The operator introduces the participants of the conference call and reminds listeners that the call is being recorded. The Vice President of Investor Relations and Treasurer discusses forward-looking statements and non-GAAP financial measures. The Chairman and CEO thanks everyone and discusses the decline in sales and challenges faced in the fourth quarter, but highlights the strong performance in customer service and operating profit due to their productivity improvement initiatives.

In fiscal year 2023, the company saw a drop in sales due to macroeconomic factors and changing consumer behaviors. However, they adapted their strategy and saw improved sales during the holiday season. They are now focused on winning in the spring, with a new loyalty program designed to attract DIY customers. This program aims to make Lowe's the top choice for DIY customers in a competitive marketplace.

Lowe's expects their new loyalty program, MyLowe's Rewards, to drive traffic and increase DIY loyalty and demand. They will also continue to focus on their Pro customers, with investments in convenient fulfillment options, an enhanced product assortment, and a rewards program. Online sales were flat, but the company is seeing higher conversion rates and lower returns due to improvements in their digital experience. Lowe's is also investing in technology, such as an immersive kitchen design app and generative AI, to serve their multi-generational customer base.

The timing of when home improvement demand will increase is uncertain due to factors such as interest rate cuts, consumer spending habits, and a preference for services over DIY projects. Existing home sales are at a high level and many homeowners are locked in at low mortgage rates. Despite short-term uncertainty, the long-term outlook for home improvement remains positive due to factors such as disposable income, home price appreciation, and the age of housing stock, as well as trends such as undersupply of homes and changes in demographics.

Lowe's is investing in their Total Home strategy to modernize their supply chain and IT infrastructure, improve their merchandising assortments, and enhance their digital and omni-channel experience. They also showed appreciation for their hardworking associates by awarding them with an end of year bonus. Despite softer DIY demand, they remain focused on value and convenience for price conscious consumers and serving a resilient Pro market. Building products had positive comps, driven by increased demand for roofing and drywall and improved fulfillment capabilities.

The company has successfully launched a number of new products, including Klein Tools, Pella's Hidden Screen windows, and LG smart refrigerators, which have been top sellers despite their higher price points. They have also adjusted their go-to-market strategy to cater to changing shopping trends and have seen success with their Black Friday and Cyber Monday events. The company continues to offer innovative products in all major appliance categories, including high-quality brands like Bosch, Miele, and KitchenAid. In addition, their exclusive line of spec right paint has been well-received by professional painters.

Lowe's experienced strong demand for exterior paint before the colder weather in January, indicating a successful offering for the upcoming spring season. Their upgraded paint department, new partnerships, and popular product lineup, including Toro and private brand patio sets, position them well to capitalize on the high demand for home improvement products in the spring. They also saw improved holiday sales and profitability in their hardlines department, thanks to adjustments made to meet changing consumer buying patterns.

Lowe's is offering a wide range of colors for consumers to choose from on their sales floor, and if they don't find what they're looking for, they can easily shop the extended aisle with the help of associates using mobile devices. The company is also focused on bringing innovation and functionality at competitive prices in their seasonal businesses, such as their new exclusive grill lineup. They are also launching an enhanced marketing strategy for spring, including tech-enabled advertising and partnerships with live sports. Additionally, the company is making progress on their PPI initiatives, which are helping to offset costs and improve productivity in areas such as private brand penetration and inventory management.

The company has been working with vendors to reduce costs and is now reinvesting those savings into marketing and merchandising strategies. The frontline team has also been commended for their efforts in improving customer service scores and managing expenses. The company has also implemented new omni-channel fulfillment capabilities and self-service options for customers.

The company is improving its Buy online, pickup in-store experience and front end configuration, with over 450 rollouts completed and 500 planned for 2024. This is well-received by customers and allows associates to focus on assisting customers. On the back end, freight flow process is being improved with the addition of new labels linked to store layout. These enhancements will improve product placement and in-stock levels, as well as increase payroll productivity. These initiatives are part of the company's ongoing efforts to improve productivity and profitability. The company is also focused on becoming the employer of choice in retail, with a high participation rate in their annual associate engagement survey and significant improvements in engagement, leadership effectiveness, and inclusion scores.

Lowe's recognizes the importance of associate engagement and has invested over $3.5 billion in wage and share-based compensation for frontline associates since 2018. They also provide opportunities for advancement and training through Lowe's University, resulting in over 80% of leadership roles being filled from within. These investments have led to high staffing levels and readiness to serve customers during the spring season. Additionally, Lowe's is excited about their new loyalty program and merchandise lineup for spring.

In summary, the speaker thanks store associates for their hard work and dedication, and hands over to Brandon Sink who discusses the Q4 results. Diluted earnings per share were $1.77, with sales of $18.6 billion. Comp sales were down 6.2%, driven by DIY and weather challenges. Gross margin was 32.4% of sales, up 7 basis points from last year due to various initiatives and favorable product mix.

In the fourth quarter, SG&A was at 20.9% of sales, operating margin rate declined by 48 basis points, and the effective tax rate remained consistent. Inventory decreased by $1.6 billion due to investments in high velocity Pro SKUs and improved supply chain flow. In 2023, $6.2 billion was generated in free cash flow and $8.9 billion was returned to shareholders through dividends and share repurchases. Capital expenditures totaled $620 million and adjusted debt-to-EBITDA finished at 2.81x. A return on invested capital of over 36% was delivered for the year. The outlook for 2024 is positive, but the near-term macro backdrop remains uncertain due to factors such as potential interest rate cuts, consumer sentiment, and housing turnover.

The company is expecting continued pressure on home improvement spending in 2024, with sales and comparable sales declines predicted. Pro sales are expected to outpace DIY sales, and the company is focused on driving productivity and managing expenses. The full year earnings per share is estimated to be $12 to $12.30. The first half of the year is expected to have lower sales compared to the second half, as the company cycles over a pullback in DIY demand.

The speaker discusses the company's plans for the upcoming spring season and acknowledges the unpredictable nature of the timing of spring. They expect a decrease in sales and operating margin in the first quarter due to various factors. The company's capital allocation strategy remains the same, with a focus on reinvesting in the business and returning excess cash to shareholders. The speaker expresses confidence in the company's ability to navigate through the current market uncertainty and create value for shareholders. The floor is then opened for questions. The first question is about the sensitivity of the company's margin forecast and potential incrementals if comps are lower or higher than expected.

In this paragraph, Brandon Sink discusses the company's expectations for incremental and decremental margins, stating that for every 1% increase or decrease in sales, they anticipate a 10 or 15 basis point change in margins. He also mentions their focus on driving PPI across all functions to maintain these margins. In response to a question about cost optimization efforts, Sink states that they have been successful in managing expenses and have a roadmap of PPI initiatives in place. He also expresses confidence in their ability to continue managing costs and potentially maintaining ticket prices in 2024.

The company believes that PPI will help offset over $400 million in wage and inflationary pressures and strategic investments in 2024. They expect transactions to decrease in 2024, but average ticket to hold up due to positive Pro growth and a mix standpoint. DIY bigger ticket pressure and ASPEE pressure on appliances are expected to continue in the second half of 2023. The SG&A line will be impacted by cycling of the legal settlements and deleverage on lower sales, with about half of the pressure coming from each. Incentive compensation is also a factor. Overall, the company expects a 12.6-12.7% operating margin in 2024.

The company paid a discretionary bonus in Q4 of $140 million, which offset any expected benefit from lower management incentive comp. This resulted in no headwind for the company in 2024. The main factors affecting gross margin in 2024 will be ongoing supply chain investment pressure and PPI initiatives. The company's Pro customer mix remains at 75:25, and the company is confident in the resilience of this customer segment.

The company is pleased with the survey results, which show that customers are confident in their ability to build the backlog and drive business. This is due to the company's investments in loyalty, product assortment, service levels, and digital platform. They are equally confident in their execution in the DIY business and view any struggles as a macroeconomic issue rather than a strategic or execution issue. While the current macroeconomic headwinds may impact short-term growth, the company is well positioned for long-term success due to investments in supply chain, IT infrastructure, omni-channel, localization, assortment, planning, space productivity, store environment, and service levels. There is a perception that the company's expense management may limit future sales or EPS growth, but the CEO believes their focus on customer service will drive future success.

The company has seen improvements in both their professional and DIY sectors, which is a result of their high service levels and successful implementation of PPI initiatives. Their focus on investing in technology to drive productivity has allowed them to have more customer-facing associates and less tasking. They have an activity-based staffing model that allows them to adjust payroll based on sales and efficiently manage SG&A. An example of this is their self-checkout and front end transformation, which has also led to the rollout of a new loyalty program for DIY customers.

Marvin Ellison, CEO of a company, mentioned in a prepared statement that they are confident in their activity-based labor model and PPI initiatives. He and Brandon, the CFO, have many other initiatives planned that they have yet to implement. The market was looking for a turnaround in the second half of 2023 or first half of 2024, but Ellison believes that their comp sales for this year are more indicative of year-over-year comparison rather than a forecast. They hope to see an improvement in the market and are positioning themselves for success, but they expect to feel DIY pressure throughout 2024 and perform well regardless of the macro environment. Brandon added that their base case is similar to the market's forecast.

The speaker discusses the company's base case guide and how it assumes no change in macro conditions. They mention factors such as rate cuts, home improvement, and consumer sentiment. They believe there will be an improvement in trends, but it may take some time before macro drivers translate into spending. The speaker also addresses a question about weather being a headwind in the fourth quarter and the impact it had on the company's Pro business.

The company has experienced two years of hurricane recovery, which had a 150 basis point impact on Q4. However, this was expected. The holiday season saw record sales, with consumers responding well to the trim and tree program. December was warmer, leading to strong performance in outdoor businesses. As they begin their spring program, they are seeing early signs of spring in areas with warmer weather. The appliance category performed below the overall comp, with ASP pressures due to a shift towards value products. However, the company saw share and unit growth in appliances for the quarter.

The company saw pressure on average selling prices during major events like Black Friday and Cyber Monday, but still had strong performance. They noticed a shift from multi-unit purchases to single unit purchases and a trend of consumers looking for both value and innovation. The online appliance business is also performing well and the company is working on improving their fulfillment capabilities. The CEO also mentions the significance of their market delivery supply chain infrastructure, which allows them to deliver major appliances quickly in almost every zip code.

The company has same-day capacity for emergency purchases and can provide customers with appliances within an hour. The brands brought to the assortment by Bill and his team are expected to continue working well for the company. The macro environment will be managed and the company will listen to consumer preferences. The DIY consumer is healthy and the company feels good about their financial worth. However, customers are choosing to spend more on experiences, travel, concerts, and restaurants instead of big ticket items. This trend is seen across other companies as well.

The company is not surprised that customers have been purchasing more home-related goods during the pandemic and they are working through this cycle. They believe they will eventually come out of this macro environment and are investing in their business to be in a good position when consumer spending returns to normal. They launched a DIY loyalty program to differentiate themselves and are positioning themselves well for changes in consumer spending habits. They offer a variety of price points and product quality to meet the needs of both value-conscious consumers and professionals. They are also excited about new products coming in for the spring season, such as riding lawn mowers and the launch of Toro.

Brandon Sink, the speaker, is addressing the improvement in same-store sales guidance for the second half of the year. He mentions that the company has worked hard to offer a variety of pricing options for customers and is ready for Mother Nature to cooperate. He also notes that the guidance takes into account macro pressures such as inflation and low housing turnover. The second half outlook reflects easier comparisons from the previous year.

The company's improvement in the second half is not due to any improvement in the economy, but rather easier comparisons from the previous year. They are confident in their full year projections and have no plans to open new stores, instead focusing on increasing space productivity in existing stores. They are also pleased with the performance of their rural stores.

Lowe's is seeing positive performance in categories like pet, clothing, and automotive, and plans to expand these categories to non-rural locations. The company has learned about consumer demand and serving customers well in these categories, and is pleased with their success. They will continue to discuss this and implement it in more stores. The call has now ended.

This summary was generated with AI and may contain some inaccuracies.