Lowe’s 2Q15 Earnings Call Notes

4.3% comps despite challenging weather conditions in California and Texas

“Comparable sales grew 4.3%, primarily driven by a 3.3% increase in average ticket. We achieved this growth by executing well in a challenging environment that included an increasingly severe drought in California and historic flooding in Texas.”

Consumer sentiment survey shows strength

“And recovery in the housing market continues, with moderate home price appreciation, and stronger gains in housing turnover. We also continue to be encouraged by the results of our second quarter consumer sentiment survey. Roughly half of respondents indicated that they believe they’re home values are increasing; double the number from 2012. And this positive sentiment around home values is rooting through to spending patterns, with plans to begin a home improvement project in the next six months, continuing its recent upward trend.”

Strengthening affinity for home

“survey respondents indicated that growth in their home improvement spending is outpacing increases in their overall spending, suggesting a strengthening affinity for the home.”

More than 80% of customers start shopping for appliances online

“understanding that more than 80% of customers start shopping for appliances online, we have enhanced our presentation on Lowes.com, including improved product search, enhanced videos, improved presentation, like 360 degree views, and simplified product groupings. ”

Higher inventory reflects our commitment to in stock

“While inventory at quarter end was up 4% to last year, it reflects our commitment to be in stock for items that are most relevant to our customers. For instance, we ended the second quarter with higher levels of appliances to support exceptionally strong sales, as well as higher levels of portable air conditioning units and grills.”

Promotional environment is stable

“I will talk to the promotional environment. I would describe the promotional environment as stable. I would say in the second quarter, we targeted promotions largely at appliances of the big ticket categories with the intent to match the promotional intensity of the competition. So while our promotional intensity increased relative to the second quarter of last year, it was consistent with competitive environment. We expect that to abate in the second half of the year as we wrap — when we started to increase our promotional intensity last year, which is around Labor Day.”

Pros value brands, availability, assortment and localization

“When we talk to Pros — and this is in no particular order, but brands certainly are important to them. Inventory depth is very, very important to them. Breath of assortments so they can go one place and complete the job is important. And, localization is equally as critical. There are local norms and building codes that we got to get right. We deployed a field-based merchandizing team to help ensure that we get better localization. ‘

Wonky discussion on working capital

“So accounts payable is up 15% year-over-year, primarily related to timing of purchases. At quarter, we also saw roughly a 2.5 day improvement in days payable outstanding. The merchants teams has been working really hard to evaluate today’s inventory in hand relative to today’s payable, and try to get better coverage there. That’s something that has been reignited of late. We saw about a day improvement last year. We want to have roughly a day and half or two day improvement this year.”