Q1 2025 Lowes Companies Inc Earnings Call
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Speaker Change: Now more than ever Lowe's knows you don't just want a low price you want the lowest price and with our lowest price guarantee you can count on us for competitive prices on all your home improvement projects. If you find a qualifying lower priced somewhere else in the same item we'll match it.
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Speaker Change: At Loews, our members get more with the Milo rewards programs members earn points on eligible purchases plus you can shop member only deals for your home and business every week. So what are you waiting for join for free today slows we help you save.
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Speaker Change: Good morning, everyone and welcome to lowest companies' first quarter 2025 earnings conference call.
Rob: My name is Rob and I'll be your operator for today's call.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer.
Speaker Change: Thank you and good morning here with me today are Marvin Ellison, Chairman and Chief Executive Officer, Bill Bock, Our executive Vice President merchandising, Joe Mcfarland, our executive Vice President stores and Brandon, Thank our executive Vice President and Chief Financial Officer.
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'll 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.
Speaker Change: Additionally, we will be discussing certain non-GAAP financial measures a reconciliation of these items to U S. GAAP can be found in our quarterly earnings section of our Investor Relations website, now I'll turn the call over to Marvin.
Marvin: Thank you Kate good morning, everyone and thank you for joining us today in the first quarter, we delivered sales of $20.91 billion with comparable sales down one 7% in line with our expectations.
Marvin: <unk> ongoing challenges in the housing market I'm pleased with our team's focus and execution in the face of significant macro uncertainty we continue to deliver operational excellence combined with value and outstanding service to our customers.
Marvin: This dedication drove an increase in our customer satisfaction scores and we also earned recognition from J D power, which recently named lows are number one in customer satisfaction among home improvement retailers.
Marvin: This recognition demonstrates that our investments in technology, and our clean and enjoyable stores, along with our friendly and knowledgeable associates all reinforce our commitment to being the most helpful brand and home improvement.
Marvin: And although we were pleased with our continued progress in customer service. Our financial results also reflect ongoing pressure in DIY bigger ticket discretionary demand and a slower start to spring versus last year with exceptionally unfavorable weather across much of the country in February.
Marvin: As well the normal laws, we were encouraged by our business performance customers appreciated our spacious garden centers, great selection of outdoor power equipment, and expansive assortment of grills and patio furniture.
Marvin: And they also took advantage of our early spring offers which include a special deals for myeloma rewards members.
Marvin: Later in the call Bill will provide more detail on our approach to spring and the momentum that we're seeing.
Marvin: Before I discuss our Q1 results in more detail I'd like to spend time discussing our company's commitment to diversify our global sourcing efforts.
Marvin: To provide a better perspective about our global sourcing roughly 60% of our purchases originate in the U S or approximately $30 billion on an annual basis.
Marvin: Over the past several years, we've been partnering with our private and national brand suppliers to diversify our global sourcing efforts.
Marvin: As a result, approximately 20% of our purchase volume is currently concentrated in China.
Marvin: Although we are pleased with this reduced dependency, we're not satisfied and we're working to accelerate our diversification efforts.
Marvin: Our global sourcing team has identified exciting diversification opportunities in the U S and around the globe that we're actively pursuing.
Marvin: We're also using our best in class product cost management, and sophisticated pricing capabilities, while leveraging the strength of our cross functional teams across merchandising assortment planning supply chain and finance.
Marvin: We will combine these capabilities and continue to work with our national and private brand suppliers, while using a portfolio approach to ensure we continue to bring value and innovation to our customers.
Marvin: In the meantime, let me tell you how we're planning to drive sales growth by continuing to strengthen two key pillars of our total home strategy.
Marvin: Accelerating our pro and online growth.
Marvin: I'll begin with our mid single digit growth in pro sales this quarter.
Marvin: Since 2018 this leadership team has transformed our pro product and service offering.
Marvin: A powerful pro brand lineup targeted inventory investments and a competitive loyalty program.
Marvin: Now that we've established an effective playbook and a strong foundation of execution to serve the small to medium pro we're excited to engage a larger pro with their planned span in a new distribution channel.
Marvin: To that end, we announced a deal in April to acquire artisan design group or Atg, which is a leading provider of design distribution and installation services for interior surface finishes, including flooring countertops and cabinets.
Marvin: Atg serves national regional and local homebuilders as well as property managers.
Marvin: We expect this acquisition to increase our penetration of pro plan span and will position us to gain share in a highly fragmented $50 billion market.
Marvin: With an estimated 18 million homes needed in the U S. By 2033, New home construction is expected to be a major driver of pro plan span over the next decade.
Marvin: We've been impressed with Atg strong leadership team and their customer centric operating model reflected in the best in class customer satisfaction scores that earn from top builders in the U S.
Marvin: The transaction is expected to close this quarter. So we'll provide an update on our progress during our next call.
Marvin: Now, let's talk about another key pillar of our toll home strategy accelerating online sales.
Marvin: In the first quarter online sales were up 6% driven by increases in both traffic and conversion rates.
Marvin: We're pleased with the technology transformation is making these gains possible. For example, we're now able to offer an expanded assortment more value and an even wider extended aisle, where a large last year of deforest online product marketplace and home improvement.
Marvin: While we're still in the early days of this initiative. We recently partnered with Miracle, a global leader in marketplace technology to help us scale even faster.
Marvin: Through miracle trusted marketplace sellers will be able to easily manage their catalogs on lowes dot com. This will add new product categories across the home and offer DIY and pro customers, a full spectrum of value and premium products.
Marvin: We can accomplish all of this without having to carry the inventory or invest in new fulfillment centers as.
Marvin: As we scale, our new product marketplace and unlike is potential I'll look forward to keeping you updated on our continuing efforts to drive online growth.
Marvin: Now allow me to transition to how we are leveraging new AI capabilities to better serve our customers.
Marvin: In collaboration with <unk>, we lost Milo to first AI powered home improvement virtual adviser.
Marvin: So as home improvement is inherently complex Milo provides step by step instructions for any project with any level of complexity from how to fix a leaky faucet, how to bill a deck and everything in between.
Marvin: And it helps customers find and purchase the right tools and materials for their projects directly on lowes dot com or the Lowe's app.
Marvin: We're encouraged by our progress and leveraging AI to streamline the customer experience and I commend, our technology and digital team for their outstanding contributions.
Marvin: Notably in Q1 lows as mobile App earned the prestigious Webby Award and was recognized as the best mobile App for 2025. This is another reflection that our investments in technology and innovation are paying off.
Marvin: Before I wrap up let me update you on our commitment to be a good neighbor in the communities, where we do business.
Marvin: Earlier this month, we celebrated our commitments to supporting our communities by announcing our efforts to measure our impact in a new way to are here to help initiative, where they go to deliver 10 million square feet of impact nationwide. This year.
Marvin: This includes our ongoing efforts to create safe affordable housing respond to disasters and revitalize communities like our five year $100 million commitment to improve home towns across the country.
Marvin: This new initiative reflects our commitment to improve the communities, where our associates live and work and we look forward to providing you with updates later in the year.
Bill: In closing I want to thank our frontline associates for their continued hard work, especially doing this key spring selling season and with that I'll turn it over to bill.
Bill: Thanks, Marvin and good morning, everyone. We're pleased that our first quarter sales were in line with our expectations driven by broad based strength in pro and online across multiple merchandising categories.
Bill: Beginning in hard lines. After a slow start to February our spring season is off and running as the weather improved we delivered solid growth in key categories, including patio furniture fertilizer grass seed generators in irrigation.
Bill: Customers responded to our innovative products and new affordable designs, even when it came to some discretionary purchases for example, our private branded Ashton five piece patio dining set by style selections was a big hit at less than $400.
Bill: We're also continuing to earn DIY customers loyalty through my Lowe's rewards. We just marked the first anniversary of this program, which has more than 30 million members, who spend nearly 50% more than non members.
Bill: We're cultivating their loyalty and using data driven marketing to engage them with the right message at the right time to convert sales.
Bill: For example, during our spring first event, we offered members special deals every two weeks on lawn and garden products patio furniture outdoor power equipment and more plus member only door busters in store and online.
Bill: And new this year in early April we launched mulch madness. During this event customers saved on five bags of mulch for 10 Bucks and for the first time members also receive five times bonus points and a free gift.
Bill: We also brought customers industry, leading innovation this spring with products like the new ego line IQ attachment capable string trimmer. This product makes it easy to load the tremor line with the push of a button and its attachment capabilities mean, it can convert into eight different tools, including an edgier hedge trimmer and pulsar. This.
Bill: <unk> is one of more than 20, new Eagle items that we're launching this year.
Bill: We're also in stock with the industry's best brands to help customers complete all their projects like Scotts fertilizer Miracle Gro soils Toro lawnmowers, along with products from Craftsman and cobalt.
Bill: Now turning to building products, we delivered positive comp sales in building materials and rough plumbing with strength in roofing drywall plumbing repair water heaters and air circulation categories.
Bill: And in lumber, we delivered growth in siding treated lumber in composite decking.
Bill: In fact, Lowe's has the largest selection of composite decking brands, including the top two with trucks and timber tech along with an improved offering from decorators.
Bill: Let's talk about home decor.
Bill: Our continued strength in appliances helped us deliver growth in both transactions and average ticket and we saw growth across all major categories, including refrigeration laundry cooking and dishwashers.
Bill: As the industry leader in appliances, we have the widest assortment of top brands using our market delivery model. We can deliver these big and bulky products next day to virtually every ZIP code in the U S.
Bill: And of course, our knowledgeable Red Vest associates are always there to help customers choose the right products and highlight new and innovative items that can meet their needs. For example, we're introducing the next step in all in one laundry with the new Samsung spoke AI vented all in one combo washer and dryer.
Bill: This one machine washes and drives close in just over an hour without having to transfer loads and it uses the existing 110 volt outlet and dryer venting and found in most homes.
Bill: Our paint Department has become the home center color authority, where we instill color confidence and consumers with trusted Sherwin Williams colors.
Bill: We're excited to see the new marketing campaign from Sherwin Williams, which uses their iconic color palette to entice customers to shop lows, including the pro who paints, where we continue to gain traction with our compelling value and expanded assortment.
Bill: And while we are energized by new and innovative products. We're also mindful of the current market dynamics bigger.
Bill: Bigger ticket projects spending remains under pressure in interior categories, like flooring and kitchen and Bath.
Bill: With many customers still choosing to delay those larger purchases.
Bill: I'd like to spend a few minutes discussing our approach to spring.
Bill: Our teams have never been more in sync as we prepared for this important season.
Bill: Our stores supply chain inventory vendor and merchant teams have worked hard to make sure that we provide the best service product value and innovation to our customers.
Bill: For this spring season, we are ready with strong in stocks across our core categories, including our seasonal items. So that we can serve both our DIY and pro customers with great values on items that they're looking for as we head into the upcoming Memorial day father's day and fourth of July holidays.
Bill: Looking ahead im not only pleased with the great deals and innovation that we have for our DIY and pro customers. I'm also excited to see some of the best in stock positions. During my tenure at Lowe's and when you combine that with the outstanding staffing and customer service in our stores. The result was our recognition as number one in customer satisfaction.
Bill: Among home improvement retailers from J D power.
Joe: As I wrap up I want to thank all of these teams as well as our MSC associates for their support partnership and great execution. This spring and now with that I'll turn the call over to Joe.
Joe: Thank you Bill good morning, everyone. Let me start by thanking our frontline associates for their hard work and dedication during the spring season.
Joe: Their efforts are paying off with customer satisfaction scores up 100 basis points over last year, as we've leveraged better technology and ongoing process improvements to enhance the shopping experience.
Joe: Turning to pro and.
Joe: In our most recent survey indicated that the project backlogs remain healthy, but they are feeling a little less confident as might be expected given the uncertain macro environment.
Joe: Although pros may be a bit cautious right now our ability to deliver mid single digit growth in pro sales comp in Q1 is a reflection that our strategy is working.
Joe: One highlight this quarter, we're really pleased with the successful nationwide relaunch of our pro loyalty program. The updated program now called my Lowe's Pro rewards allows pros to earn points from day, one and is much more intuitive to use.
Joe: Just one example, pros only need to provide their phone number at checkout getting them back to the job site faster and joining has never been easier with the addition of our new Spanish language enrollment option.
Joe: With a program that's easier to use and understand we're expecting greater utilization driving repeat purchases and higher spend.
Joe: Another way, we are driving momentum is through our new technology workbench for our pro sales associates.
Joe: Can use this digital tracking tools to quickly identify their leads and prioritized at close to close this drives both a better customer experience and greater associate productivity.
Joe: As discussed earlier, our planned acquisition of Atg represents a natural step in driving pro penetration by extending our reach with the new cohort of pro customers single and multifamily homebuilders.
Joe: Turning now to our perpetual productivity improvement or PPI initiatives.
In conjunction with the rollout of Milo on Lowes Dot Com for customers. We've also released Milo companion for our store associates built on the same technology.
Joe: With immediate access to product details and project advice and inventory information. This AI powered App gives associates, the product and project knowledge to sell with confidence regardless of tenure or experience.
Joe: Associates across all seven 700, plus stores can access Milo companion on their mobile devices market in the first time, a retailer has successfully implemented this kind of technology at scale.
Joe: With this knowledge at their fingertips, our associates can quickly feel confident in answering customers questions. Even if they've just started in the store or been asked to cover New Department.
Joe: We're also driving productivity with our gig delivery network, which has been an important component of our enhanced omni channel customer experience.
Joe: We're now using this capability to help us meet spring demand specifically during the March madness event that Bill just mentioned.
Joe: In the past this high traffic event would take up valuable flatbed distribution capacity, but this spring we shifted a portion of the volume to gig delivery. This provided an efficient delivery experience for customers buying March while freeing up capacity to meet the delivery needs of other pro and DIY customers.
Joe: We're also pleased to announce that our east Asheville store reopened earlier this month after damage from Hurricane Helene.
Joe: During the hurricane the stores some merchant over 18 feet of water. So we are thrilled that we are not able to reopen and to serve our customers and community.
Joe: And we're on track to open five to 10, new stores later this year in line with what we shared at our analyst and Investor Conference.
Joe: Of course, all of this is only possible because of our hardworking associates.
Joe: As a demonstration of our appreciation we closed our stores on Easter for the sixth consecutive year, giving associates time on this very special day to rest and recharge with family and friends.
Joe: As I wrap up I want to take a moment to thank our veterans, including our veteran associates, who can be identified by their camouflage vests.
Joe: <unk> is ranked among the top military friendly brands in the U S, which speaks to our company's commitment to the military community.
Speaker Change: As a marine I couldnt be more proud of those efforts to honor those who served especially as we approach Memorial day.
Speaker Change: Looking ahead with excellent spring staffing levels and ongoing innovation across technology and service I'm confident that we're operating at best in class Omnichannel shopping experience for our customers. This season.
Speaker Change: To close I want to congratulate our store associates for being recognized by J D power as the number one customer satisfaction home improvement retailers. This is a testament to their ongoing commitment to serving our customers with that I'll turn it over to Brandon.
Brandon: Thank you Joe and good morning.
Brandon: Starting with our first quarter results diluted earnings per share of $2 92.
Brandon: We're in line with our expectations Q.
Brandon: Q1 sales totaled $2 9 billion and comparable sales were down one 7% inline with our expectations as we cycled over an earlier start to spring last year.
Brandon: Comparable average ticket was up two 1% with continued growth in pro and appliances.
Brandon: Offset by ongoing pressure in DIY discretionary project demand.
Brandon: Comparable transactions declined three 8%, partly driven by unfavorable weather earlier in the quarter that pressured spurring traffic, which make up a larger portion of our transactions at this time of year.
Brandon: And given the poor weather early in Q1.
Brandon: <unk> were down five 4% in February up one 7% in March and down two 6% in April.
Brandon: As our stores are closed on Easter Sunday, we estimate that the later timing of Easter benefited March comps and pressured April comps biosimilar amount.
Brandon: Adjusting for the Easter shift comp sales were down approximately 0.9% in March and up approximately 2% in April.
Brandon: Gross margin was 33, 4% of sales in the first quarter up 19 basis points from last year, driven by multiple PPI initiatives as well as some modest improvement in shrink and credit revenue.
Brandon: SG&A of 19, 3% of sales de Levered 56 basis points, driven by lower sales volumes.
Brandon: <unk> of incremental wage actions for frontline associates and higher healthcare related costs.
Brandon: Operating margin rate of 11, 9% declined 50 basis points versus prior year and the effective tax rate was 23, 9% in line with prior year.
Brandon: Inventory ended Q1 at $18 3 billion inline with prior year with strong in stocks across the store, including key spring seasonal items.
Brandon: Turning now to capital allocation.
Brandon: In the first quarter, we generated $2 9 billion in free cash flow.
Brandon: Capital expenditures totaled $518 million as we continue to invest in our strategic growth priorities, including the construction of new stores expected to open later this year.
Brandon: In the quarter, we paid $645 million in dividends at $1 15 per share.
Brandon: And in April we repaid $750 million in debt maturities, helping us deliver adjusted debt to EBITDAR of $2 nine nine times and our return on invested capital of 31% at the end of Q1.
Brandon: Last month, we announced a definitive agreement to acquire artisan design group for 132 5 billion.
Brandon: We plan to use cash on hand to finance the transaction suspend share repurchases this year and repay the remaining $1 75 billion in bonds maturing in September.
Brandon: The transaction is expected to close in Q2, and it is expected to be accretive to diluted earnings per share in the first full fiscal year after closing.
Brandon: Looking forward to the remainder of the year today, we are affirming our fiscal 2025 outlook.
Brandon: We continue to expect sales ranging from $83 five to $84 5 billion with comparable sales in a range of flat to up 1%.
Brandon: We expect operating margin in a range of 12, three to 12, 4% and full year diluted earnings per share of approximately $12 15.
Brandon: To $12 40.
Brandon: We also expect capital expenditures of approximately $2 5 billion as we invest in our total home strategic priorities and began to ramp up new store builds.
Brandon: Please note that this outlook does not include any potential impacts related to the acquisition of artisan design group.
Brandon: To assist with your modeling here are a few items to keep in mind for the second quarter we.
Brandon: We continue to expect comp sales in the first half to be roughly flat with approximately $400 million in spring demand shifting into Q2.
Brandon: Where we are cycling, particularly poor weather.
Brandon: As Bill mentioned, we also have strong in stocks, including and critical seasonal categories as well as visibility up into our supply chain. So we're confident that we can meet customer demand. This spring.
Brandon: Taking this into account, we expect second quarter comp sales to be approximately 150 basis points above the bottom end of our full year guide.
Brandon: We also expect second quarter operating margin rate to be approximately 10 basis points above the prior year adjusted operating margin rate.
Brandon: And in closing we remain confident in our team's ability to execute at a high level and manage through this challenging environment as well as any team in retail we continue.
Brandon: To invest in our total home strategy and remain focused on delivering value to our customers and our shareholders.
Brandon: And with that we'll open it up for your questions.
Brandon: Thank you.
Brandon: We're ready for questions after.
Brandon: Just wanted to ask a question press star one on your telephone keypad to Charlie a question Press Star two.
Brandon: And a lot of questions from as many individuals as hospital. Please limit yourself to one question and one follow up.
Speaker Change: Our first question today comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Speaker Change: Hey, good morning, everyone and nice job managing the corner. My first question is on the relationship of comp to expense leverage or operating leverage for the rest of the year.
Speaker Change: I guess, we don't know each quarter, you gave us a little bit of help with the second quarter, but it looks like that ratio is a little bit higher for the balance of the year something like 25 basis points of expansion for whatever is left in comp.
Is that right or are you getting more out of the business or is it just the timing because we don't know the comp cadence through the year and at that same I think it was a 10 basis points of leverage relationship. Thanks.
Speaker Change: Yeah, Hey, Sammy and good morning, it's Brandon so as it relates to the specifics on the comp guide, let me kind of break it down in terms of first half and second half the first half mainly a weather story.
Speaker Change: We're expecting roughly flat comps over the course of the first half and we talked about the shift of the $400 million from spring to play out Q1 into Q2 Q1 played out.
Speaker Change: As expected so as I referenced expecting roughly one 5% Q2, we feel like we have strong inventory levels.
Speaker Change: And we are ready we have a lot of confidence in Q2 expectations and then implied in the second half is roughly a plus one we expect to continue to see momentum with our total home sales initiatives offsetting hurricane pressure. So that's kind of the shape of the top line as it relates to margin we're expecting gross margins.
Speaker Change: To hold roughly flat for the full year, the PPI portfolio initiatives continue to offset cost and inflationary pressures on the SG&A side team continues to outperform their managing a number of lines really well, we've got $500 million roughly in opex offsetting there across a number of pressures that we're seeing.
Speaker Change: So that kind of gets you to the guide of 12, 3% to 12, 4% again Q1, roughly in line with expectations and that's how we're thinking about Q2 to Q4.
Marvin: Okay, and then shifting gears, maybe for Marvin I wanted to ask about the larger pro an artist and design group.
Marvin: And I guess is the deal signaling that you are planning to move quicker here if opportunities present themselves. How do we think about that in relation for loans and then can you talk about how quickly the business is growing organically or whenever that growth rate of the business looks like thanks.
Marvin: Yeah, we feel really good about the acquisition that you know we've been really disciplined with how we manage our capital and so anytime we decide to make any acquisition. This is well thought out and then we have a lot of confidence in it.
Marvin: The best way to answer your question is as we think about capital allocation. It really remains the same philosophy and that's we're always going to invest in the business. We're going to always think first about how we can get the healthy return that's going to be longstanding and sustainable having said that we also believe that as <unk>.
Marvin: Important to find ways to grow and as we look at AIG. As an example, we think that there are perfectly positioned for the recovery that has to happen over the next decade and housing.
Marvin: It to us.
Marvin: We know we're in a repressed period, but as I mentioned in my prepared comments, you've got 18 million new homes needed by 2033 and arson design.
Marvin: <unk> design group is number one in their marketplace from our perspective, both service and overall business and we think that we have some really attractive adjacencies that we can add to that portfolio and also during.
Marvin: They are in a very fragmented environment, which means that they have a healthy pipeline themselves of potential targets to continue to grow through acquisition and we're going to allow them to continue to follow a really best in class process to pursue those.
Marvin: Potential targets within their pipeline.
Marvin: Not changing our strategy, we're just being opportunistic we feel like that we.
Marvin: Created a really nice playbook and execution model forward to small to medium pro.
Marvin: The data reflects that with mid single digit positive comps this quarter, but this gives us an opportunity to kind of broaden our portfolio and to now have the ability to be in a separate channel with a $50 billion Tam that just gives us additional opportunity to grow and the market continues to recover.
Simeon Gutman: Simeon This is Brandon just specifics on financials Atg delivered $1 8 billion in sales and 24.
Speaker Change: I've mentioned, we expect EPS to be accretive in the first full fiscal year.
Speaker Change: So that would be first fiscal 'twenty, six and we're going to hold on giving anything more specific we expect to close in Q2, and we will hold off and be prepared to talk more in August.
Speaker Change: Okay. Thanks, good luck.
Amy: Thanks Amy.
Speaker Change: Our next question is from the line of Steve Forbes with Guggenheim Securities. Please proceed with your questions.
Steve Forbes: Good morning, everyone.
Steve Forbes: Brian and I think in your commentary you mentioned percentage of transactions being sort of spring transactions more elevated in the first half of the year and maybe potentially right.
Steve Forbes: In the second quarter. This year, so any any sort of context to help us better understand sort of how reliant are how relevant spring is in terms of percentage of transactions.
Steve Forbes: First quarter or second quarter.
Steve Forbes: I don't know that I'll get into the details.
Steve Forbes: Steve on Q1, and Q2 I will just say Q1 average ticket up just over 2% continues to be driven by strength in pro also momentum in appliances.
Steve Forbes: Also saw some benefit from storm recovery projects as you referenced comp transactions down.
Steve Forbes: Three 9% it is driven by fewer smaller ticket seasonal transactions and ongoing DIY pressures that we're seeing in the business large ticket.
Steve Forbes: For us was slightly positive again, thats appliances, and pro strength and that's a continuation that.
Steve Forbes: We saw from Q4, but I would say as you look out at.
Steve Forbes: At Q2 and for sure over the balance of the year. We continue to expect average ticket to be the primary driver of comps and we would expect to see transactions recover specifically in Q2 as the business starts to get momentum.
Speaker Change: That's helpful and then Marvin just a quick follow up I think one of the initiatives.
Steve Forbes: It wasn't mentioned in prepared remarks is localization.
Steve Forbes: As discussed during the analyst day, and so for us any updates on sort of the localization strategy, how that's progressing how many stores youre touching on how much of the opportunity is still ahead for Lowe's.
Steve Forbes: Yes, Steve So I'll speak about it more from the standpoint of space productivity, because we've taken localization and just made it really part of a broader initiative on just improving productivity.
Steve Forbes: Both in our physical space in our stores and virtually online so I'll, let bill talk a bit about some of the key initiatives like workwear.
Steve Forbes: Pet.
That we're really excited about and what our plans are to continue to expand that and how we think that's going to give us an opportunity to just continue to have more productive space in our stores, yes. Thanks Martin Steve.
Steve Forbes: Well underway with all three of those initiatives will have rural completed here kind of end of second quarter early Q3.
Steve Forbes: We're we're well down the path of having roughly more than 1000 stores complete by the end of this year and wrapping up early next year for the remainder of those and then we continue on the same track with our with our Pet initiative and we're excited about that continuing to learn as we go.
Steve Forbes: Continuing to adjust as we go as well as we rollout these stores and as we put these products in but we're pleased with the results of all three.
Speaker Change: Thank you.
Steve Forbes: Thanks, so much.
Speaker Change: The next question is from the line of Robert <unk> with Bank of America.
Speaker Change: Good question.
Speaker Change: Oh, Hey, good morning, Thanks for taking my questions. The first question is to establish wondering if we could get a little more on tariffs in terms of <unk>.
Speaker Change: Pricing impacts that you guys might be expecting and the.
Speaker Change: The impact on private.
Speaker Change: <unk> part of your business versus vendor announced price increases and just color on how your <unk>.
Speaker Change: Managing that there.
Speaker Change: And then I have a follow up.
Speaker Change: So Robert I'll take the pricing part then I'll, let bill just provide a broader perspective on tariffs in general I think for us as always we're going to take a portfolio approach to pricing.
Speaker Change: Pleased that we've built best in class.
Speaker Change: Tools for price management, that's going to help us navigate any environment and we have great elasticity data across products and geographies.
Speaker Change: I think the key for US is the merchants have been cultivating and developing just wonderful relationships with suppliers.
Speaker Change: Last six years and this is one of those relationships start to pay off before I hand, it to Bill I think the key point for US is is that we're going to be really price competitive in the home improvement channel like we always are.
Speaker Change: We're not in a habit of donating market share to the competition and so in this environment, we're going to be is keenly focused on competing on price as we are every single day and.
Speaker Change: And we think we can do that and still deliver on our financial commitments of Brandon outlined in his prepared comments. So I'll, let bill talk a little bit more about the overall global sourcing philosophy that we have here yes.
Bill: Thanks, Marvin and Ravi I think it's important that everyone understands how we look at global sourcing and we look at it really from two lenses of direct and indirect perspective direct being where we direct import where were the lows as the importer of record and then indirect where we purchase from suppliers and then they are the importer of record and currently as Brandon said in his.
Bill: And Marvin said in his roughly 60% of our purchases are out of the U S. The next largest is China sitting at roughly 20% and you can understand where some of those categories fall a lot of holiday trim, a tree ceiling fans small appliances tools et cetera make up that that 20%.
Bill: But we've been working really hard over the last four or five years to diversify just as everybody has in partnering closely with both private and national brand suppliers to find different sourcing locations.
Bill: And working to do that and we're also trying to accelerate that as it relates to our private brand portfolio and doing the same with our with our national brands and as Marvin said it all comes down to relationships and we're really pleased with the relationships that we built over the six plus years and we feel like we have a strong track record of managing our assortments managing the cost is.
Bill: They come as it comes to us and we'll continue to run our playbook as it as it relates to that.
Bill: That's really helpful and just a quick follow up for Barb Marvin Martin marketplace.
Speaker Change: Whats Dream the Dream press here, where do you how big could this be and how important could this be.
Speaker Change: Well I can tell you that we're excited about it and the partnership would miracle is important because it's the number one technology platform for large marketplace sellers and so it's an easier pivot for them to transition to lowest dot com and an easy.
Bill: Pierre pivot for our digital team to load their catalogs in a very very efficient way in a very time sensitive way, we have high expectations as we looked at the entire retail landscape across the globe and we look at brick and mortar retailers that have demonstrated the.
Bill: Most effective omnichannel strategies and sustainable growth.
Bill: Non correlating factor is a marketplace existence, and we're pleased to be the first product marketplace and home improvement.
Bill: Again high expectations that not only can we manage core home improvement, which our team does really well now, but we also know where the marketplace environment can manage premium and value products and we can do it without adding.
Bill: Capital intensive fulfillment centers and without adding additional inventory to our balance sheet. So early days, but we're excited about the progress and we're excited about the number of world class sellers that are eager to join our marketplace and we look forward to updating you all as does become a more mature ines.
Bill: <unk>.
Bill: Sounds great. Thank you.
Bill: Google.
Speaker Change: The next question is from the line of Scot Ciccarelli with <unk> Securities. Please proceed with your question.
Scot Ciccarelli: Good morning, guys. So given the softer trends you continue to see in bigger ticket projects first how much of that mix do you think that generally represents.
Scot Ciccarelli: It changes quarter to quarter, but.
Scot Ciccarelli: On an annualized basis, and then second what do you think you need to see to unlock greater activity in that segment is it improved consumer confidence or is it lower interest rates because presumably those are.
Speaker Change: Both scenarios or is it something else entirely.
Speaker Change: Okay.
Speaker Change: So Scott I'll take the first part and I'll, let I'll, let Brandon and Bill joined in add any additional commentary I think from a overall consumer perspective, we feel like our overall consumer remains healthy.
Speaker Change: A balance sheet perspective.
Speaker Change: And as we look at the historic demand drivers of our business.
Speaker Change: They still remain positive and I'll repeat them in the past home price appreciation.
Speaker Change: <unk> housing stock personal disposable income is now growing faster than inflation and overall, we see.
Speaker Change: Rising real income and lower debt. So overall, our consumer is in great shape, but we still as we said in the prepared comments.
Speaker Change: Have the DIY customer pulling back on large big ticket discretionary and that is in essence, the issue that we're dealing with and we believe that part of that is elevated mortgage rates and mortgage rates not falling as perceived by many.
Speaker Change: In the marketplace and so we're just managing that as best we can so I'll, let Brandon and bill provide any additional perspective.
Speaker Change: Just giving you a view of where we see the consumer is Scott I would just add as Marvin mentioned consumer overall very healthy but for us in home improvement, especially big ticket. The affordability challenge remain the primary concern inflation rates as Marvin mentioned rates still hovering 30 year mortgage around 7%.
Speaker Change: Yet to really see at scale the consumer reengage in larger discretionary categories are still mainly sitting on the sidelines I think the good news is the trends aren't getting any worse.
Speaker Change: Referenced the greater than 500 ticket.
Speaker Change: Sentiment has softened a little bit more recently, but we haven't seen that necessarily translate into consumer behavior. Yet. So you know for us as we look out we're looking for sustained increase in discretionary projects in DIY traffic.
Speaker Change: The inflection point, we don't have that necessarily expected are baked into 25, it's sort of expected it's going to be more of the same at this point and Brandon I think the only thing I would add is from a from a positive or a bright spot perspective, our appliance business continues to be from a big ticket perspective.
Speaker Change: A good news story for us and it's really a trend that's been ongoing since really the back half of last year and has trended into Q1, we saw strength across every single major category, which in crude crudes refrigeration laundry cooking dishwashers.
Brandon: <unk> done a really nice job of introducing new and innovative products I spoke to some of those in our in my prepared remarks, whether thats all in one laundry, whether that's in cooking, whether that's in refrigeration and then you add in what we've done from a delivery perspective, and the market leadership position that we have to be able to deliver to really any zip code within two days and same day.
Speaker Change: <unk> is.
Speaker Change: It is something that we're really excited about and again roughly 100000 appliances break every day, so you've got to be ready for that in our in stock position appliances has never been better. So those are all positives when we look at that part of the big ticket business.
Speaker Change: Thanks, guys. Good luck.
Kevin: Thanks, Kevin.
Speaker Change: Thank you. The next question is from the line of Seth Sigman with Barclays. Please proceed with your question great.
Seth Sigman: Hey, good morning, everyone.
Seth Sigman: It sounded like Q1 was limited by weather can you give us a little bit more perspective on what youre seeing in the markets, where you've had steadier spring weather conditions, how much of those markets outperformed and just related to that if you look at the April adjusted comp positive point too do you view that as the run rate of the business and I guess youre kind of guide.
Kevin: To the first half being flat so is that how youre thinking about it.
Kevin: The simplest way for me to answer the question is when the Sun is shining our business performs a lot better and so when you look at Q1 <unk>.
Kevin: The variation by geography was driven exclusively by weather.
Kevin: And as weather continues to moderate our business continues to get better and that's reflective in the adjusted comp number you reflected for April I mean, we feel good about the trends in Mei Mei is consistent with the guidance that brand and provided and consistent with our expectations and Brant I don't know if you have anything else no I would just add Seth.
Kevin: Just in terms of.
Speaker Change: Weather benefit we did see 50 basis points of impact from Hurricane Saline and Milton from back half of last year that turned into Q1.
Speaker Change: And those were mostly benefited in our southeast region. So just in addition to the normal weather I'll reference that.
Speaker Change: Okay, Great very helpful. And then as I think about the full year guidance.
Speaker Change: Talked about first half being flat it implies the second half could potentially accelerate in that range.
Speaker Change: If I recall the initial guidance suggested that it would be more driven by your own initiatives I'm. Just curious is that still the case as your view on the macro for the back half changed at all just help us bridge that a little bit more thank you.
Speaker Change: Yes, I think Seth no change the macro assumptions from what we laid out in our guide in February as I mentioned earlier, we're working through is still a number of short term challenges around rates cautious consumer.
Speaker Change: <unk> ability to lock in effect.
Speaker Change: They're all things that we assumed at the beginning of the year, that's still the expectation as we move through Q2 and second half and you're exactly right. The momentum is really around our total home strategy. There is some offset with hurricane pressure in the second half there was about 100 basis points each in Q3 and Q4, but the benefit from our.
Speaker Change: Strategy as we look at both the pro with with loyalty job site delivery momentum with extended aisle Marvin talked about marketplace momentum and with DIY in the second half some of our category accelerators all that and.
Speaker Change: And the ramp and the momentum is what's what's been included in that second half comp expectation.
Speaker Change: Okay, great. Thanks, very much I appreciate it.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Stephens account with Citigroup. Please proceed with your question.
Speaker Change: Great. Good morning, Thanks, very much for taking my question.
Speaker Change: I wanted to focus on DIY.
Speaker Change: Marvin curious do you think the environment has gotten more competitive from retailers outside of the traditional home improvement channel.
Speaker Change: Ample the E Com places got bigger in your category and one is now growing focus on rural do you see this as a threat to your best I Chicago Raw framework.
Speaker Change: No I appreciate the question I think that retail has always been competitive and with the the ease of E Commerce.
Speaker Change: Coming into any type of a space with easily parcel shipped product, it's going to just continue to get more and more competitive having said that we do believe there is a lot to be said about product knowledge about store environment about ease of shop ability.
Speaker Change: In store and online.
Speaker Change: And that's one of the reasons why we've invested so much in technology and one of the reasons why we mentioned in our prepared comments is reflected in J D. Power's youll representation of Loews being number one in customer service in the home improvement sector, Yes, I'll, let Joe talk a little bit about some of the things that we're doing.
Speaker Change: To compete with nontraditional competitors.
Joe: Based on product knowledge based on giving our associates tools. So that they can help customers solve problems in their homes and we think that's going to be the difference between us growing and maintaining share and also taking share from other competitors that don't have the.
Speaker Change: <unk> the capital focus or the technology platform to continue to invest in innovation, which we think is going to play a huge role and being competitive.
Speaker Change: And Steve just to follow up on Marvin's comments, when we think about the Milo app that we rolled out to our associates.
Speaker Change: That product project knowledge right at their fingertips, even for brand new associates the adoption rate is.
Speaker Change: Far ahead of schedule at the amount of input that the associates are giving back to the app.
We're really pleased with that with these tools. In addition, I mentioned, our gig delivery network and how we're coming to market for things like mulch badness for the DIY customer without impacting our pro customer we have the extended aisle and store and so really excited about all the different touch points that we have across the DIY.
Speaker Change: <unk> network as well.
Speaker Change: We continue our moat shifting to compete online whether the product is in the store whether it is in a warehouse or special order.
Speaker Change: Associates are competent and they have access to it at their fingertips today.
Speaker Change: Alright, thanks for that detail. The second question I had also kind of strategic.
Speaker Change: The acquisition of artisan design groups do you view this as the first.
Speaker Change: <unk>.
Speaker Change: We do this acquisition growth some of the capabilities of the business and maybe we could see some more M&A in the future.
Speaker Change: No I appreciate the question I think the short answer is we're just going to be opportunistic. We believe that we've done a really nice job of being disciplined around looking at potential acquisition targets.
Speaker Change: Whatever we decide to potentially acquire we wanted to tie directly to complementing our total home strategy and we think AVG does exactly that.
Speaker Change: We still want to get this transaction closed as Brian mentioned, Brandon mentioned, we think that to get done by the end of this quarter.
Speaker Change: And we're going to just continue to look at all opportunities that we think will allow us to grow allow us to bring returns to our shareholders and to continue to just use our capital in a very efficient way so more to come on that but we look forward to just keep you updated on AVG and how we.
Speaker Change: We believe that they can benefit us and we can benefit them from a category adjacency standpoint, that's going to be incredibly complementary in a marketplace, where we currently are generating zero dollars of revenue and that new home construction and we think that the potential growth opportunities over the decade is going to be.
Speaker Change: Incredibly attractive.
Speaker Change: Understood Thanks for that detail.
Speaker Change: Thank you. The next question is from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.
Christopher: Good morning, everybody.
Christopher: First question is on the pro business do you think there was any impact.
Christopher: To the business related to weather in the first quarter.
Christopher: Mid single digits very strong it did moderate from the pace last year. So was there any impact and are you seeing an improvement in that as the weather has broken.
Marvin: Hey, this is marvin.
Speaker Change: The short answer is.
Speaker Change: Absolutely impacted the business in Q1, and as the season and weather start to moderate on a more seasonally consistent basis. The business improve along those same exact lives again, if you do the adjustment for clothing in Easter we had cough.
Speaker Change: Improvement each month of the quarter with a comp adjustment of April being positive.
Speaker Change: And we feel great about our pro business, we feel great about the momentum in that business and we also are really pleased with the adoption of our updated pro loyalty program My lowest pro rewards the ease of use.
Christopher: Also the number of new customers that are joining the platform. So we feel like our playbook for the small to medium pro continues to work and we have really no concerns about the trajectory of our pro business.
Speaker Change: Got it and then a follow up question on the on the tire side historically the industry has managed to gross margin rate, especially considering the technology that you referenced Marvin and the leverage that you have all of our vendors does that remain your expectation given where tariff rate set.
Speaker Change: And then there has never been so much focus on inventory accounting methods I think your FIFO and does that portend.
Speaker Change: Fair Sami earlier.
Speaker Change: That you would ultimately just get back later, but a little bit of a sine curve around.
Speaker Change: The merchandise margin. Thank you.
Speaker Change: So Chris I'll take the first part then I'll, let I'll, let brandon or join in.
Speaker Change: From our perspective, I guess, the best way for Us to think about this is that.
Speaker Change: We have tools that will allow us to manage this and manage this in a way that we're going to minimize any impacts to our customers.
Speaker Change: And as I said earlier, we're going to be price competitive it's something that we feel is incredibly important to our business is also important for us to maintain market share and so were not donating share to any competitive bus sitting back.
Christopher: And not being price competitive.
Christopher: Any of the categories that we are selling whether they're domestic or imported.
Christopher: We believe that through our portfolio approach in some of the.
Christopher: Work to Bill seem would do with line structures, we're going to be in great shape, we've done automat.
Christopher: And based on the current tariff environment, we feel very comfortable that we'll be able to deliver the financial guidance that Brandon updated solid brand to talk to you a little bit about the accounting and our world and how we see that primarily impacted us in the back half of the year is a Chris This is Brandon on the margin and the inventory piece of this I referenced earlier.
Christopher: Our expectations for gross margin.
Christopher: Roughly flat for the full year, that's inclusive of.
Christopher: Any impacts from trade policy and as you reference our accounting methodology for inventory is first in first out so FIFO FIFO accounting.
Christopher: Essentially means any incremental costs that we see will flow through our margin as we turn to our inventory layers.
Christopher: Referenced earlier, just the strength that we have in our current inventory so our current inventory layers and visibility up into the supply chain. We do expect any incremental impact that we see to be more concentrated in the second half of our year and thats baked into the expectation. So as you think about first half and margin really minimal.
Christopher: Act for many of this activity and then there's marvin's referenced as we look out at the second half we're going to continue to take a portfolio approach with what we're doing and continuing to work through and minimize any impact to our customers, but that's what's baked into our expectation.
Christopher: Just to clarify that meaning like really no FIFO impact early but some headwinds later or is that the tailwind later than headwinds as you get into 'twenty six.
Speaker Change: Yes, so Chris the actual cost will be flowing through in the second half, but all of our mitigation actions and everything that Marvin and Bill have outlined we expect to manage and we expect to offset the majority of that.
Speaker Change: Understood. Thanks, very much have a great spring.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you.
Speaker Change: Question is from the line of David Bellinger with Mizuho Securities. Please proceed with your question.
Speaker Change: Hey, everyone. Thanks for the question.
Speaker Change: First one on appliances, one of the few categories that outperformed the company.
Speaker Change: Can you talk about the sales pull forward if any that you saw in that category and also have you seen any pull forward in other large ticket categories furniture outdoor patios grills anything like that that helped to lift the Q1 comp later in the period or even early into acute care.
Speaker Change: Yes, David It's Bill, we really didn't see anything that we could.
Speaker Change: Hanging our hat on is being pulled forward and so we're specifically.
Speaker Change: Specifically to appliances I said in an earlier response really pleased with just the trajectory of that business and how it's performed really since the back half of last year into the first quarter of this year and how its performing early in Q2 so.
Speaker Change: 100000 appliances break every day.
Speaker Change: Efforts that we've put around making that experience easier for our customer and for our associates.
Speaker Change: To sell the product and for our customers to navigate both online and in store are all things that we're really proud of and then the work that our supply chain team has done to be able to deliver to virtually anywhere in the United States in two days or less.
Speaker Change: It is our one of our big competitive advantages. In addition to all the work that the merchants have done to bring just great product and innovation across every single category and that's what drives drives this business and that's what we're excited about so yes, David I would just add as bill referenced we with appliances, specifically and as we look at unit growth in access.
Speaker Change: <unk>, we started to see that early in Q3 last year and saw that accelerate the better part of the back half of last year, obviously strength as we got in here to Q1, so the activity sort of pre post any change in trade policy is there. So at this point, we don't believe we're seeing or any indication of any sort of widespread pull forward.
Speaker Change: But we're going to continue to monitor as we get into the balance of the year.
Rob: And Rob with that we have time for one more question.
Speaker Change: Thank you. Our final question is from the line of Peter Benedict with Baird. Please proceed with your question.
Peter Benedict: Oh, Hey, guys. Thanks for sneaking me in.
Peter Benedict: My question two was the first one is around kind of your extended aisle effort.
Peter Benedict: More specifically as it relates to the pro and some of the things that Youre doing there I know youre expecting some.
Peter Benedict: Some scaling of these micro initiatives I guess into the business over the back half of the year can you maybe give us a little more perspective on what exactly is happening with the extended aisle and how many vendors are starting to kind of take advantage of some of those capabilities. That's my first question.
Peter Benedict: Well, Peter I don't want to get into that level of specifics, but what I will tell you is as we did a soft launch of.
Peter Benedict: This initiative all the vendors that we were able to get in our system.
Peter Benedict: Their business performance accelerated dramatically and so we're excited about this.
Peter Benedict: Also this also helps us with fulfillment because in many cases a lot of these these pro vendors have their own delivery capabilities and Theyre doing job site delivery in addition to providing us with.
Peter Benedict: Great call.
Speaker Change: Cost that we could provide great retailers onto our customers I'll, let Joe add a little bit of color to this because his team along with <unk> and his team are managing this really closely in the stores.
Speaker Change: Thanks, Marvin and Peter just important.
Speaker Change: Important to remember early innings, and so as we onboard incremental suppliers throughout 2025 and scale.
Speaker Change: We're going to continue to see this business grow and here's what it really does for US. It allows immediate visibility to our suppliers' inventory and as well, we have our volume pricing and delivery speed all incorporated.
Speaker Change: Now to generate quotes within minutes seven days, a week on things that used to take days.
Speaker Change: And four to five days a week and then as Marvin said, there's an option for direct deliveries right from the supplier to the customers. So there's just a few of the unlocks that.
Speaker Change: Extended aisle gives and we're really excited about it.
Speaker Change: No. That's helpful. Thanks, My follow up would just be beyond the China exposure around 20%.
Speaker Change: Is there a way to think about where you could potentially take that over time or are we kind of at levels, where the product coming from there is basically going to come from there. Thanks so much.
Peter Benedict: So Peter out.
Speaker Change: I'll answer the first part and I'll, let bill provide some perspective my request would be for for any retailer, providing global sourcing percent by country of origin.
Speaker Change: Really good to get a definition of how they calculate that because as bill articulated we look at it from a direct and indirect and we combine that together a lot of cases companies look at it only as direct where they are the importer of record and we try to have a really more holistic view of <unk>.
Speaker Change: How we view it so based on indirect and direct we estimate is roughly 20% and as we noted we're working aggressively with our global sourcing team and a combination of Bill's team and Marty bagel supply chain team to reduce that exposure and we feel like we're headed in a great position to do that.
Speaker Change: I'll, let bill provide a little more perspective on that yes, Peter I covered some of this earlier, but it's.
Bill: Again, we're looking at in partnership with both private brand and National brand suppliers to find different countries in order to produce this.
Speaker Change: In producing this product in addition, as Brandon touched on looking at.
Speaker Change: A SKU by SKU product category by product category looking to align structures looking at Assortments and looking at what makes sense going forward and in some cases some of those items may not make sense going forward and so we want to make sure that we do the right thing sourcing it from the right location and just because we found another country to produce it it may not end up short term being the right country.
Speaker Change: You do right out of the gate so.
Speaker Change: A very disciplined approach and the team's working really hard at it looking at it across all the categories and you can just imagine the level and magnitude of the work that's required when you have to go do this SKU by SKU vendor by vendor.
Speaker Change: That's helpful. Thanks, so much guys.
Speaker Change: Yes.
Speaker Change: Thank you all for joining US today, we look forward to speaking with you on our second quarter earnings call in August.
Speaker Change: This concludes <unk> first quarter 2025 earnings call you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].