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 the company's forward-looking statements and potential risks. The CEO then thanks everyone for joining and shares the second quarter sales numbers, which saw a decrease in comparable sales compared to the previous year.

In the second quarter, the company saw positive comps in Pro and online sales, despite a challenging industry backdrop for homeowners. This was due to disciplined expense management, PPI initiatives, and ongoing investments in the Total Home strategy. There was also growth in all three online business areas, thanks to improved conversion rates and expanded same-day delivery options with partners such as Uber Eats, DoorDash, and OneRail.

Lowe's omnichannel strategy has been successful in reaching a wider customer base, particularly younger generations, and their partnership with sports icon Lionel Messi has helped promote their new loyalty program, MyLowe's Rewards. The company is also leading the way in innovation, such as their collaboration with Apple to help customers visualize and design their dream kitchens. They are also working with other leading platforms to develop AI solutions for both customers and associates. The company is optimistic about the current macro environment.

The company's full year outlook for 2024 is based on the expectation that macro and consumer trends will be similar to the back half of 2023. However, there is still uncertainty around interest rates and inflation. The housing market is being affected by a lock-in effect, with people not moving as often due to high mortgage rates. Despite this, the three core drivers of the business remain strong, and the company remains optimistic about the medium- to long-term outlook. They will continue to invest in technology and innovation, offer value and differentiation to customers, and be disciplined with expense management. This will be achieved through operational efficiency and investments in their Total Home strategy.

Despite a soft market for home improvement, the company is confident in its ability to take market share when the market improves. The CEO thanks frontline associates for their hard work and visits stores regularly to gain insights. The company saw positive online and Pro comps this quarter and has the right brands, inventory, and product assortments for Pro customers. Building products had above-average comps in rough plumbing, electrical, and millwork, and positive comps in building materials due to growth in Pro customers. The company also saw strong results in hot weather categories like air circulation and HVAC, and recently rolled out new products in 1,200 stores.

Lowe's ductless systems are popular for their technology and ease of installation, allowing DIY customers to install them without professional help. In terms of home decor, there has been a decline in bigger-ticket projects, but Lowe's remains a leader in appliances with a wide assortment, easy shopping experience, and fast delivery options. They also offer innovative products, such as a WiFi-controlled refrigerator and same-day paint delivery nationwide. Unfavorable weather has affected traditional spring categories like lawn and garden and outdoor living.

The company experienced a decrease in sales due to pressure in the DIY-dominant categories. They have a strong lineup of outdoor power equipment and tools, including private-branded cobalt tools and the exclusive KNECT system from Klein Tools. They also had success with their CRAFTSMAN Days events and have a strong product lineup for the fall season, including Halloween decorations. The company is also focusing on productivity improvements and working with suppliers to reduce costs.

The company is working with suppliers to reduce costs and invest in marketing and merchandising strategies. They thank their partners for their hard work and dedication. The speaker then addresses the question of whether productivity initiatives negatively impact customer experience, stating that they have actually improved it. They give an example of the In-Store Mode feature on their mobile app, which helps customers navigate the store and frees up associates to focus on selling and assisting customers.

The company is continuously working on improving their In-Store Mode to make the shopping experience more efficient and reduce returns. They have implemented a modern omnichannel system and are collecting data on returned items to prevent future returns. They have also identified ways to reduce damages on fragile items. The company is also making progress on their productivity journey and will be sharing more details at an upcoming conference. In the Pro segment, they have seen positive comps and growth in online sales, thanks to investments in job site delivery and high velocity SKUs. Pros have reported healthy backlogs and confidence in landing new business.

The EVP of Pro and Home Services, Quonta Vance, will discuss the next phase of the company's Pro growth strategy at the December Analyst and Investor Conference. The company's disaster relief efforts, including pre-staging merchandise for quick response to storms, were successful thanks to the efforts of its associates. In the second quarter, the company generated GAAP diluted earnings per share of $4.17, with a pre-tax gain of $43 million from the sale of its Canadian retail business. Excluding this benefit, adjusted diluted earnings per share were $4.10. Sales for the quarter were $23.6 billion, with comparable sales down 5.1% due to softness in DIY projects and unfavorable weather. Comparable average ticket was up 0.8%, driven by Pro-heavy categories and less pressure on average selling prices in appliances. Comparable transactions declined 5.9%, with growth in Pro transactions partially offsetting declines in DIY and seasonal transactions. Monthly comps were down 6.4% in May, 4.1% in June, and 4.9% in July.

The company experienced fluctuations in weather patterns and faced challenges in outdoor spring activity, leading to a decrease in gross margin and an increase in SG&A expenses. However, they were able to partially offset these impacts through cost management and PPI initiatives. The company also saw a decline in operating margin rate and maintained a consistent effective tax rate. They generated significant free cash flow and invested in technology and strategic growth priorities. Due to a challenging home improvement market and weak consumer sentiment, the company is updating their full year outlook.

The company has updated its sales and operating margin outlook for the year, expecting a decrease in sales and a tight management of expenses. They also expect to repay a bond maturity, have capital expenditures, and an adjusted effective income tax rate. The updated outlook for adjusted diluted earnings per share is provided. For the back half of the year, they expect better comp sales and a similar operating margin rate compared to the prior year. The company reconfirms its capital allocation priorities and has seen an improvement in operating performance over the past five years.

The speaker expresses confidence in the company's ability to navigate market uncertainties and drive shareholder value through their Total Home strategy. They then open the floor for questions and the first question is about the difference in sales between DIY and Pro segments. The speaker explains that it is difficult to determine exact share gains or losses in these categories, but they are seeing growth in the Pro business and believe they are taking share. They also mention that DIY sales are concentrated in bigger-ticket discretionary purchases and saw softer demand in these categories in the second quarter.

The company is facing challenges in big-ticket discretionary categories, but they believe it is a macro issue and not a loss of share in the DIY market. They are confident in their assortment, pricing, and execution, and believe they are well-positioned to gain market share in home improvement when the DIY market improves. The company has seen consistent performance and share gains across all geographic regions, with the exception of a hurricane impact in the Houston area. In terms of margins, the relationship between comp and margin in the second half looks weaker than the first half, but not significantly.

The speaker asks if Lowe's is doing anything differently to manage their business and make investments, or if the changes are due to external factors. Brandon Sink responds that it is mainly due to external factors such as timing of merchandising initiatives and cycling over prior-year incentive compensation. The speaker asks for clarification on the guidance cut and if the weaker sales will affect the potential recovery in DIY demand. Marvin Ellison responds that the Pro business is outperforming expectations, but there has been a decrease in sales in DIY categories such as home decor and hardlines.

The company's decision to adjust their guidance for the year is due to the cautious and uncertain macro environment and customer sentiment regarding big-ticket DIY discretionary spending. The first half of the year was largely in line with expectations, but the second half is expected to be challenging due to ongoing DIY and Pro trends. The company is seeing strength in small to medium Pro sales, but is facing challenges in DIY big-ticket discretionary spending. The breakdown of the comp includes flat average ticket in the second half, offset by Pro growth and appliance pricing pressure.

The company expects pressure on the home improvement industry to continue in the second half of the year, as homeowners become less engaged in home improvement activity. They do not anticipate any major changes in promotional activity or pricing, and the increase in ticket prices is mainly due to strong demand in the Pro business and the cycling of promotional events in the appliance industry. Overall, the pricing environment has been stable in recent years.

The speaker discusses the current state of the industry, noting that it remains disciplined and rational. They expect the ticket to continue to hold in the second half of the year. In response to a question, they clarify that comps are evenly split between Q3 and Q4 and mention that unfavorable weather in Q2 impacted sales, particularly in DIY seasonal categories. They also saw pressure in big-ticket discretionary seasonal categories, but this was expected.

The speaker responds to a question about the company's performance in August and explains that it is in line with their expectations for the third quarter. They also discuss the gross margin outlook, stating that it will be up in the third and fourth quarters but roughly flat for the year. They mention investments in supply chain and credit and shrink management, as well as a benefit from clawbacks, which will accelerate in the third and fourth quarters and continue into 2025. The speaker also mentions transportation costs as a positive factor. They conclude by mentioning the progression from the first to second quarter and how it will continue for the full year.

Brandon Sink, the speaker, discusses the potential for negative comps for the third consecutive year and the impact it could have on deleverage. He mentions that their algorithm typically sees a 10 basis point increase for every incremental point of comp and a 15 basis point decrease on the downside. This is reflected in their full year guide and they are working hard to stay consistent with it. He also mentions that they have been driving PPI and making investments in gross margin and SG&A, but their fixed cost leverage allows for expansion when they grow top-line. Scot Ciccarelli asks if changes to incentive comp had a significant impact on the second quarter and the back half outlook, and Brandon Sink responds that it is consistent and there is nothing that needs to be factored in for the 2025 earnings outlook. Kate McShane from Goldman Sachs asks the next question.

Kate McShane asks about how the company is managing inventory levels in light of a potentially slower demand environment and higher ocean freight costs. Brandon Sink responds by saying that they are managing inventory well, with inventory declining faster than sales and a focus on investments in Pro growth and seasonal inventory. He also mentions that they have leveraged their sales to negotiate lower transportation costs and expect this trend to continue for the rest of the year. Marvin Ellison adds that they have converted their regional distribution centers to be more efficient in terms of flow-through of product, rather than just storing inventory.

The company has made significant progress in converting to a majority flow and cross-dock environment, with a small percentage of inventory being stocked. They continue to make investments and improve their market delivery, allowing them to be a leader in appliances without holding excess inventory. The PPI initiatives have been successful in managing expenses and they plan to continue this discipline in the future. There is still room for improvement and they are offsetting over $500 million in expenses. The company is focused on maintaining this discipline and making strategic investments in various areas of the business.

Marvin Ellison, Joe McFarland, and Bill Boltz discuss how the company is driving productivity and enhancing the customer experience through tech-driven solutions. They mention that every functional area is involved in productivity improvement initiatives and there is still a lot of room for growth. Joe talks about the progress made in front-end transformation, advanced labor management tools, and the MST program. Bill adds that there is more to come in terms of streamlining back-end processes.

The company is constantly working on reducing costs with suppliers and improving assortment productivity through weekly reviews. They are also focused on expanding their retail media network and increasing private brand offerings, which have higher margins. The Pro customer segment has shown mid-single digit growth and the company is looking for ways to further improve their experience, such as adding more brands and loyalty programs. They also plan to work with larger Pro customers and may offer trade credit options.

The company has been working on improving service levels, product assortment, and inventory levels in their stores in order to attract more Pro customers. They have also implemented a loyalty program and a CRM platform to increase customer retention. They plan to continue building on these efforts, with a long-term vision for Pro customers to be discussed at an upcoming conference.

Marvin Ellison, CEO of Lowe's, discusses the company's plans to target new segments of the Pro market and improve fulfillment and digital relationships with Pro customers. He also believes that the current decline in discretionary big-ticket DIY purchases is a macro issue and expects a flywheel effect when the market improves. The company remains disciplined in key areas and is excited about future growth in the Pro market. There has been no change in trend for rural store performance and the company's gig network allows for same-day and next-day fulfillment for all customers, including those in rural areas. Lowe's is pleased with the performance of its rural markets.

The company is testing different initiatives in their stores and is pleased with their performance in rural areas. They are also focusing on their digital gig platform and plan on discussing their growth strategy in December. There is uncertainty about how much interest rate cuts will stimulate demand, but there is currently pent-up demand in the business. However, consumer sentiment remains weak.

The company is hopeful that lower mortgage rates will relieve pressure on consumers and drive existing home sales. However, the majority of homeowners are still locked in at higher rates, which may lead to reluctance to engage in the market. The company is closely monitoring the rates and balancing them with other metrics. The long-term margin outlook for the business is still around 14.5%, but recent changes have been worse than expected. The company believes there is pent-up demand and confidence in medium- to long-term drivers, and they expect to outpace the traditional single-digit recovery in home improvement with their initiatives.

The expansion of operating margin is dependent on the recovery of top-line sales. The pace of the recovery will determine the degree and timing of the expansion. The company is waiting for a more accommodative rate environment to boost demand in the home improvement industry. However, concerns remain about consumer sentiment, existing home sales, and housing affordability. The company expects an improvement in these macro trends to drive an increase in discretionary projects and DIY traffic, particularly in bigger-ticket categories. The timing of this inflection point is uncertain. The CEO also adds that there is no clear answer as to when the business could potentially get weaker before seeing the desired rate relief.

The company does not have a definite timeline for when the DIY market will improve, but they are making investments and leveraging their balance sheet to prepare for when it does. They expect to be able to take advantage of the market upturn when it happens. In Q3, they have seen a 200 basis point improvement and are currently running at a negative 3% compared to a 5% decline in Q2.

Marvin Ellison, CEO of Lowe's, responds to a question about current business trends by stating that they do not give precise monthly trends but their current trends reflect the guidance they gave. He thanks the questioner and ends the call, noting that they will discuss third quarter earnings in November.

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