brian, this is Marvin. I'll take another angle at your question. And so for us, obviously, we don't have a crystal ball to call the inflection when that will happen. Nor to Brandon's earlier comments, you know, can we pinpoint what rate environment we have to be in before it starts to positively infect this DIY discretionary pullback for big tickets. It. But what we're trying to do is, in this headwind environment that we're in, is just continue to leverage our great balance sheet. To invest in technology and innovation, to make sure we continue to execute our total home strategy, which is allowing us to pick up Sharon Pro, improve online business, and continue to build out a technology platform for our home installation business, which was incredible.

Now turning to our financial outlook.

with that.

We're incredibly excited about our pro customer.

Speaker Change #149: And really, that's what we decided to do.

Speaker Change #149: We expect that to continue to come down further as we turn into 25.

Sales in the first half of the year performed largely in line with our expectations, but

It's not a natural output, you know, with all the work we've been doing across

And as I said earlier, we believe strongly

as Marvin mentioned, the home improvement backdrop remains challenging and consumer

the portfolio with PPI.

Speaker Change #149: But, you know, we look at consumer sentiment, existing home sales, housing affordability, those are still concerns.

sentiment remains weak.

And then, you know, you referenced our overall roadmap.

Based on these factors, we are updating our full-year 2024 outlook.

We'll

We are now expecting sales in the range of $82.7 to $83.2 billion, with comparable sales

talk more about 2025 in December.

Bradous Marve: so bradous marve and i'll take a i take another anglelet at your question and so for us obviously we don't have a crystal ball to call the inflection when that will happen

Bradous Marve: We continue to see pressure there.

in a range of down 3.5% to down 4%.

But, you know, really the framework still holds.

Bradous Marve: Consumers are still showing a preference for services versus goods, especially, you know, in home improvement.

We also now expect full-year adjusted operating margin in a range of 12.4% to 12.5% as we

Bradous Marve: And improvement in these macro trends, we should see and drive sustained increase in discretionary projects and DIY traffic.

continue to tightly manage expenses while also investing in our strategic priorities.

Everything

Speaker Change #109: I'll let Brandon take the rest of the question.

Additionally, we expect full-year net interest expense of approximately $1.4 billion and

to repay a $450 million bond maturity in September.

We also expect capital expenditures of approximately $2 billion and an adjusted effective income

tax rate of approximately 24.5%.

This results in an updated outlook for adjusted diluted earnings per share of approximately

$11.70 to $11.90.

Bradous Marve: I'll let Brandon, you know, take the rest of your question.

Now to assist you with your modeling, here are a few points to consider for the back

half of the year.

approximately 50 basis points above prior year rate.

we've been driving from a PPI standpoint, offsetting investments we're making in gross

We are expecting third and fourth quarter comp sales to be roughly 200 basis points

The quarterly differences are driven by the timing of merchandising PPI initiatives as

margin on the SG&A side, same thing, investing or offsetting investments that we're making

Bradous Marve: Steven, this is Brandon.

better than our second quarter results given the easier prior year compares.

we turn through our inventory as well as comparisons to prior year incentive compensation expense

in wages, inflationary pressures, strategic investments.

Bradous Marve: nor to brand as earlier comments can we pinpoint what rate environment we have to be in before it starts to positively infact this diy discretionary pullback for big ticket

And we also expect operating margin rate for the second half to be roughly in line with

And it really comes down to the

prior year with Q3 approximately 70 basis points below prior year rate and Q4 to be

fixed cost leverage and our ability to grow top line.

Brandon Sink: Steven, this brand is just a little more context on the guide.

Brandon Sink: But the reality is, when we look at the lock-in effect, the majority of homeowners are still at 4% mortgage rates are less. So even if we do see some level would decrease that we do believe there still may be a reluctance to engage. So you're staying close to it beyond the rates, Marvin reiterated the primary drivers of our business and that's been consistent. So we're balancing rate activity with some broader recovery that we see across some of these other metrics that we track very closely.

But when we do that, we believe

we can stay consistent with that framework and we can see the expansion.

Helpful.

that the pressure that we're feeling with the discretionary big ticket DIY is in large

And then just a quick follow-up.

Did additional changes to incentive comp have

Speaker Change #110: As we mentioned in the prepared remarks, first half really largely in line with our expectations when we exclude the weather impacts that we experienced.

Bradous Marve: Just a little more context on the guide.

Bradous Marve: As we mentioned in the prepared remarks, first half really largely in line with our expectations when we exclude the weather impacts that we experienced.

Bradous Marve: And as we looked into the second half, just as Marvin just said, you know, we still continue to see a very cautious consumer home improvement backdrop that remains challenged.

Bradous Marve: And for those reasons, we decided to make an adjustment to the guide.

Bradous Marve: And it does capture ongoing both DIY and pro trends.

Bradous Marve: Well, what we're trying to do is, in this...

Speaker Change #111: And as we looked into the second half, just as Marvin just said, you know, we still continue to see a very cautious consumer home improvement backdrop that remains challenged.

Bradous Marve: Headwind environment that we're in is just continuing to leverage our great balance sheet.

Bradous Marve: And we're continuing to manage through the DIY challenges and the big ticket discretionary.

Speaker Change #112: And for those reasons, we decided to make an adjustment to the guide.

Bradous Marve: But we are still seeing strength, especially in the small to medium pro, and that's reflected.

Bradous Marve: to invest in technology innovation

Bradous Marve: To make sure we continue to execute our total home strategy, which is allowing us to pick up share and pro

Speaker Change #113: And it does capture ongoing both DIY and pro trends.

Zach Fadem: Got it, and thanks Brandon, and I don't want to frontrun the analyst day too much, but you have talked about a long-term margin for this business of about 14 and a half percent, given where we are today and the changes that have occurred since you first provided that outlook. Curious if it's still the right way to think about the business long-term and what level of top line and near-term recovery is do you think we need to see to reach that level?

Bradous Marve: improve our online business

Bradous Marve: continue to build out a technology platform for our home installation business which was incredibly neglected from a technology standpoint for many many years.

Marvin Ellison: It was incredibly neglected from a technology standpoint for a minimum of years, because we know that when the inflection happens in the DIY return, we want to be perfectly positioned to really take sure, not just in DIY, but also across all the other elements that I talked about. So rather than sitting back and waiting, we're aggressively working in this downturn, leveraging our balance sheet to do these aggressive investments. And position ourselves. So when it happens, whenever the micro inflection occurs, we just want to be ready to take advantage of it, and we think we will be.

and year-end discretionary bonuses.

Bradous Marve: Just as a reminder, we're cycling a pretty big DIY pullback, which started in Q3 of last year, again, as it relates to the big ticket discretionary.

Bradous Marve: So particularly in the bigger ticket categories, which is what we're watching for, that's the inflection that we expect.

Bradous Marve: But in terms of the timing and our ability to call that, that's what's unclear to us at this point.

And finally, we are reconfirming our capital allocation priorities.

Bradous Marve: So Brian, this is Marvin.

Bradous Marve: because we know that when the inflection happens in the di return we want to be perfectly positioned to really take surere not just inindiay but also across all the other elements that i talked about so it's rather than

Bradous Marve: I'll take another angle at your question.

Speaker Change #114: And we're continuing to manage through the DIY challenges in the big ticket discretionary.

Bradous Marve: sitting back in waiting we're aggressively working

Speaker Change #115: But we are still seeing strength, especially in the in the small to medium pro, and that's reflected.

Zach Fadem: Yeah, we'll hold off on getting too much into that detail. I think the punchline, Zach, is that the framework still holds, it is, as we look relative to what we talked about in December of 22. I think the degree is step back, now that we've seen in 23 and now that what we're seeing in 24 is a little bit worse than our original expectations, but we're not going to call the turn or the inflection point.

Bradous Marve: In this downturn, leveraging our balance sheet to do these.

Bradous Marve: And so for us, obviously, we don't have a crystal ball to call the inflection when that will happen, nor to Brandon's earlier comments, can we pinpoint what rate environment we have to be in before it starts to positively infect this DIY discretionary pullback for big tickets?

Bradous Marve: aggressive investments in position ourselves so when it happens whenever the maracro inflection occurs we just want to be ready to take advantage of and we think we will be and so we're just fortunate that we have the ability to continue to

Brian Nagel: And so we're just fortunate that we have the ability to continue to be aggressive in all those areas, and just preparing for the eventual time when the market will open back up again, and we're going to be prepared when it does. So that's very helpful. I appreciate it.

Bradous Marve: But what we're trying to do is in this, Headwind environment that we're in is just continuing to leverage our great balance sheet, to invest in technology and innovation, to make sure we continue to execute our Total Home Strategy, which is allowing us to pick up Share and Pro, improve our online business, continue to build out a technology platform for our home installation business, which was incredibly neglected from a technology standpoint for many, many years.

Bradous Marve: Because we know that when the inflection happens in the DIY return, we want to be perfectly positioned, to really take share, not just in DIY, but also across all the other elements that I talked about.

Bradous Marve: So rather than, Sitting back and waiting, we're aggressively working, in this downturn, leveraging our balance sheet to do these aggressive investments and position ourselves.

Bradous Marve: So when it happens, whenever the macro inflection occurs, we just want to be ready to take advantage of it.

Bradous Marve: And we think we will be.

Zach Fadem: We do believe there's a lot of pen up demand, we do have a lot of confidence in the medium, the long-term drivers. When we do get back to kind of that mid single digit recovery and that we've traditionally seen in home improvement, we believe we can outpace that with the initiatives that we have in place and the degree and the timing of the expansion on operating margin again is going to be contingent on the pacing, which that top line recovers. Got it. Thanks for the time. Rob, we have time for one more question. Nice.

Bradous Marve: And so we're just fortunate that we have the ability to continue to be aggressive in all those areas and just preparing for the eventual time when the market will open back up again.

Bradous Marve: Be aggressive in all those areas and just preparing for the Eventual time when the market will open back up again Again, and we're going to be prepared when it does

We will continue to invest in the business to drive long-term growth while maintaining

significant impact on second quarter and your back half outlook?

part a macro influence issue.

a 35% targeted dividend payout ratio and then use the remaining cash flows to fund share

In other words, is that

And so as we now have momentum with the pro, momentum with

repurchases.

our digital strategy, we believe that when a marketplace inflects and the DIY customer

Bradous Marve: Again, and we're going to be prepared when it does.

starts to have a stronger confidence in making those discretionary purchases, that we're

going to have the full flywheel effect of our market share gain.

In the meantime, we're going to be incredibly disciplined on these key parts of our business,

This disciplined approach to capital allocation combined with improved operating performance

something we have to kind of consider as we think about, you know, 2025 earnings outlook?

Bradous Marve: So the breakdown as it relates to comp, we are expecting, just like we've seen here in the first half, roughly flat average ticket in the second half as the pro growth is offsetting some appliance pricing pressure that we're seeing.

Bradous Marve: That's very helpful.

No, very consistent.

Bradous Marve: And then we expect to see the transactions as the offset.

Bradous Marve: I appreciate it.

Marvin Ellison: And my quick follow-up, I guess this is more what you branded, but just with respect to the commentary around Q3. So the comps in Q2 were down, you know, called 5%. You talked about 200 basic point improvement. So I think in response to someone else's question, you said you're basically right now. So is that mean the business is running a negative three? Is that the math?

The only thing from an incentive compensation standpoint is what I referred to with the noise in Q4 on the 140 discretionary payout in Q4, but largely consistent there, nothing that would need to change or be factored in.

Great.

Thanks a lot, guys.

Speaker Change #151: so that's really helpful i appreciateit and might my quick follow up i ess isn' more what you've readed but just with respect to the commentary around q three so the compson in

Our next questions are from the line of Kate McShane with Goldman Sachs.

Speaker Change #151: That's where the pressure is at.

Speaker Change #151: And my quick follow up, I guess this is more for you Brandon, but just with respect to the commentary around Q3, so the comps, Unknown Executive, Michael Lasser, Scott Ciccarelli, Robert Ohmes, Jonathan Matuszewski, Peter, Is that the map?

Speaker Change #151: And we continue to expect that to be challenged as the homeowners less engaged with home improvement activity in the second half.

Speaker Change #151: So that's a little bit more of a breakdown as it relates to the second half guide.

Speaker Change #151: Thanks for that extra color.

Speaker Change #151: I have a brief follow up just on pricing.

Speaker Change #151: two woulddde

Speaker Change #152: a called five percent you talked about bbasin point proment so and i think pse to someone else questionyou saidyou're basically right now isdoes that mean the business is running to negative for ight is that the math

but we're very excited about what we're doing in pro, but more importantly, what we're going

to be doing in the future.

Marvin Ellison: So look, I will rescue Brandon from that question and answer for him. You know, we tend not to be that precise, you know, with current monthly trends. The best way for for me, and us to answer that question, Brian, and I appreciate the question, is when we look at our current business trends, they are reflective of the guidance we gave, understanding that our business will fluctuate throughout the quarter. And so we're not going to give a specific comp percent other than to say we feel confident that our current trends reflect the guidance we gave. And I think that's probably the best, efficient way to answer it.

Thanks Marvin, that's very helpful.

Speaker Change #152: So look, I will rescue Brandon from that question and answer it for him.

Brian Nagle: Our final question comes from Brian Nagle with Oppenheimer.

I also want to ask the rural store performance.

Speaker Change #152: You know, there's been focused on pricing and the risk of promotions impacting the industry if demand stays weak.

Speaker Change #152: You know, we tend not to be that precise, you know, with current monthly trends.

Speaker Change #153: so look i will rescue brandon from that question and answer for him we tend not to be that precise

Speaker Change #153: You actually saw ticket growth in the quarter.

Brian Nagle: Good morning. Thanks for taking my question. So, my first question, I guess it's a bit of a fall, a bit of a fall up to that, the prior question was on range.

Speaker Change #153: But do you see that as a risk at all?

Speaker Change #153: Just pricing and promotions kind of trickling into the industry if demand stays weak?

Speaker Change #153: Yeah, Steven, this is Bill.

Speaker Change #153: So, you know, we actually see our, you know, the promotional activity, you know, remaining relatively stable.

Speaker Change #153: You know, when you get around certain events, Memorial Day, July 4, etc.

Speaker Change #153: So nothing really, you know, out of the norm.

Speaker Change #153: The best way for me and us to answer that question, Brian, and I appreciate the question, is when we look at our current business trends, they are reflective of the guidance we gave, understanding that our business will fluctuate throughout the quarter.

Speaker Change #153: You know, you've got offers that are out there that are seasonally relevant.

Bana: You know, with current monthly trends, the best way for me and us to answer that question, Brian , and I appreciate the question, is when we look at our current...

Bana: And we try to make, you know, make sure that we're out there, you know, meeting the consumer at that time as well.

Bana: And so, you know, when you look at Q3, we've got Labor Day in front of us.

Bana: So we're going to be out there, making sure that we've got seasonally relevant offers that are out there for that time as we shift gears into the fall.

Brian Nagle: I'm going to go the different direction. Look, I think you know, you was an operator, we as investors are you are waiting for a more accommodative rate environment, underpin better demand within home improvement. So the last question is, is you look at your business, we've seen this malaise continuing to take hold, maybe even intense drivers past some of the quarters. Where are the incremental risks? Where could where could the business actually get weaker here before we get that great relief, if you will?

Bana: But, you know, from a promotional activity, you know, we're relatively stable.

Bana: And we're seeing on the appliance side that, you know, we're back to, you know, more of a normal activity as it relates to how the appliance industry is going to market.

Speaker Change #155: business trends they are reflective of the guidance we gave understanding that our business will fluctuate throughout the quarter and so we're not going to give a specific

Speaker Change #155: And so we're not going to give a specific comp percent other than to say we feel confident that our current trends reflect the guidance we gave.

Speaker Change #155: comp percent other than to say we feel copeident that our current trends reflect the guidance we gave and i think that's how the di best effficient way ash

Speaker Change #155: And I think that's probably the best sufficient way to answer it.

Unknown Executive: Appreciate it. Thanks, Marvin. Thank you. Now, thanks for the question. Thank you all for joining us today.

Speaker Change #155: Thanks Marvin.

Brandon Sink: Brian, this is Brandon. You know, look, mortgage rates, obviously coming down, we expect that to continue to come down further as we turn into 25, but we look at consumer sentiment, existing home sales, housing affordability, those are still concerns, we continue to see pressure there, consumers are still showing a preference for services versus good, especially in home improvement. And improvement in these macro trends, we should see and drive sustain and increase in discretionary projects and DIY traffic, so particularly in the bigger ticket categories, which is what we're watching for, that's the inflection that we expect. But in terms of the timing and our ability to call that, that's what's unclear to us at this point.

Speaker Change #155: And Stephen, this is Brandon.

Speaker Change #155: Now, thanks for the question.

Martin: appreate thanks marartin thank you

Martin: I would just reinforce that the ticket increase is not a function of pricing so much as it's just the strength that we're seeing in the pro business, which is lifting ticket.

Martin: And then, as Bill mentioned, the cycling of the promo environment and appliances, you know, broadly speaking, as it relates to pricing environment, really largely stable here over the last couple of years.

Martin: Thanks for the detail.

Martin: Thank you all for joining us today.

Martin: There's always, you know, pockets of activity that we see, but the ticket's been, you know, in the pricing environment's been largely consistent since 2022, and the industry continues to be disciplined and rational. So for those reasons, we expect the ticket to continue to hold as we look across the second half of the year.

Martin: Best of luck in a second, and Steven.

Martin: We look forward to speaking with you on our third quarter earnings call in November.

Unknown Executive: We look forward to speaking with you on our third quarter earnings call in November. This concludes the low second quarter 2024 earnings call. You may now disconnect.

Speaker Change #157: Now, thanks for the question.

Speaker Change #157: The next questions are from the line of Christopher Horvers with J.P. Morgan.

Speaker Change #157: Thanks and good morning.

Speaker Change #157: So first, a clarification, to confirm you expect three Q and four Q comps to be the basically the same or, or sequentially improving over the year?

Speaker Change #158: thank you all for joining us today we look forward to speaking with you on our third quarter earnings call in november

Speaker Change #158: Related related to that?

Speaker Change #158: How much?

Speaker Change #158: How much do you think whether actually was a headwind to comp in the second quarter?

Speaker Change #158: And any comment on where you are trending quarter to date relative to the updated expectations?

Speaker Change #158: This concludes the Lowe's second quarter 2024 earnings call.

Speaker Change #158: So, Chris, first part of your question, the comps are relatively evenly split when you look at Q3 and Q4 as it relates to what's embedded in the guide.

Speaker Change #158: And then, you know, the question on weather impact, in particular, has it impacted our DIY seasonal business. So, you know, we did see unfavorable weather in Q2 at pressured sales, cold and wet weather in May, followed by the intense heat that we saw in June and July.

Speaker Change #158: Just as a reminder, we are cycling over a strong seasonal performance last year, Q2. We saw that especially in live goods and smaller outdoor projects. And, you know, outside of just seasonal, the intense weather also impacted other outdoor, call it non-seasonal projects like exterior paint and decking.

Speaker Change #159: This concludes the Lowe's Second Quarter 2024 Earnings Call. You may now disconnect.

Speaker Change #159: And then the last thing I'll call out, you know, we did see pressure in big ticket discretionary seasonal categories like patio and grills.

Speaker Change #159: But that was largely expected as we've been managing, you know, those seasonal buys down to more recent trends that we've seen.

Speaker Change #159: So that was the pressure that was mainly, you know, where we saw the deceleration in comps from as we move from June to July.

Speaker Change #159: And then I would say as it relates to your question on August, very much playing out, you know, through here the first two plus weeks, very much in line with what we've got at the Q3.

Speaker Change #159: Understood.

Speaker Change #159: And then in terms of the gross margin outlooks, it would seem like you're basically expecting gross margin to be down again, you know, perhaps, you know, more significantly in the third quarter as we is that fair?

Speaker Change #159: And then as you think about the flow of the vendor clawbacks, this would imply that really, the clawbacks are starting in the fourth quarter, and then we'll sort of continue into the first half of 2025.

Speaker Change #159: Thanks very much.

Speaker Change #159: Yeah, Chris.

Speaker Change #159: So not not down, we are expecting it to be up both in Q3 and Q4 of this year, but again, on the year roughly flat.

Speaker Change #116: And just as a reminder, we're cycling a pretty big DIY pullback which started in two, three of last year again as it relates to the big ticket discretionary.

Speaker Change #159: And I'll mention just a couple of the pushes and pulls, we continue to make the supply chain investments nearly complete with the rollout of market delivery investments, we're making early innings on pro fulfillment.

Speaker Change #159: And then as you mentioned, the merchant supply chain, PPI initiatives, the callback is going to continue to benefit and it really starts to accelerate in a Q3, Q4.

Speaker Change #159: And as you mentioned, turning into 25, there's a lagged effect there just with how that turns through inventory.

Speaker Change #159: Transportation costs continues to be a good guy for us as we leverage our scale, and then credit and shrink, expect those to be roughly flat for the full year and a great job by the teams managing the pressures in those two lines.

Speaker Change #159: So you're seeing that largely those things played out here in Q2 with the progression that we saw nicely from Q1 to Q2.

Speaker Change #159: And those same things roughly play out for the full year.

Speaker Change #159: Thank you.

Speaker Change #159: Have a great Labor Day.

Speaker Change #159: Thanks, Chris.

Speaker Change #159: Our next question is from the line of Scot Ciccarelli with Truist Securities.

Speaker Change #159: Good morning, guys.

Speaker Change #159: I guess high level question on your earnings, Algo, this will be basically the third year of negative comps.

Speaker Change #159: And I guess, you know, theoretically, if comps were to stay negative in 25, is there a point where D leverage actually accelerates because of the fixed cost nature of your model?

Speaker Change #159: Yeah, I would say, Scott, we expect our kind of rule of thumb and the algorithm, we expect that that still holds, and it's directional, and it applies mainly to the to the fiscal year.

Speaker Change #159: And we still see plus 10 basis points on the upside for every incremental point of comp, and then 15 basis points on the downside. That's what's reflected in our full year guide.

Speaker Change #159: And we're working really hard to kind of stay consistent with that.

Speaker Change #159: It's not a natural output.

Speaker Change #159: With all the work we've been doing across the portfolio with PPI, and then you reference our overall roadmap, we'll talk more about 2025 in December.

Speaker Change #159: But really, the framework still holds everything we've been driving from a PPI standpoint, offsetting investments we're making in gross margin.

Speaker Change #159: On the SG&A side, same thing, investing or offsetting investments that we're making in wages, inflationary pressures, strategic investments, and it really comes down to the fixed cost level.

Speaker Change #159: So we've got a lot of leverage in our ability to grow top line.

Speaker Change #159: But when we do that, we believe we stay consistent with that framework, and we can see the expansion, helpful.

Speaker Change #159: And then just a quick follow up.

Marvin Ellison: So Brian, this is Marvin. I'll take another angle at your question. And so for us, obviously, we don't have a crystal ball to call the inflection when that will happen, nor to Brandon's earlier comments. You know, can we pinpoint what rate environment we have to be in before it starts to possibly infect this DIY discretionary pullback for big tickets? It. But what we're trying to do is in this headwind environment that we're in, it's just continued to leverage our great balance sheet, to invest in technology and innovation, to make sure we continue to execute our total home strategy, which is allowing us to pick up Sharon Pro, improve our online business, continue to build out a technology platform for our home installation business, which was incredibly neglected from a technology standpoint for a minimum of years, because we know that when the inflection happens in the DIY return, we want to be perfectly positioned to really take share, not just in DIY, but also across all the other elements that I talked about.

Speaker Change #159: Did additional changes to incentive comp have significant impact on second quarter and your back half outlook?

Speaker Change #159: In other words, is that something we have to kind of consider as we think about no 25 earnings outlook?

Speaker Change #159: No, very consistent.

Speaker Change #159: The only thing from an incentive compensation standpoint is what I referred to with the noise in Q4 on the $140 discretionary payout in Q4, but largely consistent there, nothing that would need to change or be factored in.

Speaker Change #159: Great.

Speaker Change #159: Thanks a lot, guys.

Speaker Change #117: So the breakdown, as it relates to comp, we are expecting, just like we've seen here in the first half, roughly flat average ticket in the second half as the pro growth is offsetting some appliance pricing pressure that we're seeing.

Speaker Change #117: And then we expect to see the transactions as the offset.

Speaker Change #117: That's where the pressure is at.

Speaker Change #159: that

Speaker Change #159: i

Speaker Change #159: f

Unknown Executive: You Michael Lasser, John DeRose, John DeRose, John DeRose, John DeRose, John DeRose, John DeRose, John DeRose.

Speaker Change #159: Our next questions are from the line of Kate.

almost tripled ROIC over the past five years.

Please proceed with your questions.

I'm

In closing, we are confident in our ability to execute at a high level as we navigate

not sure if you called that out in the prepared remarks.

Is there any change in trend there?

Speaker Change #118: And we continue to expect that to be challenged as homeowners less engaged with home improvement activity in the second half.

Marvin Ellison: So rather than sitting back and waiting, we're aggressively working in this downturn, leveraging our balance sheet to do these aggressive investments and position ourselves. So when it happens, whenever the macro inflection occurs, we just want to be ready to take advantage of it, and we think we will be. And so we're just fortunate that we have the ability to continue to be aggressive in all those areas and just preparing for the eventual time when the market will open back up again, again, and we're going to be prepared when it does.

Speaker Change #119: So that's a little bit more of a breakdown as it relates to second half guys.

Speaker Change #119: That's helpful.

Speaker Change #119: Thanks for that extra color.

Brian Nagle: So that's very helpful. I appreciate it. And my quick follow-up, I guess this is more what you branded, but just with respect to the commentary around Q3, so the comps in Q2 were down, you know, called 5%, you talked about 200 basic point improvement, so I think in response to someone else's question, you said you're basically wearing them out, so does that mean the business is running to a negative 3? Is that the math?

Speaker Change #119: I have a brief follow-up just on pricing.

Speaker Change #120: You know, there's been focused on pricing and the risk of promotions impacting the industry if demand stays weak.

Speaker Change #121: You actually thought ticket growth in the quarter, but do you see that as a risk at all, just pricing and promotions kind of trickling into the industry of demand stays weak?

Brandon Sink: So look, I will rescue Brandon from that question and answer for him. You know, we tend not to be that precise, you know, with current monthly trends. The best way for me and us to answer that question, Brian, and I appreciate the question, is when we look at our current business trends, they are reflective of the guidance we gave, understanding that our business will fluctuate throughout the quarter, and so we're not going to give a specific comp percent other than to say we feel confident that our current trends reflect the guidance we gave, and I think that's probably the best sufficient way to answer it. I appreciate it. Thanks, Marvin. Thank you.

Speaker Change #121: Yes, Steven, this is Bill.

Speaker Change #122: So, you know, we actually see our, you know, the promotional activity, you know, remaining relatively stable.

Unknown Executive: Now, thanks for the question. Thank you all for joining us today. We look forward to speaking with you on our third quarter earnings call in November.

Speaker Change #123: You know, when you get around certain events, Memorial Day, July 4th, et cetera, you know, you've got offers that are out there that are seasonally relevant. And we try to make, you know, make sure that we're out there, you know, meeting the consumer at that time as well.

Speaker Change #123: And so, you know, when you look at Q3, we've got Labor Day in front of us. So we're going to be out there making sure that we've got seasonally relevant offers that are out there for that time as we shift gears into the fall season.

Speaker Change #123: But, you know, from a, from a promotional activity, you know, we're relatively stable.

Unknown Executive: This concludes the low second quarter 2024 earnings call. You may now disconnect.

Speaker Change #123: And, you know, we're seeing on the appliance side that, you know, we're back to, you know, more of a normal activity as it relates to how the appliance industry is going to market.

Unknown Executive: [inaudible] Michael Lerner, Sarah

Speaker Change #123: So, nothing really, you know, out of the norm in state.

Speaker Change #123: And this is the brand.

Speaker Change #123: And I would just reinforce the ticket increase is not a function of pricing so much as it's just the strength that we're seeing in the pro business, which is lifting ticket.

Speaker Change #124: And then as Bill mentioned, the cycling of the promo environment and appliances, you know, broadly speaking, is it really surprising environment really largely stable here.

Speaker Change #125: The last couple of years, there's always, you know, pockets of activity that we see, but the ticket's been, you know, in the pricing environment, it's been largely consistent since 2022.

Speaker Change #126: And the industry continues to be disciplined and rational.

Speaker Change #127: So, for those reasons, we expect the ticket to continue to hold as we look across the second half of the year.

Speaker Change #127: Okay.

Speaker Change #127: Thanks for the detail.

Speaker Change #127: Best luck in the second half.

Speaker Change #128: And Stephen.

Speaker Change #129: The next question is from the line of Christopher Hovers with JP Morgan.

Speaker Change #130: This is you with your question.

Speaker Change #131: Thanks and good morning.

Speaker Change #132: So first of clarification, to confirm you expect 3Q and 4Q comms to be the, basically the same or sequentially improving over the year related to that.

Speaker Change #133: How much, how much do you think whether actually was a headwind to comp in the second quarter and any comment on where you are trending quarter to date relative.

Speaker Change #133: To the updated expectations.

Speaker Change #133: So Chris, first part of your question, the comps are relatively even split when we look at Q3 and Q4 as it relates to what's embedded in the guide.

Speaker Change #134: And then, you know, the question on whether impact in particular is it impacted our DIY seasonal business.

Speaker Change #135: So, you know, we did see unfavorable weather in Q2 at pressured sales, cold and wet, wet weather in May followed by the intense heat that we saw on June and July.

Speaker Change #136: Just as a reminder, we are cycling over a strong seasonal performance last year Q2. We saw that, especially in live goods and smaller outdoor projects.

Speaker Change #136: And the outside of just seasonal, the intense weather also impacted other outdoor, call it non seasonal projects like exterior painted back.

Speaker Change #137: And then the last thing I'll call out, you know, we did see pressure and big ticket discretionary seasonal categories like patio and grills, but that was largely expected as we've been managing.

Speaker Change #137: You know, those seasonal buys down to more recent trends that we've seen.

Speaker Change #138: So that was the pressure that was mainly, you know, where we saw the deceleration in comps from as we moved from June to July.

Speaker Change #138: And then I would say as a relates to your question on all this very much playing out, you know, through here the first two plus weeks very much in line with what we've got into Q3.

Speaker Change #138: Understood.

Speaker Change #139: And then in terms of the gross margin outlook, so it would seem like you're basically expecting gross margin to be down again, you know, perhaps, you know, more significantly in the third quarter as we, that fair, and then as you think about the flow of the vendor club acts, this would imply that really the club acts are starting in the fourth quarter and then we'll sort of continue into the first half of 2025.

Speaker Change #139: Thanks very much.

Speaker Change #140: Yeah, Chris, so not down, we are expecting it to be up both in Q3 and Q4 of this year, but again, on the year roughly flat.

Speaker Change #141: And I'll mention just a couple of the pushes and poles.

Speaker Change #142: We continue to make the splotching and investments nearly complete with the row out of market delivery.

Speaker Change #143: Investments will make in early earnings on the pro-fulfillment.

Speaker Change #144: And then as you mentioned, the merchant splotching, PPI initiatives, the callback is going to continue to benefit and it really starts to accelerate in a Q3, Q4.

Speaker Change #145: And as you mentioned, turning into 25, there's a lag defect there just with how that turns through inventory.

Speaker Change #145: Transportation costs continues to be a good guy for us as we leverage our scale and then credit and shrink.

Speaker Change #146: Expect those to be roughly flat for the full year and a great job by the team's managing the pressures in those two lines.

Speaker Change #147: So you're seeing that largely, those things played out here in Q2 with the progression that we saw nicely from Q1 to Q2. And those same things roughly play out for the full year.

Speaker Change #147: Thank you.

Speaker Change #147: Have a great Labor Day.

Speaker Change #147: Thanks, Chris.

Speaker Change #147: Thanks, questions from the line of Scott Chicarelli with Truest Securities.

Speaker Change #147: Please excuse your questions.

Speaker Change #148: Good morning, guys.

Speaker Change #149: I guess high level question on your earnings algo.

Speaker Change #150: This will be basically the third year of negative comps.

Speaker Change #151: And I guess theoretically, if comp were to stay negative in 25, is there a point where D-Leverage actually accelerates because of the fixed cost nature of your model?

Speaker Change #152: Yeah, I would say Scott, we expect our kind of rule of thumb and the algorithm.

Speaker Change #153: We expect that that still holds and it's directional and it applies mainly to the fiscal year. And we still see plus 10 basis points on the upside for every incremental point of comp and then 15 basis points on the downside.

Speaker Change #154: That's what's reflected in our full year guide.

Speaker Change #154: And we're working really hard to kind of stay consistent with that.

Speaker Change #154: It's not a natural output.

Speaker Change #154: And with all the work we've been doing across the portfolio with PPI.

Speaker Change #154: And then you know, your efforts are overall road map.

Speaker Change #154: We'll talk more about 25 in December.

Speaker Change #154: But you know, really the framework still holds.

Speaker Change #155: Everything we've been driving from a PPI standpoint offsetting investments we're making in gross margin on the SG&A side. Same thing, investing or offsetting investments that we're making in wages, inflationary pressures, strategic investments.

Speaker Change #156: And it really comes down to the fixed cost leverage in our ability to grow top line.

Speaker Change #156: But when we do that, we believe we stay consistent with that framework and we can see the expansion.

Speaker Change #156: Helpful.

Speaker Change #156: And then just a quick follow up.

Speaker Change #157: Did additional changes to incentive comp have significant impact on second quarter and your back half outlook?

Speaker Change #158: In other words, is that something we have to kind of consider as we think about 25 earnings outlooks.

Speaker Change #158: You know, very consistent.

Speaker Change #159: The only thing from a incentive compensation standpoint is what I referred to with the noise in Q4 on the 140 discretionary payout in Q4, but largely could consist of there nothing that would need to change or be factored in.

Speaker Change #159: Great.

Speaker Change #159: Thanks a lot, guys.

Speaker Change #159: Thanks question.

Speaker Change #159: Our next questions are from the line of Kate McShane with Goldman Sachs.

Speaker Change #160: Please excuse me for your question.

Speaker Change #160: Hi.

Speaker Change #161: Good morning.

Speaker Change #162: Thanks for taking our question.

Speaker Change #163: We were wondering if you could speak to how you're managing your inventory levels.

Speaker Change #164: I know inventory was down on a dollar basis in the quarter, but how are you thinking about inventory in the context of maybe a slightly more cautious demand environment in the second half as well as possibly having to manage a higher ocean free environment.

Speaker Change #165: Kate, we're really pleased with the ability to, you know, to manage inventory. We continue to manage it with the sales trends that we're seeing, you know, inventory decline faster than sales, inventory is down, you know, 3.3% year every year.

Speaker Change #166: We remain focused on making the investments in and pro depth and brands to support and accelerate the pro growth that we've talked about.

Speaker Change #167: We felt like we're in a great position on in stock levels and then from a seasonal inventory standpoint, also in a good spot as we've managed the seasonal buys to the trends we're seeing and I think you also mentioned, you know, freight rates from a transportation standpoint, we continue to see lower transportation costs as we've leveraged our scale to drive the lower rates that we've seen with our carriers.

Speaker Change #168: You know, mostly insulated from that because we have contract pricing and we see those favorable rates kind of extending through the first part of 2025. So we expect the favorability that we've seen in Q2 to kind of extend through the remainder of the year and that's baked in our gross margin.

Speaker Change #168: And Kate, this is Marvin.

Speaker Change #169: One thing we don't talk a lot about is how we've converted our regional distribution centers to be more of a flow through a product versus stocking a product.

Speaker Change #170: You go back to six years ago, these RDCs were basically the traditional hub and spoke distribution centers that basically held and stored inventory and replenished stores and that really put a lot of pressure on turns and over over inventory position. But over the years, the team has converted that to being majority flow.

Speaker Change #170: So we're just becoming more of a cross stock type of environment and we have very small percent of the image over being stock, you know, debt will continue to evolve over time.

Speaker Change #171: And as Brandon noticed, we continue to make investments and finalize our build out about market delivery that also puts us in a great position to continue to be the industry leader and appliances without having to hold that inventory the way we did years ago in the back of every store.

Speaker Change #172: So there are a cost of things that we're working on that's going to give us the ability to improve our insight position, but also improve our turns at the same time.

Speaker Change #172: Our next question is from the line of Robbie Ohms with Bank of America.

Speaker Change #173: Please see with your questions.

Speaker Change #174: Oh, thanks for taking my question.

Speaker Change #175: You know, really just to two quick questions just on the back half and just going forward from here, the the PPI initiatives have been amazing, you know, on the expense side.

Speaker Change #176: You know, how much room is left at what point do you get to diminishing returns on that in terms of managing expenses?

Speaker Change #176: And when we look at the back half, is it really more incentive comp and bonus comparisons that, you know, support, you know, you know, SGNA being lower than it might otherwise be versus, you know, PPI initiative, is.

Brandon Sink: Robby, this is Brandon.

Speaker Change #177: So you mentioned PPI.

Robby: We're really proud of the progress that we've made with PPI and broader expense management.

Speaker Change #179: We're all setting over $500 million in associate wages, inflationary pressures, and strategic investments that we're making here.

Speaker Change #180: In 2024, the roadmap covers all aspects of the company's stores, merchandising, supply chain technology, our back office expense infrastructure.

Speaker Change #181: You heard Joe and Bill kind of reference a number of things going on there.

Speaker Change #181: And I would say we have great alignment across the organization to continue to maintain that discipline.

Speaker Change #182: And as Joe mentioned, increasingly able to enhance our customer experience while also driving productivity with tech driven solutions.

Speaker Change #182: So I'll toss Marvin, anything else you want to add there?

Speaker Change #183: Yeah, I'm going to just let Joe and Bill talk a little bit about PPI.

Speaker Change #184: To Brandon's point, I mean, we are incredibly pleased with the progress that we've made.

Speaker Change #185: Initially, our productivity improvement initiatives were focused almost exclusively on store operations.

Speaker Change #186: And now we've created a culture where every functional area is driving their own PPI initiatives to not only drive improvements in the business and productivity, but also just driving overall efficiencies.

Speaker Change #187: I'm going to let Joe talk a bit about operations and then Bill talk about merchandising and what we're going to be seeing, not only in the back half of the year, but going forward.

Speaker Change #187: So Joe, we'll start with you.

Joe: So Robbie, thanks for the question.

Speaker Change #188: And well, we've made a lot of progress.

Speaker Change #189: We're only in the middle endings of the productivity journey, a lot of runways still in front of us.

Speaker Change #190: Now, talk about things in the past, running transformation.

Speaker Change #191: We're not even 50% through our front end transformation.

Speaker Change #191: This is not only focused on the operation side, but also the sales side.

Speaker Change #191: And so we worked hand in hand in the things like our activity based labor model that we continue to invest in. We continue to refine the advanced labor management tools that we're using today.

Speaker Change #191: And also the MST program that is added at 30,000 plus associates to the sales floor.

Speaker Change #191: And so as a team, continue to work together.

Speaker Change #191: We continue to see a lot of runway ahead, you know, spring line to back end processes are still in front of us and a lot more to go.

Speaker Change #191: And so I'll toss it over to Bill for, yeah, thanks, Joe.

Speaker Change #192: You know, Robbie, on the Merck side, you know, I hit on a couple of them in my prepare remarks.

Speaker Change #193: You know, we working on costs with suppliers is an ongoing, you know, process and merchants do that, you know, on a daily basis, you know, through, you know, product line reviews, business reviews.

Speaker Change #194: But sort of productivity is, you know, part of what, you know, we do on an electronic weekly basis and making sure that we've got the right stuff in the stores and online.

Speaker Change #194: I hit on retail media network.

Speaker Change #195: That's, you know, part of what we're doing as well, making sure that, you know, working with our vendor partners to look at different options in regards to how we put marketing strategies together, our private brand work that we've been doing over the last six years to, you know, focus on, you know, opportunities of where we can put private brands into our assortments, those opportunities to put, you know, those products into our assortment typically come with a higher margin.

Speaker Change #195: And so that offers that opportunity to put, you know, a better, you know, performing product into the assortment shows just a few examples on the merchant.

Speaker Change #195: That sounds great.

Speaker Change #195: Thanks so much, guys.

Robbie Ohms: Thanks, Robbie.

Robbie Ohms: Our next questions are from one of David Bellinger with Mizzouho Security.

Speaker Change #197: Let's just see with your questions.

Speaker Change #198: Okay, good morning.

Speaker Change #199: Thanks for taking the question.

Speaker Change #199: So again, good continued progress on the pro of mid-single digit.

Speaker Change #200: What's the next iteration for your pro customer?

Speaker Change #201: Are there additional levers we can see take shape, maybe more brands, loyalty, working upstream, somewhat larger pros, and does Lowe's do anything today in terms of trade credit with the pro customer base?

Speaker Change #202: No, David, thank you for the question.

Speaker Change #203: I think first, if we could take a step back and think about what we've done thus far.

Speaker Change #204: And one of the things that that we identified from the very beginning of this transformation was the fact that we needed a very consistent and coherent approach to how we served the pro customer.

Speaker Change #205: And it really started with service levels in the store because regardless of what level of fulfillment and fulfillment capabilities you have in home improvement, your stores will still be an incredibly important part of the fill-in project nature need for the pro customer.

Speaker Change #206: And so our service levels were so far at best and so Joe and team have done an incredible job of elevating those standards.

Speaker Change #207: And then we had to get our product assortment right.

Speaker Change #208: We had customers who no longer shopped us because there were brands that they were loyal to that literally had stopped selling to lows.

Speaker Change #209: And so building his team has done an equally incredible job of bringing those brands back to us.

Speaker Change #210: You know, Bill noted in his prepared comments just the success of our relationship with client tools and clients was one of those customers that when we arrived was no longer doing business with lows.

Speaker Change #210: And it remains the number one brand for electrical and HVAC pros.

Speaker Change #210: And then we had to get committed to our inventory levels.

Speaker Change #211: We talked a lot about job lock quantities, but we had to do that in a way that we gave pros confidence.

Speaker Change #212: And also in a way that we would not leave our stores vulnerable for large purchases that we could replenish quickly.

Speaker Change #212: And so after we established those foundational things we knew that the next step was printing, sticking it where you would give those customers a reason to shop us versus to competition.

Speaker Change #212: We rolled out our loyalty program a little over a year ago and then we rolled out a more sophisticated CRM platform.

Speaker Change #212: And now we're continuing to build on all of those things with more job site fulfillment.

Speaker Change #213: And so quanta advance our EVP of pro and home services at our upcoming analyst and investor conference is going to lay out our long term vision of where we plan to take pro.

Speaker Change #214: And that's going to have a lot to do with identifying segments of pro that we are barely scratching the surface today from a share standpoint that we're going to start to pursue in addition to ways we're going to enhance fulfillment and how we're going to be able to bring a more digitally friendly relationship with pros so they could have a larger selection of product choices and do it in a more seamless nature.

Speaker Change #214: We're incredibly excited about our pro customer.

Speaker Change #214: And as I said earlier, we believe strongly that the pressure that we're filling with the discretionary big ticket DIY is in large part a macro influence issue.

Speaker Change #214: And so as we now have momentum with the pro momentum with our digital strategy, we believe that when a marketplace influx and the DIY customer starts to have a stronger confidence in making those discretionary purchases that we're going to have the full flywheel effect of our market share gain.

Speaker Change #214: In the meantime, we're going to be incredibly disciplined on these key parts of our business, but we're very excited about what we're doing in pro.

Speaker Change #214: But more importantly, what we're going to be doing in the future.

Speaker Change #215: Thanks, Marvin.

Speaker Change #215: That's very helpful.

Speaker Change #215: I also want to ask the Royal Store Performance.

Speaker Change #215: I'm not sure if you call that out and have prepared remarks.

Speaker Change #216: Does any change in trend there?

Speaker Change #217: And then secondly, there's been some mention of festers delivery times one day, two day shipping to those markets for major e-commerce player.

Speaker Change #217: How should we think about any potential impact for the more rural, low store base just given that development?

Speaker Change #218: Well, the great thing about our gig network and the work that we've done online is that we're serving all customers and giving them ability to get same day, next day fulfillment across all of our partners.

Speaker Change #218: We feel really good about what's happening in our real markets.

Speaker Change #218: They perform to our expectations.

Speaker Change #218: We are piloting a lot of unique and different initiatives in some of these stories and you could argue that we're pressure testing some of these locations to see what works and what does not work.

Speaker Change #218: One thing I will tell you is that we're still very excited about what we're doing when our work wear initiative specifically with car heart.

Speaker Change #218: We're excited with what we're seeing with our pet food and pet initiative overall.

Speaker Change #219: And what we're seeing with just ATV and other activities are real customers participate in, but we'll please route a real performance.

Speaker Change #219: We'll please we're able to take this digital gig platform and serve customers in both urban, suburban and rural areas and we're just continuing to build on that and we'll provide more context.

Speaker Change #219: You know, when we get together in December, but we think rule is going to be a significant part of our growth strategy.

Speaker Change #219: Got it.

Speaker Change #219: Thank you very much.

Speaker Change #219: Our next questions are from the line of Zach Fadham with Wells Fargo.

Speaker Change #220: Please just use your questions.

Speaker Change #220: Hey, good morning.

Speaker Change #221: If we assume the Fed starts easing in the next couple of months, what level of rate cut or rate level do you think is the right level to start stimulating demand and the category again?

Speaker Change #221: And is there anything in your history that would suggest a faster recovery, one where the other in pro or DIY side?

Speaker Change #221: Zach, this is Brandon as it relates to the interest rate environment.

Speaker Change #222: So for us, it's difficult to know at what absolute interest rate level.

Speaker Change #223: We're going to see our consumers fully engage or how long the demand will lag the actual rate cuts that we're seeing.

Speaker Change #224: And we absolutely, as we sit here today, see pen up demand in the business, but on the flip side, when we look at consumer sentiment, that continues to remain weak.

Speaker Change #224: We are hopeful that the lower rates, the drops that we're seeing are going to have a dual impact of one relieving pressure on consumers and then secondly, driving existing home sales activity.

Speaker Change #225: But the reality is, when we look at the lock-in effect, the majority of homeowners are still at 4% mortgage rates are less.

Speaker Change #225: So even if we do see some level would decrease that we do believe there still may be a reluctance to engage.

Speaker Change #226: So you're staying close to it beyond the rates, Marvin reiterated the primary drivers of our business and that's been consistent.

Speaker Change #227: So we're balancing rate activity with some broader recovery that we see across some of these other metrics that we track very closely.

Speaker Change #228: Got it, and thanks Brandon, and I don't want to frontrun the analyst day too much, but you have talked about a long-term margin for this business of about 14 and a half percent, given where we are today and the changes that have occurred since you first provided that outlook.

Speaker Change #229: Curious if it's still the right way to think about the business long-term and what level of top line and near-term recovery is do you think we need to see to reach that level?

Speaker Change #230: Yeah, we'll hold off on getting too much into that detail.

Speaker Change #230: I think the punchline, Zach, is that the framework still holds, it is, as we look relative to what we talked about in December of 22.

Speaker Change #231: I think the degree is step back, now that we've seen in 23 and now that what we're seeing in 24 is a little bit worse than our original expectations, but we're not going to call the turn or the inflection point.

Speaker Change #232: We do believe there's a lot of pen up demand, we do have a lot of confidence in the medium, the long-term drivers.

Speaker Change #232: When we do get back to kind of that mid single digit recovery and that we've traditionally seen in home improvement, we believe we can outpace that with the initiatives that we have in place and the degree and the timing of the expansion on operating margin again is going to be contingent on the pacing, which that top line recovers.

Speaker Change #232: Got it.

Speaker Change #232: Thanks for the time.

Speaker Change #233: Rob, we have time for one more question.

Speaker Change #233: Nice.

Speaker Change #233: Our final question comes from Brian Nagle with Oppenheimer.

Speaker Change #234: Good morning.

Speaker Change #235: Thanks for taking my question.

Speaker Change #236: So, my first question, I guess it's a bit of a fall, a bit of a fall up to that, the prior question was on range.

Speaker Change #237: I'm going to go the different direction.

Speaker Change #238: Look, I think you know, you was an operator, we as investors are you are waiting for a more accommodative rate environment, underpin better demand within home improvement.

Speaker Change #239: So the last question is, is you look at your business, we've seen this malaise continuing to take hold, maybe even intense drivers past some of the quarters.

Speaker Change #240: Where are the incremental risks?

Speaker Change #241: Where could where could the business actually get weaker here before we get that great relief, if you will?

Brandon Sink: Brian, this is Brandon.

Speaker Change #242: You know, look, mortgage rates, obviously coming down, we expect that to continue to come down further as we turn into 25, but we look at consumer sentiment, existing home sales, housing affordability, those are still concerns, we continue to see pressure there, consumers are still showing a preference for services versus good, especially in home improvement.

Speaker Change #242: And improvement in these macro trends, we should see and drive sustain and increase in discretionary projects and DIY traffic, so particularly in the bigger ticket categories, which is what we're watching for, that's the inflection that we expect.

Speaker Change #242: But in terms of the timing and our ability to call that, that's what's unclear to us at this point.

Speaker Change #242: So Brian, this is Marvin.

Brian Nagle: I'll take another angle at your question.

Speaker Change #244: And so for us, obviously, we don't have a crystal ball to call the inflection when that will happen, nor to Brandon's earlier comments.

Speaker Change #245: You know, can we pinpoint what rate environment we have to be in before it starts to possibly infect this DIY discretionary pullback for big tickets?

Speaker Change #245: It.

Speaker Change #246: But what we're trying to do is in this headwind environment that we're in, it's just continued to leverage our great balance sheet, to invest in technology and innovation, to make sure we continue to execute our total home strategy, which is allowing us to pick up Sharon Pro, improve our online business, continue to build out a technology platform for our home installation business, which was incredibly neglected from a technology standpoint for a minimum of years, because we know that when the inflection happens in the DIY return, we want to be perfectly positioned to really take share, not just in DIY, but also across all the other elements that I talked about. So rather than sitting back and waiting, we're aggressively working in this downturn, leveraging our balance sheet to do these aggressive investments and position ourselves.

Speaker Change #246: So when it happens, whenever the macro inflection occurs, we just want to be ready to take advantage of it, and we think we will be.

Speaker Change #246: And so we're just fortunate that we have the ability to continue to be aggressive in all those areas and just preparing for the eventual time when the market will open back up again, again, and we're going to be prepared when it does.

Speaker Change #246: So that's very helpful.

Speaker Change #246: I appreciate it.

Speaker Change #247: And my quick follow-up, I guess this is more what you branded, but just with respect to the commentary around Q3, so the comps in Q2 were down, you know, called 5%, you talked about 200 basic point improvement, so I think in response to someone else's question, you said you're basically wearing them out, so does that mean the business is running to a negative 3?

Speaker Change #248: Is that the math?

Speaker Change #249: So look, I will rescue Brandon from that question and answer for him.

Speaker Change #250: You know, we tend not to be that precise, you know, with current monthly trends.

Speaker Change #250: The best way for me and us to answer that question, Brian, and I appreciate the question, is when we look at our current business trends, they are reflective of the guidance we gave, understanding that our business will fluctuate throughout the quarter, and so we're not going to give a specific comp percent other than to say we feel confident that our current trends reflect the guidance we gave, and I think that's probably the best sufficient way to answer it.

Speaker Change #250: I appreciate it.

Speaker Change #251: Thanks, Marvin.

Speaker Change #252: Thank you.

Speaker Change #253: Now, thanks for the question.

Speaker Change #254: Thank you all for joining us today.

Speaker Change #255: We look forward to speaking with you on our third quarter earnings call in November.

Speaker Change #256: This concludes the low second quarter 2024 earnings call.

Speaker Change #257: You may now disconnect.

Speaker Change #258: [inaudible] Michael Lerner, Sarah

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