Lowe’s 1Q17 Earnings Call Notes

Robert Niblock

Consumers have favorable view of the national economy

“Our most recent Consumer Sentiment Survey revealed that homeowners have an increasingly favorable view of the national economy and their personal financial situation. Rising home prices are continuing to encourage homeowners to engage in more discretionary projects in addition to ongoing maintenance and repair spending, and we believe that this trend will continue. As well over half of homeowners we surveyed, believe their home values will continue to be increased. Also nearly half of the owners we survey indicated that they intend to engage in a home improvement project in the next six months and home improvement spending is expected to continue to outpace overall spending”

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 3Q16 Earnings Call Notes

Lowe’s Companies’ (LOW) CEO Robert Niblock on Q3 2016 Results

Traffic slowed more than anticipated in August and September, but improved in October

“Good morning, and thanks for your interest in Lowe’s. Our third quarter operating results were below our expectations due to slower sales in the first two months of the quarter. While we expected moderation in the second-half of the year as reflected in our guidance, traffic slowed more than we anticipated in August and September before improving in October, which put pressure on our profitability.”

See positives in our consumer sentiment survey

“Our third quarter consumer sentiment survey shows a similar trend with consumers’ favorable use around the personal finances holding steady. We continue to see supportive trends for the home improvement industry, specifically we found that over half of homeowners believe that value of their home is increasing, and home improvement spending intentions held steady continuing to outpace overall spending intentions.”

Home price appreciation this year is forecast as 4.9%

“Home price appreciation this year is forecasted as 4.9% versus 5.5% last year, so still strong numbers but moderating disposable income at 2.6% annualized this year versus 3.5% last year. And part of that was driven by the increased turnover that we saw a year ago. We knew that, that would moderate some. So we still expect it to be very healthy environment. We still think the number one driver that’s out there is continued appreciation in homes, but it has moderated some. So still a very healthy industry, but not to the extent that we would have seen the numbers supporting a year ago.”

There are areas where we can shift investment dollars

“There are other areas where in today’s environment that we have invested in the past. We don’t need to invest in the future that we can rationalize that that spending that helps drive the ability to invest in areas that resonate with the consumer, and also help to drive better productivity across the organization.”

[Analyst Comment]

Performance was worse than industry

“Good morning. Thanks a lot for taking my question. So the growth you put up in the second quarter was a little less than half of the growth in the industry with pronounced underperformance in traffic. Do you think that was more due to draw or conversion and how do you improve each of those factors, while improving your cost structure?”

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.”

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”

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.”

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.”

Lowes 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Positive comps across the board

“We had positive comps in all 12 product categories with particular strength in fashion fixtures, kitchen and appliances, millwork, and outdoor power equipment. Sales across the country were balanced as well with all three divisions – the north, south and west – all generating comps in the mid-single digits. In fact, all 14 regions had positive comps.”

Positive read on the economy

“We’re pleased with our performance in the third quarter and continue to be cautiously optimistic about the home improvement landscape. Disposable personal income and revolving credit usage, which are key drivers of discretionary consumer spending, appear to be improving above the relatively weak trends experienced during most of the recovery to date, and the consumer is also benefiting from lower interest rates and falling fuel prices. Existing home sales remain on a modest up-trend. In the latest reading on the broadest measure of home price growth, FHFA, improved modestly from last quarter, suggesting home price appreciation in small to midsized markets continues, which bodes well for consumers in Lowe’s footprint.”

Confidence in housing markets increased to pre-recession highs

“the results of our third quarter consumer sentiment survey, which revealed that homeowners’ views around personal finances and home values continue to improve. In fact, confidence in both local and national housing markets increased to pre-recession highs this quarter.”

The environment is a lot different from 2005

“hen we think about comparing the business all the way back to 2005, certainly it’s a dramatically different environment today, went from the overall macro environment, how strong housing was back then [indiscernible] into this whole omni channel world that we’re in today”

You’re not going to be relevant if you don’t have a website that is function and feasible

“from a technology and a customer expectation standpoint, I don’t think you’re going to be relevant if you don’t have a website that, one, is functional and feasible from the consumers’ standpoint, but also well connected to your other channels of business.”

We’re off to a great start in Q4

“”we’re off to a great start. In fact, we’re very impressed with our results thus far, but it’s still very early in the quarter and there is weather risk in January, so at this point we’re comfortable with the guidance we provided thus far.”

It’s all starting to come together for us

” think we see a lot of bounce in people’s steps with a lot of initiatives that we’ve been working on. There’s been a lot of heavy lifting over the past couple years, all the way across the organization, both in stores and in corporate offices. We repositioned the company to more of an omni channel environment, made some great strides and great improvements. It’s starting to come together, and you are seeing a lot of bounce in people’s steps and a lot of wanting to deliver even better performance in the future.”