Q4 2024 Lowes Companies Inc Earnings Call
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Rob: Good morning everyone and welcome to Lowe's Company's fourth quarter 2024 earnings conference call. My name is Rob and I'll be your operator for today's call.
Speaker Change: 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.
Kate Pearlman: 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.
Kate Pearlman: I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on Lowe's Investor Relations website.
Kate Pearlman: During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2025. 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.
Kate Pearlman: 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: Thank you, Kate, and good morning everyone, and thank you for joining us today. In the fourth quarter, we delivered sales of $18.6 billion and positive comparable sales of 0.2%.
Marvin Ellison: Looking at the full fiscal year 2024, we delivered sales of $83.7 billion, adjusted operating margin of 12.3%, and adjusted earnings per share of $11.99.
Marvin Ellison: We are very pleased with our performance in 2024 in a very difficult home improvement macro environment.
Marvin Ellison: And we're also pleased to deliver positive comparable sales this quarter with results that exceeded our expectations and were driven by continued momentum in pro and online, strong seasonal DIY performance, and rebuilding efforts in the wake of recent hurricanes.
Marvin Ellison: Despite these better than expected fourth quarter results, we're still seeing a cautious consumer leading to continued near-term pressure on DIY discretionary spending, particularly in bigger ticket projects.
Marvin Ellison: And with this challenging backdrop, we remain focused on delivering strong operating performance while continuing to make the right long-term investments for growth.
Marvin Ellison: turning to our pro results in the fourth quarter where we delivered high single-digit comps for the second consecutive quarter.
Marvin Ellison: We're gaining momentum with our pro customer through a flywheel effect that we've created with a transformed pro offering with the right brands and products, greater inventory depth, improved job site delivery, dedicated service levels, and a best-in-class digital experience.
Marvin Ellison: Last week we took the next steps in tailoring our offering for the small to medium pro with the nationwide launch of our redesigned pro loyalty program Milo's Pro Rewards.
Marvin Ellison: Later in the call, Joe will share more detail about how we updated the program to drive greater engagement with our pros.
Marvin Ellison: Shifting to online, we drove strong sales growth of 9.5% in Q4, reflected in broad-based improvement across all merchandising divisions, which included record-breaking sales during the Black Friday and Cyber Monday holiday.
Marvin Ellison: Through our new free DIY loyalty program, MyLowe's Rewards, we're generating excitement and driving more traffic to Lowes.com
Marvin Ellison: These results give us confidence that our online and omni-channel investments are paying off. These investments include a more intuitive user experience in the app and online, more same-day delivery options, combined with enhanced AI user experiences.
Marvin Ellison: And our digital enhancements are earning outside recognition as Forrester just rated the Lowe's mobile app as the overall digital experience leader in U.S. retail mobile apps.
Marvin Ellison: highlighting not just the table stake functionalities and omni-channel features, but also innovative AI-enabled solutions like Style Your Space that helps customers reimagine rooms that they want to refresh through the touch of a button.
Marvin Ellison: Next month in collaboration with OpenAI, we will launch the first AI-powered home improvement virtual advisor on Lowes.com, leveraging the same technology that our associates are using on their store companion app to give our customers helpful advice as they tackle their home improvement projects.
Marvin Ellison: This new virtual advisor will provide Lowe's customers with both project know-how and product recommendations with direct links to specific Lowe's products for a seamless checkout.
Marvin Ellison: This is another example of how we're leaning into emerging technology to enhance the customer experience saving them both time and money.
Marvin Ellison: Now allow me to transition to our view of the macro.
Marvin Ellison: Even though short-term interest rates have started to come down, this remains a challenging home improvement market. Mortgage rates are higher than they've been in more than two decades, creating a significant gap between today's rates for homebuyers and the lower rates many homeowners currently enjoy.
Marvin Ellison: This has led to a lock-in effect and the lowest pace of existing home sales in the U.S. in nearly 30 years.
Marvin Ellison: Although it's difficult to predict the timing of when we'll see lower rates and increased home improvement demand, we remain confident in the medium to long term outlook of our business.
Marvin Ellison: As I've stated before, the key drivers of our business are still supportive, home price appreciation, disposable personal income growing faster than inflation, and the oldest existing housing stock in U.S. history.
Marvin Ellison: These drivers will sustain long-term demand as homeowners invest in repairs and upgrades.
Marvin Ellison: and we anticipate that some homeowners will begin to tap into record levels of equity in their homes to fund larger renovation projects.
Marvin Ellison: Beyond these factors, structural trends such as millennial household formation, baby boomers aging in place, and the persistence of remote work reinforce our confidence in the medium to long-term strength of the home improvement industry.
Marvin Ellison: In the meantime, we've refined our Total Home Strategy and are making investments that are closely aligned with the long-term drivers of home improvement demand.
Marvin Ellison: We unveiled our updated strategy at the December Analyst and Investor Conference. It includes driving pro-penetration, accelerating our online sales, expanding our home services, creating a loyalty ecosystem, and increasing our space productivity.
Marvin Ellison: In addition to the investments we're making in our Total Home Strategy, we're also continuing to take cost out of our operating model through our Perpetual Productivity Initiatives, or PPI.
Marvin Ellison: Together our Total Home Strategy coupled with our disciplined focus on productivity ensure that we are well positioned to capitalize on the home improvement recovery and take share when the market inflects.
Marvin Ellison: When we look ahead to 2025, we're confident that the three market scenarios that we outlined at our December conference captured a range of potential outcomes we could see in the home improvement industry this year.
Marvin Ellison: and we're very confident in our strategic agility and our ability to execute in any economic environment.
Marvin Ellison: So we are prepared to outperform the market in each macro scenario that we outlined in December.
Marvin Ellison: Before I close I'd like to take a minute to thank our teams who stepped up to support our customers across Southern California who were impacted by the devastating wildfires.
Marvin Ellison: Although this is not an area where we have significant store presence, we felt it was important to help these communities recover.
Marvin Ellison: As a reflection of this commitment, Lowe's donated $2 million for relief efforts in the impacted areas. And please join me in continuing to keep those impacted by the wildfires in our thoughts and our prayers.
Marvin Ellison: I continue to visit stores across the country every week which gives me a great opportunity to personally thank our frontline associates for their dedication and to learn how we can remove friction for them and improve the customer experience.
Marvin Ellison: To demonstrate our appreciation for our hardworking frontline associates, we awarded year-end discretionary bonuses of $80 million, including our store managers and assistant managers across the company.
Bill Boltz: This bonus reflects our appreciation for their leadership and commitment to customer service. And with that, I turn things over to Bill.
Bill Boltz: Thanks Marvin and good morning everyone. As Marvin mentioned, we are pleased with our sales performance in the fourth quarter. We are encouraged by the broad-based strength we delivered in pro, with positive pro comps across all merchandising divisions for the fourth quarter and the full year, as well as the continued momentum in our online sales.
Bill Boltz: In addition, it's clear that our seasonal offers for the DIY customer hit the mark, in categories like appliances, tools, storage, and holiday gifts, as Lowe's was the go-to destination for many holiday shoppers.
Bill Boltz: Starting with home decor, we delivered strong positive prompts across all of our major appliance categories. We're pleased that we took share in a challenging market, especially when homeowners continue to exercise caution around spending on big-ticket discretionary items.
Bill Boltz: Our results were driven by our investments in providing a seamless, omni-channel customer experience, including the widest selection of the leading brands that offer innovation and value, whether consumers choose to shop online or in-store, or a combination of the two.
Bill Boltz: We have built a best-in-class market delivery model to deliver big and bulky products like appliances, patio furniture, and grills, allowing us to double the number of next-day deliveries over the past few years.
Bill Boltz: And as a reminder, instead of going through our stores, these products now flow from our supply chain directly to a customer's home or job site.
Bill Boltz: In fact, we are the only retailer that can now deliver and install a major appliance the next day in almost every zip code. This is critical for customers who need to replace a broken appliance immediately, as this type of purchase accounts for more than 70% of the industry's appliance sales.
Bill Boltz: Our enhanced customer experience, along with the expanded capacity for rapid delivery, helps further strengthen our leadership position in appliances.
Bill Boltz: We also continue to innovate and enhance our private brand lineup as consumers continue to look for more value across categories.
Bill Boltz: For example, we're expanding our selection of large-format Stainmaster Luxury Vinyl flooring nationwide, giving customers the on-trend look they want and the performance that they need.
Bill Boltz: We're excited to have the Stainmaster brand within our portfolio to now bring the most trusted brand in carpet to new flooring categories like luxury vinyl and tile.
Bill Boltz: We recently launched our Lowe's Essentials brand, which promises low prices on a range of home basics for value-conscious customers.
Bill Boltz: We're starting with a handful of products priced at $10 and below, and special launch items under $5, including clothes hangers, gardening tools, and water cans, positioned in the cart start area at the front of the store.
Bill Boltz: And because our private brands typically have higher margins than their national brand counterparts, these products will help increase our private brand sales and support our margin goals.
Bill Boltz: Turning now to building products, where we delivered positive comps in building materials and lumber, driven by the continued strength in pro, as well as storm recovery and rebuilding across the southeast.
Bill Boltz: We were pleased with the continued growth in outdoor categories like roofing, siding, and decking, driven by our investment in pro-inventory and our improved in-stocks.
Bill Boltz: In hard lines, we saw a strong trimmetry sell-through and an improved margin performance in the fourth quarter. These results were supported by great execution from our Merchandising Services Team, or MST.
Bill Boltz: Our seasonal offering including live holiday nursery, tools, and pre-lit trees resonated with consumers during the holidays. We also saw customers get excited about our 10-foot tall animatronic Yeti named Bumble, which we sold through almost as fast as we could get them in stock.
Bill Boltz: In addition, we delivered solid growth in apparel where our expanded workwear lineup, including the extension of our Carhartt assortment to more than a thousand stores, was popular amongst our holiday shoppers.
Bill Boltz: and once again customers couldn't get enough of the more unique items like our mini Lowe's buckets and mini cobalt toolboxes which drove engaging viral moments on social media.
Bill Boltz: Looking ahead, we're excited for spring, our biggest season of the year.
Bill Boltz: We are ready with a strong in-stock position and the best product and brand lineup and home improvement. Like an outdoor power equipment, where we are the only home center with both Toro, the leading gas-powered brand, and Ego, the leading battery-powered brand, truly an unmatched offering in retail.
Bill Boltz: And in our garden centers, we're inspiring our customers to take on new projects this spring with vignettes that showcase all the products they need for vertical gardens, mailbox displays, tree rings, and more.
Bill Boltz: As they shop, customers can rely on interactive signage to help them select the right plants for their space and local growing zone, ensuring they get everything they need to complete their outdoor projects.
Bill Boltz: We've also expanded our assortment of Stay Green products, our own lawn and garden brand.
Bill Boltz: The updated packaging and product make the extra performance and value easy for our customers to find.
Bill Boltz: This year, we're in an even stronger position to meet the customer's backyard needs, and we're seeing some early momentum in patio and grills in areas where the weather has already started to turn.
Bill Boltz: Our patio assortments are localized for the market, and we have a great lineup of grills across Weber, Charborough, Blackstone, and Pit Boss.
Bill Boltz: including new Lowe's exclusive products like the Weber Stealth family of grills.
Bill Boltz: Overall, we're pleased that where the weather has cooperated, spring is already off to a good start.
Bill Boltz: Finally, we're excited to build on the great progress that we've made with our DIY loyalty program since we launched it last year.
Bill Boltz: We have built a base of 30 million members who are now outspending non-members by nearly 50 percent. It's clear that these customers see the value in this free program, which now gives them even more incentive to choose Lowe's.
Bill Boltz: This spring, we'll lean into loyalty by offering exclusive member deals and doorbusters featuring some of our best-selling products, and we'll support these offers with tech-enabled marketing designed to drive traffic and sales during this important season.
Bill Boltz: We took the learnings from the successful launch of Milo's Rewards, and we've applied them as we redesigned our ProLoyalty program, which Joe will discuss in detail in just a few minutes.
In closing...
Bill Boltz: I'd like to thank our vendor partners, our merchants, and our inventory and supply chain teams for all their effort and hard work to continue to serve our customers, provide innovation and value, and drive results.
Bill Boltz: With that, Joe, I'll now turn the call over to you.
Speaker Change: Thanks, Bill, and good morning everyone. As Marvin mentioned, we're continuing to support communities impacted by the wildfires in California as they begin the rebuilding process.
Bill Boltz: Our teams delivered truckloads of water and provided supplies like N95 masks, air purifiers, and aft shifters to firefighters, evacuation centers, and local communities in need.
Bill Boltz: I'd like to recognize our store and supply chain associates in these areas who help customers and routed supplies while tending to their own families, homes, and communities.
Bill Boltz: We're grateful for their dedication and commitment to assist with the recovery over the long haul.
Bill Boltz: Turning to our Q4 performance, I'm pleased that we continue to deliver strong customer satisfaction scores, including improved satisfaction with our POPIS or BioNLine pickup and store process, which we enhanced through our front-end transformation.
Bill Boltz: Now it's easier than ever for customers to get in and out quickly while they're picking up their online orders.
Marvin Ellison: We've earned these strong customer satisfaction scores while we set Black Friday and Cyber Monday sales records, which you heard about from Marvin.
Marvin Ellison: And since roughly half of our online orders are picked up in the store, the strong customer endorsement is particularly meaningful. It tells us that the investments we've been making in our front-end transformation are paying off.
Marvin Ellison: At our Analyst and Investor Conference in December, we discussed a number of ways we're driving productivity through our Perpetual Productivity Improvement, or PPI, initiatives.
Marvin Ellison: Let me give you some more insight into our efforts in this area as we continue to improve the freight flow process.
Marvin Ellison: Driven by new technology, as well as redesigned labels and carts, we've dramatically streamlined the process, removed friction for our associates, and improved our speed to shelf.
Marvin Ellison: The trucks that bring products to our stores are now organized in a way that makes unloading easier.
Marvin Ellison: The labels include the aisle and bay location, and there are specific directions for how to load carts efficiently.
Marvin Ellison: This reduces the number of touches by associates, so products can go straight from the truck to a cart to the specific bay without any unnecessary reloading.
Marvin Ellison: And to make the process even more efficient, these improvements give associates more detailed visibility to what's coming before it arrives.
Speaker Change: We are very pleased with the overall enhancements we continue to make in the operational performance of our stores.
Speaker Change: Transitioning now to our pro performance. We continue to see broad-based growth across our geographies, driven by our pro focused investments, resulting in high single-digit comps again this quarter.
Speaker Change: In our recent survey, pros indicated they are confident in their near-term prospects with stable backlogs.
Speaker Change: Now, let me give you an update on our revamped Pro Loyalty program, My Loves Pro Rewards, which we launched nationwide just last week.
Speaker Change: With our new program, we've tailored our offerings specifically for our target customer.
Speaker Change: small to medium pros, who can start earning rewards immediately and can achieve higher rewards with lower levels of spending compared to the program offered by our largest competitor.
Speaker Change: This program is easier than ever to use, offering an intuitive customer experience, and prioritizing features and functions pros use most.
Speaker Change: As members, pros have access to exclusive perks in-store and in the Lowe's app and online, including member-only deals, volume discounts, and a suite of business solutions. All of this is designed to help pros save time and money.
Speaker Change: Now, both our DIY and ProLoyalty programs run on the same tech platform and use the same currency, Milo's money.
Speaker Change: This not only simplifies the customer experience, it's already making it easier for associates to explain and support the program. This should drive greater engagement with our pro customers and incentivize repeat purchases and more trips to Lowe's.
Speaker Change: With both loyalty programs now in one platform, our marketing team is able to better leverage the unique data the programs generate to tailor offers for our pro and DIY customers.
Speaker Change: This is an exciting time for Lowe's as we continue to evolve our loyalty ecosystem and enhance the technology that powers it.
Speaker Change: We're making our programs stronger every day and more valuable to our customers, and we're now the only home improvement retailer to offer distinct programs for both DIY and pro customers.
Speaker Change: These programs are an important way we're bringing our value commitment to life for our customers by helping them save time and money.
Speaker Change: And as we look ahead to spring, we're ready to serve customers with improved staffing levels and strong cross-functional coordination across the organization.
Speaker Change: From store operations to merchandising to marketing, we're working together to provide our customers with unparalleled shopping experience, right on time to capture demand during our biggest selling season of the year.
Speaker Change: Before I close, I'd like to thank our hard-working front-line teams for their contributions to our results this year. Their expertise and commitment to excellent service are what differentiates Lowe's.
Speaker Change: In particular, I want to recognize our store managers and assistant managers who hold some of the most critical frontline leadership roles in the company.
Speaker Change: In appreciation for their efforts, we're awarding them a discretionary year-end bonus, $10,000 for our store managers, and $5,000 for our assistant managers.
Brandon Sink: We're grateful for their incredible support and guidance they provide to their teams. And now, let me turn the call over to Brandon.
Thank you, Joe, and good morning, everyone.
Brandon Sink: Starting with our fourth quarter results, we generated GAAP diluted earnings per share of $1.99.
Brandon Sink: In the quarter, we recognized a pre-tax gain of $80 million on contingent consideration associated with the 2022 sale of our Canadian retail business.
Brandon Sink: Excluding this benefit, we delivered adjusted diluted earnings per share of $1.93.
Brandon Sink: My comments from this point forward will include certain non-GAAP comparisons that exclude this benefit where applicable.
Brandon Sink: Fourth quarter sales were $18.6 billion, with comparable sales up 0.2%.
Brandon Sink: strong growth in pro and online, as well as storm-related demand from hurricanes Helene and Milton drove better than expected results.
Brandon Sink: We estimate the hurricane-related demand positively impacted Q4 comp sales by roughly 100 basis points as homeowners began the shift from securing their properties and cleanup towards recovery and rebuilding.
Brandon Sink: Comparable average ticket was up 1.5 percent driven by strong positive comps and appliances, continued momentum in pro, and storm recovery project spend.
Brandon Sink: Comparable transactions declined 1.3% with DIY discretionary pressure persisting, especially in larger ticket interior projects.
Brandon Sink: Our monthly comp sales were down 2.5 percent in November, up 4.8 percent in December, and down 2.2 percent in January.
Brandon Sink: The calendar shift of Black Friday weekend and Cyber Monday from November in 2023 into December in 2024 shifted some demand between periods.
Brandon Sink: Additionally, January was negatively impacted by unfavorable winter weather in the final two weeks of the month, especially in Southern markets.
Brandon Sink: Adjusted SG&A of 21% of sales delevered eight basis points versus prior year driven by increased compensation and health care expenses largely offset by benefits of multiple PPI initiatives.
Brandon Sink: Adjusted operating margin rate of 9.4 percent of sales improved 36 basis points versus prior year.
Brandon Sink: and the adjusted effective tax rate was 23.5% slightly below prior year.
and William Bolling. Thank you. Thank you.
Brandon Sink: Inventory finished the year up 515 million versus prior year as we accelerated targeted spring seasonal builds ahead of this critical period.
Turning now to Capital Allocation.
Brandon Sink: In 2024, we generated $7.7 billion in free cash flow and returned $6.5 billion to shareholders through share repurchases and dividends.
Brandon Sink: In the fourth quarter, we paid $650 million in dividends at $1.15 per share and repurchased 5.5 million shares for $1.4 billion, returning $2.1 billion to our shareholders.
Brandon Sink: Capital expenditures totaled $548 million in the quarter as we continue to invest in tech-driven productivity projects and key growth initiatives.
Brandon Sink: Adjusted debt to EBITDAR, ended the year at 3.01 times, and we delivered a return on invested capital of 32% for the year.
Brandon Sink: Now, I would like to take a few minutes to discuss our 2025 Outlook.
Brandon Sink: In December, we laid out three scenarios detailing a range of potential outcomes based on the performance of the home improvement market.
Brandon Sink: Core demand drivers remain supportive. Real incomes are forecast to grow again in 2025. Home prices are near record highs and we have the oldest housing stock in U.S. history.
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Brandon Sink: but there is still a good deal of near-term market uncertainty around the timing of an inflection in the home improvement market, especially for larger-ticket discretionary spend.
Brandon Sink: We also expect mortgage rates to remain elevated, continuing to put pressure on existing home sales and some of the larger projects that are linked to those occasions.
Brandon Sink: Based on these factors, we are forecasting the home improvement market to be roughly flat this year with pro outpacing DIY driven by the repair and maintenance occasion.
Brandon Sink: However, the investments we have made to drive growth are resonating, which is reflected in our strong pro and online results this quarter, and we are confident that the new initiatives we laid out as part of our updated Total Home Strategy will enable us to grow faster than the market and take share.
Brandon Sink: Taking all of this into account, for 2025, we are expecting sales ranging from 83.5 to 84.5 billion, with comparable sales in a range of flat to up 1%.
Brandon Sink: We expect operating margin in a range of 12.3% to 12.4% with PPI initiatives across store operations, merchandising, and supply chain driving approximately $1 billion in productivity this year.
Brandon Sink: This productivity will offset pressure from merit increases and general operating cost inflation.
Brandon Sink: elevated healthcare expenses, investments in our total home strategic priorities, and higher depreciation expense, which is forecasted to increase approximately $100 million over prior year as we lean into our tech-driven strategic investments.
Brandon Sink: Additionally, we expect net interest expense of approximately $1.3 billion as we plan to repay $2.5 billion in debt maturities this year, but will also have less interest income due to lower short-term investment rates.
Brandon Sink: These assumptions result in expected full-year diluted earnings per share of approximately $12.15 to $12.40.
Brandon Sink: We also expect capital expenditures of approximately 2.5 billion as we invest in our total home strategic priorities and begin to ramp up new store builds.
Brandon Sink: In 2025, we plan to open 5 to 10 new stores.
Brandon Sink: To assist with your modeling, here are a few items to keep in mind for the cadence of the year.
Brandon Sink: We expect comp sales in the first half to be roughly flat with some spring demand moving from the first quarter into the second quarter where we are cycling particularly poor weather.
Brandon Sink: Taking this into account, we expect first quarter comp sales approximately 200 basis points below the bottom end of our full year guide.
Brandon Sink: We also expect first quarter operating margin rate to be approximately 50 basis points below the bottom end of our four-year guide driven by D leverage on the lower sales volume.
Brandon Sink: the wrap of incremental wage actions for our frontline associates and the prioritization of investments in our total home strategic initiatives including category accelerators to capture the spring selling season.
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Brandon Sink: In closing, we remain focused on executing at a high level through the near-term market pressures by driving productivity, diligently managing costs, and investing in our total home strategy, all while continuing to drive sustainable, long-term shareholder value.
Brandon Sink: And with that, we will open it up for your questions.
Thank you. We are now ready for questions.
Brandon Sink: If you'd like to ask a question, press star 1 on your telephone keypad. To withdraw your question, press star 2.
Brandon Sink: In order to allow questions from as many individuals as possible, please limit yourself to one question and one follow-up.
Speaker Change: Our first question comes from the line of Christopher Horvers with J.P. Morgan. Please proceed with your questions.
Thanks, and good morning, everybody.
Christopher Horvers: I wanted to talk a little bit about the strength that you saw in the in the fourth quarter and and how you're putting that into context, you know, you had maybe did you see election deferral? Was there any weather benefit sort of?
Christopher Horvers: or weather benefit that may be helped November and December. Obviously, you had the hurricane and the storms. Do you think there was tariff pull forward? Putting that in the context of that comp, in the context of how you guided the year, you're really not expecting much improvement.
Christopher Horvers: even though, you know, we're another year out from the COVID pull-forward dynamics.
Marvin Ellison: Hey Chris, this is Marvin. I'll take the first part and I'll let Brandon give some specifics.
With my
Brandon Sink: The main point is overall, we're really pleased with how we performed in the quarter.
Brandon Sink: and in our stores. As a result of that, you know, we delivered the positive comp and we still have confidence in
2025 in spite of the fact that we don't inspect.
expect the market.
to have any growth.
Brandon Sink: I'll let Brandon give you more specifics relative to Q4 and how we feel that relates to 2025.
Christopher Horvers: Thanks Marvin. Chris, I'd just echo, really pleased with the execution. The NQ4 beats top and bottom line, positive comps.
Christopher Horvers: and EPS growth here for the first time in a couple of years, high single digit.
Christopher Horvers: growth in pro and online gave us the ability to share in that success with our associates paying
Christopher Horvers: you know, $80 million in discretionary bonuses back. You mentioned the weather.
Christopher Horvers: was a drag in particular for January. Impacted the month just north of about 150 basis points.
that is pressing into.
Christopher Horvers: here the month of February, which is, you know, we've seen particularly poor weather here over the course of the first three weeks.
Christopher Horvers: That is factoring in to how we're thinking about Q1 and the full year.
just from a company-specific standpoint.
Christopher Horvers: But from an overall macro standpoint, we expect the conditions to remain challenging in 2025.
Christopher Horvers: As we talked about in the prepared remarks and all that's been taken into consideration as we looked at a flat home improvement market and then where we fall relative to that. We expect to drive about 100 basis points from our total home initiatives and that's how we get to our guide as we start thinking about 25.
Speaker Change: Got it. Then, as a follow-up, you talked about the investment pressures here in the first quarter along with, obviously, the leverage.
Speaker Change: But can you talk about the, on the other side of it, can you talk about the shape of...
You know, gross margin over there, you are still...
expecting, I think, the vendor clawbacks do.
Speaker Change: cycle into the first half of the year, and I think they should be decent in terms of tailwinds. So do you expect gross margin up and then roughly flattish over the year?
Speaker Change: Yeah, Chris, you cited the Q1 50 basis points that we highlighted on the operating margin. Majority of that is from the sales D leverage. We have about $400 million that we expect to shift.
Speaker Change: from Q1 to Q2, so that's going to put a little bit of pressure on.
Speaker Change: There's also a few other unique items with the wage investment that we made in the second half of the year.
Speaker Change: that we're cycling in some upfront investments in particular in the category.
Speaker Change: We're expecting the PPI to continue to ramp as we move through the year. Your question on gross margin, we are expecting that to be overall flat for the year.
Speaker Change: As we look at that, again, the PPI initiatives are offsetting pressure that we're seeing as we invest in the pro business and in our supply chain. I will also say, you know, we're very focused on continuing to invest in value for our customers. We're investing in, you know, sales and traffic driving actions.
Speaker Change: especially as we look at first half, seasonal promotions, marketing, and price action to ensure that we maintain leadership. And we really like the model. We've created a model that allows us to make investments in the associates.
Speaker Change: improve our value proposition with our customers and still hit our rule of thumb as we start to see sales increase over the course of the year.
Got it. Thank you. Have a great spring. Thanks, Chris.
Speaker Change: Our next questions are from the line of Simi and Gutmann with Morgan Stanley. Please proceed with your questions.
Good morning, everyone. Just to clarify, the
Speaker Change: Sales guidance for the year. Is this roughly the same framework?
Speaker Change: from two months ago, or did it move slightly because of either backdrop or even the slower start, or, you know, some of the volatility that you saw, because it sounds roughly the same. And if you are going to take market share,
Speaker Change: You know, I think it would still lean closer to the one, so I'm just trying to put that out to understand if anything changed at all in the last couple of months.
from an overall macro, as I mentioned, the weather.
Speaker Change: pressure in January. We're factoring that in as we've seen a slower start here to February. Also mentioned, you know, we're lapping the expected hurricane benefit that actually outpaced
Speaker Change: our expectations in terms of what we saw in 2024. We saw about 100 basis points of benefit.
Speaker Change: each in both Q3 and Q4, and that's going to create a slight drag.
forces, we look at 25.
Speaker Change: particularly around the big-ticket discretionary. Those are all things that we cited back in December. And again, relative market still roughly flat. So overall, the framework we're trying to take into account some near-term company-specific items, but I would say overall still the same framework.
Marvin Ellison: Simeon, this is Marvin. Just two additional points. So, specific to February.
Speaker Change: Where the weather has cooperated, spring is off to a good start in February, but overall February is pressured because of the weather, specifically in parts of the South, and that's, again, not a surprise to anyone.
Speaker Change: relative to the scenarios we laid out in December and all three of those scenarios, as a reminder,
Speaker Change: it included outperformance. And so even though we look at the home improvement market or our relevant home improvement market in 2025 being roughly flat, we plan to outperform that. And so if the market
Speaker Change: It's better than what we anticipate. We anticipate our performance is going to be better than the market. So irrespective of what the market gives us, we believe we have the initiatives, the agility, and the strategic plan to outperform it.
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Speaker Change: So, let's just say the market ends up being a little lighter. You have a specific plan on what you're going to spend and invest in for this year. Does that change at all? And then, if it doesn't change, do you have toggles in PPI to help offset it to basically land the margin in a certain place? So, just give us a sense of the flex that you have in both of those areas and how you approach them.
Speaker Change: I would say definitely some flex in that, but right now we've built the plan.
Speaker Change: We highlighted in December we have $1 billion of productivity that we're expecting to deliver here in 2025. That's split roughly evenly across the portfolio, about $500 million in margin consisting of the merchant supply chain efforts and another $500 million on the expense side.
Speaker Change: mainly through the stores teams. We expect that to continue to sort of ramp as we move through the year. And as we've referenced, we're confident in the flywheel that we've created with PPI. I believe we have the right opportunity here for 25 as well as the multi-year.
Speaker Change: opportunity so you know look as things soften as they get better certainly can ramp up ramp down in terms of near-term factors as well as some of the larger initiatives but really confident with the plan that we have in the operating margin that's that's been included in our outlook
Thanks and best of luck.
Thanks, Jimmy.
Speaker Change: Our next questions are from the line of Peter Benedict with Baird. Pleased to see you with your questions.
Peter Benedict: Thanks for taking the question. First, just on the outlook for the hurricane rebuild, I understand you start to cycle in the back half of the year. Any reason you wouldn't expect kind of a similar dollar lift, I guess, over the first half of the year versus what you've seen? Is there anything unique or different about the rebuild or the cadence of the rebuild you're seeing versus maybe what your expectations were? That's my first question.
Peter Benedict: Yes, so Peter, I think we definitely have some benefit that we've baked in here in the first half, but as you know, especially in some of these hurricane markets.
Peter Benedict: you know, the timing of the insurance proceeds, when that's going to get awarded, how that's going to be re-spent. So, we've tried to take a little bit of a...
Peter Benedict: a little bit more of a conservative approach. And as we think about the benefit that we do have baked in, as I mentioned,
Peter Benedict: slightly lower than what we saw in the back half of the year.
Peter Benedict: and that's how we cadenced it in, but we're ready to support in these markets. We've loaded in inventory from a pro standpoint ready to support across the Carolinas and Florida, but just in terms of financially what we've baked in, that's the assumption.
Speaker Change: Okay, that seems prudent. You know, that leads me to my next question around the pro. Really good to see the performance there. Can you maybe talk about the broadening of the engagement or the demand that you're seeing within the pro segment?
Speaker Change: Give us a sense for or remind us how you define kind of small versus medium versus larger pro and then any categories in Particular that are that are kind of resonating as you continue to put these good good growth rates with your pro business. Thank you
Peter Benedict: Yes, so Peter, I'll take the first part of that. I'll let Bill talk about the category performance.
Speaker Change: We define the pro based on the pro's shopping pattern and their annual spend.
Speaker Change: And again, we do quarterly surveys, so we really engage with these customers. We understand the business that they're in. We understand what their annual spend, and we basically understand what their overall financial position is, and so we define it in that regard.
Speaker Change: Now the thing that we've been able to do is to really see the benefits of our toll home
Speaker Change: investments really taking hold on things like responding to product load and improved service levels.
Speaker Change: more flexible and agile delivery. And we saw double-digit pro growth online and again we just think we have a best-in-class online offering and as you think about the overall engagement of the pro.
Bill Boltz: We think it has a lot to do with some of the brands that Bill and the merchant teams have brought to bear in addition to the fact that we have made a commitment.
Bill Boltz: to have inventory where it needs to be and to have the delivery flexibility that we really never had before. And we're excited about the relaunch of our loyalty program.
Bill Boltz: Model O's Pro Rewards based on the fact that the data that we receive from those customers
Bill Boltz: is that they wanted something that was more simplistic but also something that they could earn and achieve high rewards.
Bill Boltz: at lower spend levels because, again, they are more of a smaller-to-medium-sized small business.
Bill Boltz: Overall, we feel great. We think that momentum is going to continue, and I'll let Bill be specific about some of the categories that we've seen take off as a result of these efforts. Yeah, thanks, Marvin. Peter, you know, as I said in my prepared remarks,
Speaker Change: We're really pleased with the pro business, both for the quarter and for the year, as we saw.
you know, positive growth across every merchandising category.
Speaker Change: for the quarter and for the year, and so, you know, largely led by, you know, what you would think is those pro-centric areas, but building materials, lumber.
Speaker Change: They'll work some of those key categories, but also strength across appliances, paint and some other businesses across store tools, hardware. So it's really encouraging for us to see the strength both in the quarter and for the year across those merchandising categories and pro.
Great. Thanks, guys. Good luck.
Speaker Change: Our next question is from the line of Kate McShane with Goldman Sachs. Pleasure to see you with your questions.
Speaker Change: Hi, good morning. Thanks for taking our question. We wondered if you could talk to us about how you're thinking about transaction versus ticket throughout 25. How much inflation do you think can be in the space during the year? And specific to Q1, when you're going through why the margin would be slightly below the
Speaker Change: range for the year. You mentioned category accelerators as one of the drags. Is that something that's happening more in Q1 than the other quarters? And can you remind us what that looks like?
Speaker Change: Sure, Kate. This is Brandon. I'll hit the ticket transaction assumption for 25. We are expecting slight...
Speaker Change: ticket growth, and that's mainly driven by the continued strength that we're expecting to see in Pro. The offset is that we also expect DIY traffic pressures.
to persist.
Speaker Change: as we look at the balance of 25. Commodity inflation, not really a part of that formula. We expect that to be muted, just as we've seen, for the majority of 24. And that's as it relates to lumber and copper.
Speaker Change: As it relates to the Q1 pressure, I mentioned the main item just being the shift in sales due to the season that we're cycling last year. So you have the sales deleverage.
Speaker Change: the wage investment. And I would say from a total home strategy standpoint
and the initiatives.
Speaker Change: A little bit of unique pressure in Q1, just given the timing of the rollout and in particular the category accelerators where we're going out and resetting and touching our stores.
Speaker Change: as we look at the rural initiative rollout and some of the other things that we're doing there. So I would say that's the uniqueness there as it relates to Q1 in particular with that initiative.
Thank you.
Thank you, Kate.
Speaker Change: The next question is from the line of Greg Mellick with Evercore ISI. Pleased to see you with your questions.
Greg Mellick: Hi, thanks. Wanted to just follow up a little bit there on inflation. What was it in the quarter? Was it anything as part of that ticket growth? And are tariffs contemplated in your guide?
Transcription by ESO, translation by —
Greg Mellick: Greg, I would say like for like inflation, pretty muted when we look at Q4.
And then your question on tariffs, it's not explicitly.
Greg Mellick: included or incorporated in our guide in terms of what's recently been enacted but you know I would say they're the situation very fluid.
Greg Mellick: Our teams are already activating against the tariffs that have been
Greg Mellick: enacted. We're running the play. We're keeping a close watch on other potential policy changes or announcements that may be coming and prepared to respond. We're confident in our merchant and finance teams across my team and Bill's team. You have the right tools and processes in place and we continue to run that and respond in an effective manner.
Speaker Change: got it and and on the leverage you've talked about at the analyst a that sort of
Speaker Change: you know, 10 bips of leverage on the upside and potentially 15 on the downside. Is that still a good framework to think about given the demand levels here?
Speaker Change: Yep, I think it's spot on, Greg. We still have that framework in place, 10 on the upside, 15 on the down. Doesn't necessarily apply, you know, on a quarterly level. The framework works better when you're thinking about sort of the full year, but yeah, very much still operating against that expectation.
That's great. Thanks and good luck.
Thanks, Greg.
Speaker Change: The next questions come from the line of Michael Lasser with UBS. Please receive your questions.
Speaker Change: Good morning. Thank you so much for taking my question. Where do some of the large tickets
Speaker Change: remodeling categories for Lowe's stand today versus where they were in 2019 specifically areas like kitchen remodels and bathroom models
Speaker Change: because it does seem like Lowe's is being disproportionately adversely impacted by the softness so presumably it would be a benefit as those categories improve.
Speaker Change: Well, Michael, this is Marvin. I think one thing we've said consistently is that
Speaker Change: D.I.Y. Discretionary Big Ticket is under pressure and everything you listed is D.I.Y. Discretionary Big Ticket and so the obvious answer is those categories are under pressure.
since 2019.
Speaker Change: and with 70% of our revenue coming from the DIY customer when those...
Speaker Change: Big Ticket Discretionary categories feel pressure. It disproportionately impacts our business and our revenue, and so I'll let Brandon give you more context. Yeah, Michael, we've been pretty consistent around sort of the over-reversion in these categories as we look at
Brandon Sink: Flooring Decor K&B relative to five years ago just in terms of you know what we've seen so certainly believe
Brandon Sink: There's pent-up demand when the market inflects and when it turns, and we're ready for that. But another data point I'll call out, just when we look specifically at larger tickets and the sequential improvement here in 2024, the term I would use is it looks like it's getting less worse.
Brandon Sink: On our bigger ticket, we were high single-digit negatives over the course of Q1, Q2. We're coming out of Q4 here roughly.
Brandon Sink: flat on tickets over $500. So a good sign that we're seeing in those categories not projecting an inflection or a recovery certainly as we look at 2025 but we hope we're kind of bumping along the trough in the bottom here.
Thank you very much for that. My follow-up question is
Speaker Change: There was a description around some incremental activity to drive the DIY business between promotions, advertising, and other initiatives. So, A, can you quantify that? And B...
Speaker Change: How are you thinking about the cost to drive the DIY business today versus where it has been in the future, where it's been in the past, meaning is it just becoming more expensive to maintain market share given all the changes that have taken place?
Thanks for watching!
Speaker Change: Michael, don't know exactly the context of the question, but what I will tell you is that we are not planning nor have we seen any
Speaker Change: inflection point change in promotional cadence for DIY, nor are we anticipating doing anything to create any change in our cadence.
Speaker Change: The one thing that we will do is to leverage our DIY loyalty program, which we will be cycling over the launch in March, and we're very excited about that program. That is specific.
Speaker Change: to the DIY, you know, and as Joe mentioned, I mean, we're the only home improvement retailer with a distinct pro and DIY loyalty program. Other than that, we're going to continue to be competitive in the marketplace, but we have no expectation that we're going to be investing more aggressively in the DIY marketing space. We're going to continue to run a very specific play, and one of the key benefits.
Speaker Change: of a loyalty program that it gives you more database modernized one-to-one marketing capabilities than what we've had in the past.
Speaker Change: Michael, I would just add, just in terms of the cost or the investment...
whether it's in the promotional space, pricing actions.
Speaker Change: all that factored in as we look at 2025 and that flat gross margin expectation that our reference marketing within SG&A flow through, all of that factored in in terms of you know what it's going to take for us to continue to resonate, continue to take leadership in the right categories, and at the same time deliver on our financial guide.
Thank you very much and good luck.
Thanks, Michael.
Speaker Change: Our next question is from the line of Zach Fadum with Wells Fargo. Please proceed with your question.
Speaker Change: Hey, good morning. Do you think it's fair to say there was some post-election exuberance on behalf of the consumer as a whole in Q4, that's maybe died down a little bit in 2025? As it sounds like you attribute this-
Speaker Change: January, February, air pocket to be more about weather. So just trying to think through the factors that give you confidence that trends can snap back as we move through Q1 and into Q2 and through the year.
Speaker Change: Suzette, this is Marvin. I appreciate the question. I will tell you that we have no real tangible data.
to support.
Speaker Change: any election exuberance during the holiday season, but what we can point to specifically is the impact of weather on our business. As we look at...
Speaker Change: for the points of January and February, as Brandon mentioned. As we look at the geographic spread of our business, it is crystal clear that where the sun is shining and we have seasonal normal weather.
Speaker Change: Spring is resonating really well and where we have unseasoned cool wet
Speaker Change: and any frozen precipitation the business is not performing well. So we see this more today as a weather story than any election impact or any other broader macro shock that could be happening. Again, we have no data to support that.
Speaker Change: Got it. Appreciate that. And then on the policy environment, lots of moving parts here. You talked about the incremental potential for tariffs. Curious how you think through other policy dynamics like immigration and how that could impact your business.
Speaker Change: Now, it's another really, really fair and timely question. What I will tell you is that, like most large U.S. companies, we are paying very close attention to it.
Speaker Change: We are highly engaged with all of our customer segments. We have one of the best.
government relations teams of any public company in the U.S.
Speaker Change: and we are going to just be as agile as we can. The one thing that we do know is if there are any...
policies that impact our business, we will not be alone.
Speaker Change: And so our objective is to just focus on controlling what we control and being very keenly aware of the marketplace. Again, your question is a timely and very fair question.
Speaker Change: But what I can tell you is we are prepared for everything and we're prepared for anything. And we believe that our team has the agility and the high level of execution ability to manage through any political situation.
Speaker Change: environment or any policy changes that could be coming our way.
Appreciate the time. Thanks, Marvin.
Thank you.
Mr. Nagel, your line is live for questions.
Speaker Change: Sorry, I was on mute. Good morning, thanks for taking my questions.
Speaker Change: So, this may be a bit repetitive, so I apologize, but I think a lot of us are looking at your results today, you know, and congratulations on a nice quarter.
Speaker Change: together with the results of your competitive report yesterday and just really trying to make sense of the sales pickup we saw late in 2024.
Speaker Change: So I guess, and this is the repetitive part, I apologize, but...
Marvin Ellison: Now, Marvin, as you're looking at the business, again, recognize there's a lot of moving pieces out there with weather, you know, the election, like someone else has mentioned.
Marvin Ellison: Is there anything you can see that may give us some indication that we have hit some type of positive inflection in the business despite these ongoing macro challenges?
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Speaker Change: Brian, thanks for the question. What I will tell you, for us, it comes down, and Brandon mentioned it, it comes down to discretionary...
Speaker Change: Big ticket for DIY. I mean that to us is one of the key indicators
that the
Speaker Change: homeowner is going to be returning to what we consider to be a normal cadence of home improvement span. And so we're going to be tracking that.
Speaker Change: really really close and we're going to be paying keen attention to it. Another key for us is our home services business, i.e. home installations.
That's another
Speaker Change: that indicate for us that consumers are either tapping into the equity and as you know we have record amounts of equity. I think we on average roughly $400,000 per home and so we believe at some point
Speaker Change: are going to get normalized in this high mortgage rate environment and they're going to start to tap into that equity.
Speaker Change: making the decision that they're going to stay in their existing home, but modernize that home. So the moment we start to see that home services business
Speaker Change: start to tick up positive on a more continuous basis, that's gonna be another positive sign for us. So those are our two key data points that we look at that will really give us a sign that the inflection is hopefully around the corner.
Speaker Change: That's very helpful. My second question, somewhat related, but on the pro business, so another great quarter here where you're clearly performing well and outpacing the market. A lot of internal initiatives are sort of taking hold at Lowe's, so I guess the question I have is
Speaker Change: How should we think about the sustainability here? You know, you're looking at these initiatives and the pro-business start to...
Speaker Change: take hold, materialize. How should we think about this? How much, you know, from your standpoint, I mean, given nothing else changing, maybe in the macro environment, how much longer can Lowe's continue to put up these substantial market share gains in pro?
So again, another fair question. I'll just give you...
Speaker Change: a $500 billion market, and 50% of that is the small to medium pro where we are focused as our key pro-customer segment, and that is an extremely fragmented marketplace.
Speaker Change: And as Joe cited in his prepared comments, when we surveyed
surveyed our customers, they still feel confident in their backlog.
Speaker Change: and they still feel confident in their ability to have really good sales, although they're paying really close attention, like we all are.
to changing dynamics in the political,
process that we're in, and policies, and macro, et cetera.
Speaker Change: But overall, the degree of confidence remains high. So we have a 250...
Speaker Change: Billion-dollar fragmented marketplace where the customer feels confident in their ability to drive business And so that gives us an indication that there's still lots of opportunity for us to grow and I'll let Joe give you some Examples on some of the initiatives that gives us additional confidence
Speaker Change: Thanks Marvin and Brian. As we look at that pro business, thinking about the relaunch of our MVP Pro Rewards.
Speaker Change: resonating with that pro, but we talked about some of our asset light investments we're making, things like our pro-fulfillment centers.
Speaker Change: our Flatbed Performance Centers, what we're doing in outside sales, how we're leveraging Lowe's Pro Supply. And so we have a lot of continued initiatives just scratching the surface on what we're doing with Pro, and we have great confidence that it will continue into the future.
Speaker Change: And the last point I'll make on this, Brian, just to close it out.
Speaker Change: is, we have a hypothesis that when the DIY customer comes back, and this customer will come back.
Speaker Change: We're perfectly positioned for that with our new Total Home Strategy. So we see that DIY customer coming back, and then at the same time, we're going to be able to execute.
Speaker Change: on our Small to Medium Pro Initiative. We're gonna continue to drive our Omni-Challenge Strategy. And when we do all these things in concert, we think that it bodes really well for us and our future.
Okay, Rob, we have time for one more question.
Speaker Change: Nice, thank you. That comes from the line of Stephen Zicone with Citi.
Stephen Zicone: Great. Thanks so much for squeezing me in. I wanted to ask on the appliances side of the business. So it seems like we're seeing some stabilization from yourself and from your larger competitor. What are you seeing there? Do you think we're just kind of seeing natural replacement cycles, maybe some duress, some innovation? Just be curious to hear.
Stephen Zicone: you cited innovation obviously driving it. It is largely driven by duress customers, and I think our model sets up well to be able to take care of that customer. As I cited in my prepared remarks, the delivery model that we have set up.
Stephen Zicone: is best in class, and being able to install and deliver an appliance in almost every zip code across the country is fantastic.
Stephen Zicone: you know, remarkable for us. And our online business for appliances is equally as strong and so the consumer's finding ways to engage with us and the level of service that we're providing in our stores to take care of the customer.
Stephen Zicone: are kind of all the pieces of the puzzle, I guess, for us that we're excited about. And, you know, the merchants have done a nice job of bringing innovation. We've got a lot of innovation coming as we go into 2025, across every category, new launches, new products, and that just keeps us at the forefront.
Stephen Zicone: yeah and then my other category question for just as we think about 25
Stephen Zicone: Would you expect any material change and kind of category performance across the business?
Stephen Zicone: And I ask it, too, in the sense of, you know, first quarter seems to have a little bit of noise of weather. But when you think about spring overall here in the first half of the year, are you expecting your typical spring categories to see growth relative to what you saw last year?
Stephen Zicone: Yeah, we're actually, you know, where we've seen some weather, you know, early in the quarter we've actually were really encouraged about how our spring business is starting and, you know, the collaboration work that we've had with our store teams, our inventory team, the merchants.
Stephen Zicone: supply chain of getting product ready. Resets are underway. We'll wrap those up in a couple of weeks in our northern markets.
Stephen Zicone: But we have a lot of you know ammunition in the in the gun for spring that we're excited about a lot of new product
Stephen Zicone: in addition to being just ready across both the do-it-yourself customer and the pro customer. And to just give you a few examples, we've got
Stephen Zicone: You know, new innovation really across every merchandising category, whether that's easy to install windows from Pella, the new drywall tools that we talked about from Wal-Mart, which is the number one tool for a drywall professional.
Stephen Zicone: We are the go-to destination for composite decking when you think about treks, timber tech, and decorators.
Stephen Zicone: We've got Whirlpool being launched in water softeners and rough plumbing. Then you go to the spring categories. You've got, you know, exclusive product from Weber that will only be found at Lowe's. We've got 14 new products at Ego that continues to heighten that innovation in the outdoor power category.
Stephen Zicone: New Cap, New Collections and Patio. We've got new products from Valspar for metal application and garage floor paint. I mean, I can go on and on and on in regards to what we have going. So, Mother Nature gives us a little bit of a nudge. We're ready to rock and roll.
Okay, thanks very much.
Thank you for watching.
Stephen Zicone: Thank you all for joining us today. We look forward to speaking with you on our first quarter earnings call in May.
Stephen Zicone: This concludes the Lowe's fourth quarter 2024 earnings call. You may now disconnect.