Lowe’s 4Q16 Earnings Call Notes

Robert Niblock

Consumers are excited

“We expect housing in 2017 to remain a bright spot. Rising home prices should continue to encourage homeowners to engage in more discretionary projects in addition to ongoing maintenance and repair spending. The improving incomes and household financial conditions should continue to be a catalyst for household formation, which will help sustain home buying and related spending. Expected growth in the home improvement market is further support of the results of our fourth quarter consumer sentiment survey, which revealed that post election, homeowners have an increasingly favorable view of the national economy and their personal financial situations and we believe this trend will continue, as almost half of the homeowners we surveyed indicate that they are very likely to begin a home improvement project in the next six months, and more than half of homeowners believe that home values are rising and will continue to increase.”

We’ve needed to reorganize because this isn’t the design you would have from scratch if you were omni-channel

“But we look at the continued shift that you see taking place in the customer and the way that they want to interact with us. Realize that we need to continue to evolve. So you think about it, you sitting back with an organizational structure today that is evolved over time, not the one that we would have design from scratch. If you were starting out as a omni-channel company. So as we continue to see that evolution, we said we really needed to step back and say, okay, back and say, okay, where do resources need be, allocated the cooperate office. We took out some spans and layers to make us more agile nimble organization from a corporate office standpoint, so that hopefully we can better response opportunities, better respond to the stores in our other channels after the taken care of the customer on daily basis.”

Really strong increase in homeowners’ intention to invest in their home

“As we look at 2017, we look – if you look at whether it’s the underlying macro fundamentals that are out there, still seeing, a very healthy housing market was from a turnover standpoint was from an appreciation standpoint on housing, incomes continuing to rise, as we spoke about, employment continuing to improve, all of those things I think set up home improvement to continue to gain shares as a percent of share of wallet in 2017. We’ve seen that trend for the past few years, and I think it sets us up well for this year. And then on top of that, we’ve actually, behind, or post election, we’ve actually seen, from our consumer sentiment survey, a really strong increase in homeowners’ intention to invest in their home and start a project with the next six months, as we talked about. So as we look at just the underlying factors, some of the momentum that we saw coming out of our quarterly consumer sentiment survey sets us up that we think that sets us up well that 3.5% comp should be achievable as we look out 2017.”

Lowe’s 2Q16 Earnings Call Notes

Lowe’s Companies, Inc.’s (LOW) CEO Robert Niblock on Q2 2016 Results

The outlook for home improvement remains positive

“Looking ahead to the second half of 2016, the outlook for the home improvement industry remains positive. Persisting gains in the job market and disposable income growth that continues to outpace the economy should further contribute to solid growth in consumer spending. And the outlook for housing remains bright, with strong home sales and construction in the first half of the year posed — poised to benefit growth in the second half of the year.”

Strong housing fundamentals

“With home value appreciation expected to persist and incomes continuing to rise, we expect homeowners to be motivated to spend on their homes. Overall, strong consumer housing fundamentals should continue to benefit the home improvement industry.”

Consumers feel positive about the value of their homes

“Our second quarter consumer sentiment survey showed similar trends. Consumers continue to view their personal finances and home values favorably, with half of homeowners believing the value of their home is increasing. We believe this positive sentiment around home value is driving home improvement spending. Consequently, we continue to see home improvement spending outpace overall consumer spending, as well as positive home improvement project intentions, including strong engagement in big ticket discretionary projects.”

Consumers are still highly engaged in discretionary spending

“everything we hear from the consumer, they are still highly engaged in discretionary spending around the home driven by [indiscernible] housing market and the value of their homes continuing to increase”

500bps comp spread between west and north

“Yes. Simeon, this is Robert. If you look at to part of your question, spread. The West was our best-performing area of the country, best-performing division. As we said the North was our weakest-performing division. There was almost 500 basis point spread in comps between those two divisions. ”

Michael Jones

Strong social media on Facebook Instagram and snapchat

“So, as an example, we have a very strong social media footprint on Snapchat, Facebook, on Instagram. In the second quarter, we drove 27 million impressions on social media alone, and that’s on top of 32 million impressions in the first quarter.”

Promotional environment is rational

“I guess, I would probably describe the promotional environment, again I think it’s rational. I don’t know that you’re going to see any substantial increases in promotional depth. I think you see us leverage our consumer insights analytical capability to tweak promotions to make the more efficient, and I think you see us use some of our marketing digital capabilities to ensure that we’re getting better utilization on how we extend our promotions.”

Bob Hull

Strength in west and south, pressure in northeast

“In Mike’s comments, he talked about the strengths we saw in the West as well as positive comps in the South. Certainly, we had pressure up in the Northeast, which contributed most of the pressure associated with weather.”

Home Depot 2Q16 Earnings Call Notes

The Home Depot’s (HD) CEO Craig Menear on Q2 2016 Results

Continue to see broad based growth

“We continue to see broad-based growth across our stores both ticket and transactions grew. All of our merchandising departments posted positive comps and we saw a healthy balance of growth among both our Pro and DIY categories with Pro sales outpacing our DIY business in the U.S.”

Tailwinds in housing could lead to home value appreciation for the next couple of years

” First of all there’s about 4.6 months of supply, average historical is about six months. So that certainly means there’s opportunity as you go forward, that’s also helping to keep home value appreciation going. And there is projections in the market out there from various sources that would say home value appreciation continues for the next couple of years for sure. And so, I think this is a tailwind that we see for the foreseeable future in the guidance window that we’ve given.”

Ted Decker

Slight commodity price inflation in materials and lumber

“Total comp transactions grew by 2.2% for the quarter, while comp average ticket increased 2.5%. Ticket growth was driven by an increase in items per basket as project business continued to show strength. Our average ticket was also positively impacted from slight commodity price inflation, mainly from building materials and lumber.”

The rising tide of Prime Day lifts a lot of boats

“Interestingly on Prime Day there is so much activity in the market place. It draws a lot of shoppers online and our customers respond, and we have a good day dropping off Prime Day.”

Carol Tome

Kitchen remodeling is seasonal

“You’d expect to see some seasonality in our kitchen business. People are on vacation during the summer time, putting a new kitchen into your home isn’t really top of your mind. We expect the kitchen business to come back in the fall time, because it typically does.”

Haven’t seen any change in home improvement patterns

“We haven’t seen any change. The fundamentals which, Craig, pointed out for housing and then the impact to home improvement are really, really good, and you go back to household formation. If the number of people in households were they drop to the 2000 plus, it would create 4.3 million new households. Now will they all go into single family owned households? No. But we serve both. ”

Loews 1Q16 Earnings Call Notes

Lowe’s Companies’s (LOW) CEO Robert Niblock on Q1 2016 Results

Housing remains a bright spot

“Turning to the economic landscape for the balance of year, the outlook for the home improvement industry remains positive. Shifting gains in the job market as well as disposal income growth is expected to outpace growth in the economy; should contribute to solid growth in consumer spending. And housing remains a bright spot — remains first on effort.”

Consumer survey continues to be strong

“Chris this is Robert. As I outlined in my comments have we seen the consumer we look through our consumer segment survey what their intentions are around spending what their intentions are around investing in the home as we are seeing continued improvement in the job market we are seeing continued improvement in wages we are seeing continued improvement in home values this driving continued improvement in their intentions for discretionary spending which I think the best evidence of that is in the 5.1% increase that we saw on top transactions during the quarter and that’s we have seen in our surveys has let us to be believe that the consumer when they risk high — six months out with regarding purchase nothing shows any change in their intentions as we survey them today”

Ricky Damron

Consumers continue to invest in their homes

“And as Robert shared with you, we delivered positive accounts across all regions and product categories, as we continue to capitalize on a favorable macro backdrop and consumers increasing desire to invest in their homes. ”

Home Depot 1Q16 Earnings Call Notes

The Home Depot (HD) Craig Menear on Q1 2016 Results

Housing data indicates continued tailwinds

” Though it is early in the year, our view of the macro environment remains consistent. We believe that housing data indicates continued tailwinds for our business.”

Response to question about weak consumer

“We see the consumer continuing to engage in big ticket sales with transactions above $900, growing at 9.5% in the quarter. So while our Pro business was strong, and we’re pleased to see that, we’re also very pleased to see the growth in our DIY business.”

Our research shows that millenials have the same aspirations but are acting with a six year delay

“We actually have done a fair amount of research here and it was part of our strategic planning last summer, where we had several groups of millennials work on what Home Depot looks like 8 to 10 years out as well. What our research tells us is that basically this is a delayed cycle, that the millennial generation has many of the same desires that generations prior to them have, we’ve seen as household formation goes up roughly a third or so of those formations are happening with millennials at the tail end of that age group. It appears there’s about a six year delayed cycle here. But our research indicates that in many ways they’ll act the same as previous generations.”

Ted Decker

Spring has not yet arrived in many of our markets

“While weather positively impacted our sales performance in the first quarter, spring has not yet arrived in many of our markets.”

Strength in pro heavy categories

“Pro heavy categories continue to show great strength, as we saw double-digit comps in fencing, pressure treated decking, boards, fasteners, doors and conduit. In addition, the core of the store continue to perform well and we saw strength in maintenance and repair categories across the country. Tool storage, commercial and industrial lighting, portable power, power tool accessories, hand tools and wiring devices had double digit comps in the quarter.”

Carol Tome

Home equity values have increased by 94% since 2011

“we’ve seen home equity values increase 94% since 2011. How is that possible? Because home prices are up 25% and people have been continuing to pay down our mortgages. So there’s a wealth affect that’s occurring with home owners. And this wealth effect as we’ve talked at length, if you feel like your home as an investment and no an expense you spend differently in your home, anything set in our big ticket categories.”

The average age of a new home buyer last year was 33

“Yeah, the average age of new home buyers last year was 33 years old, that’s the edge of the millennials. So that another proof of age that at some point they want to own a home.

Expecting 5% home price appreciation

“We factor that in to our longer term forecast, and now this year we believe home prices will be up around 5%. It’s important to note that if not fully recovered even with that 5% and it’s certainly different in different parts of the country. So if we take 5% this year and then we take next year maybe 3%, the year on after that, and so it continues to crack the point because it is just ongoing home price appreciation.”

Lowe’s 4Q15 Earnings Call Notes

Lowe’s Cos. (LOW) Robert A. Niblock on Q4 2015 Results

Consumers continue to benefit from improved household financial conditions

“As we head into 2016, the outlook for the home improvement industry remains positive. Continued support from steady job gains and improved incomes as well as favorable trends in housing should keep home improvement growth buoyant. Further, despite recent volatility in the financial markets, the fundamentals for continued growth in consumer spending remain intact, consumers who continue to benefit from improved household financial conditions and lower gas prices on top of broader job and income gains. These trends aligned with the results of our most recent consumer sentiment survey where favorable perceptions around personal finances remains stable even though respondent’s assessment of the national economy declined slightly.”

Saw a significant increase in future home value expectations

“Roughly half of homeowners believe the value of their home has increased, which is double the number feeling that way in 2009 and many believe this trend will continue as we saw a significant increase in future home value expectations. And while most homeowners indicated their spending levels are saying the same, they’re more likely to allocate funds to home improvement compared to other areas. ”

Warmer weather benefitted outdoor

“if you think about the quarter, El Niño year or what, but certainly, overall warmer weather for the majority of the quarter. That extended the season for the outdoor product categories, which is what we went through here kind of lawn and garden, lumber and building material, those that we saw a really strong – outdoor power equipment that we saw really strong performance for. ”

Michael A. Jones – Chief Customer Officer

Promotions were in line with expectations

” We planned to do promotions within the quarter. We promoted to the level that we planned to promote to. And one of the adjustments that we made in the quarter was less financing and more towards discounts is what we did in the quarter. So total level is exactly where we expected it to be with some adjustments within the quarter on how we got there.”

Market has been pretty rational

“I don’t think so. I think where those are having challenges, the challenges are probably something other than just straight price. I think there are folks having challenges around their format and I’m not sure they’re going to promote their way out of those kind of challenges. And so I would describe the market as very rational. When we go after what we target for share gains, we do it in a way that’s rational. I think the majority of us do exactly that. So I don’t see it becoming more promotional.”

Robert F. Hull – Chief Financial Officer

Above average wage inflation in the marketplace

“As you’ve heard from others, there is wage pressure in the marketplace. Our outlook for 2016 assumes roughly 7 basis points or $0.03 per share of pressure associated with above-average wage inflation”

Home Depot 4Q15 Earnings Call Notes

Craig A. Menear – Chairman, President & Chief Executive Officer

EPS +16%

“We achieved sales of $88.5 billion, the highest in company history. We also recorded the highest net earnings in company history and fiscal 2015 earnings per share grew 15.9% to $5.46. Sales for the fourth quarter were $21 billion, up 9.5% from last year. Comp sales were up 7.1% from last year and our U.S. stores had a positive comp of 8.9%.”

Continue to see positive signs in housing data

“Turning to the macro environment, while 2016 consensus U.S. GDP growth projections have moderated, we continue to see positive signs in the housing data with home price appreciation, housing turnover and household formation being the key drivers of growth for our business. We expect 2016 comp growth of approximately 4.5%. ”

Some segments of our business are best in store

“There are segments of our business – we’ve shared in the past that we believe the best business model is in the store. And the customers, they’re smart, they have a tendency to gravitate to the best business models. And so we think there are elements of things like concrete and soils and mulches that make sense, and that’s where the customer will find the best value to purchase the product.”

Carol B. Tomé – Chief Financial Officer & EVP-Corporate Services

Our business was good and continues to be good

Peter, we’re not seeing that. Our business was good and continues to be good.

65% of the homes in the US are older than 30 years

“65% of the homes in the United States are older than 30 years and there’s external research that shows that spending on older homes is higher. John Burns would suggest it’s something like 7.5% higher, our own internal research suggests it’s 8% higher, so this aging housing stock bodes very well for us. And if we could take you back to the last mild recession, and I’m talking a lot here and I apologize, but if I take you back to the last mild recession of 2001, the housing stock was a lot younger 10 years ago.”

Inventories are in the best shape we’ve seen

“So our inventories are in the best shape we’ve seen and I’ve been here, this is my 21st year, so I can speak from authority, they’re in really great shape. We have one-tenth improvement in inventory plan for 2016 and Mark Holifield is here and I would say we might want to try to get even better than that, but that’s the plan.”

Mark Holifield – Executive VP-Supply Chain & Product Development

West coast port disruption led to artificially low inventory last year

“Just one thing, just color on inventory, one thing to keep in mind is last year we had the West Coast port disruption which led to artificially lower inventory, so we’re actually very pleased with where our inventory is and on top of that, we’re very, very pleased with where our in-stock is compared to last year which we’re really seeing a material improvement in-stock versus last year because we’re overlapping those port disruptions from last year.”

Loews 3Q15 Earnings Call Notes

Lowe’s Companies’ (LOW) CEO Robert Niblock on Q3 2015 Results

Robert Niblock – Chairman, President and Chief Executive Officer

Customers not increasing overall spending but allocating more to home improvement

“as we survey our customers and what they tell us for their intentions with respect to spending, and we look at overall their level of spending is not increasing. But the amount that they’re allocating to home improvement, they are indicating that they’re spending more in home improvement, then obviously how much of that winds up in our channels, which you have to look at.”

People are engaging in discretionary spending around the home

“we think that if you look at what’s happening in the overall macro environment, when you look at what’s happening with home prices, it once again speaks for the fact that consumers are reengaging in discretionary spending around the home.”

Half of the spend is discretionary

“when we look at consumers discretionary versus non-discretionary spend, we’re seeing that when you combine small and large discretionary spend, what they’re telling us that more than 50% of their spend is on a discretionary basis, which is if you strip that from where it would have been prior year, so we’re seeing it move above that 50% level.”

Consumers are willing to spend on the home

“So we are seeing that consumer take on that willingness to spend around the home on discretionary projects, driven by, as I said in my comments, macro factors as well as continued comfort that comes from home price appreciation that they’re seeing.”

Robert Hull – Chief Financial Officer

Get Better media spending yields from digital than print

“we’re doing some media mix modeling, so we’re trying to understand the impact of different mediums on different markets and we’re adjusting accordingly. So ultimately, we’re taking the most effective yields, which is the sales dollar yielded for a dollar of marketing spent. We have shifted some, as Rick mentioned in his prepared comments, we’ve shifted some dollars away from prints towards more digital assets. We’re able to reach more folks on a very cost effective way, which gets into the effectiveness and efficiency of marketing.”

Greater consumer sentiment and confidence around the personal job situation

“what we are seeing is a greater proportion of customers telling us they’re leading into the big ticket discretionary from smaller ticket discretionary. As you think about greater consumer sentiment and confidence around the personal job situation, there is home appreciation. They are staring to think about these bigger ticket discretionary projects.’

Michael Jones – Chief Customer Officer

Continuing to move marketing spend towards digital, towards social media and away from traditional mediums

“if you look at the way we’ve remixed our advertising and marketing spend, we’re moving more towards digital, more towards social media and less out of some of the more traditional one advertising vehicles. I’ll give you some numbers, a way to think about this. Just looking at social media, Lowe’s followers on Facebook are over 3 million, Pinterest just about 3.5 million followers, Lowe’s video views well over 70 million. So we see a one of easiest ways to track is just watch our activity on social media. Our digital footprint is very, very large and we continue to increase it. So we’re quite proud of the work that’s happened there.”

Home Depot 3Q15 Earnings Call Notes

The Home Depot’s (HD) CEO Craig Menear on Q3 2015 Results

Craig Menear – CEO

Strength across the store

“we continue to see strength across our store. All of our merchandising departments posted positive comps and we saw healthy balance of growth among both our Pro and DIY categories.”

The retail environment has been and is changing

“The retail environment has been and is changing. Our customers, both Pro and DIY, are changing the way they shop for our products and services. Our goal is to provide our customers with the convenient and fulfillment options they require.”

How El Nino could affect things

“It really depends on obviously how this plays out. It could potentially play to a warmer northern, which means we might have a year where we have more outdoor project business running deeper into the season. The potential offset to that is a much cooler, wetter southern situation. It really depends on how this plays. We’ll be in position as we always are to try to make sure we take advantage of whatever categories will be the drivers in the different geographies and then with any luck it brings rain to California, which is desperately needed.”

Acquire where we can gain capabilities

“What we’ve said Aram is that we will look at acquisitions where it gives us the ability to gain capabilities that we might want to go build ourselves. And so if you think about some of the acquisitions that we’ve done, the BlackLocus acquisition gave us a data science capability that’s being leveraged by our merchants for assortment and price.”

Did see trading up although not more dramatic

“I wouldn’t say it’s any more dramatic than we’ve talked about before, but we do look at sales by price point and again this quarter we had a progression of higher comps as you went up price points in an assortment.”

Texas actually outperformed

“all of our major markets in Texas actually outperformed the company average comps and we’ve seen strength across the store.”

Carol Tomé – CFO

Aging home stock is a catalyst

“One thing we learned looking at data coming out of the Harvard Joint Center for Housing Studies as well as John Burns Real Estate Advising Firm, is that homes that are older than 45 years tend to be, have higher repairs. And in fact, the amount of money spent on repairs on those older homes is 5.6% higher than the amount of money paid to repair a home that’s about 20, 24 years old. There are 40 million homes in the United States that are older than 40 years. As the housing stock ages, it just bodes very well for big-box home improvement retailers to sell to those customers who need to make repairs in their homes.”