Lowes

Lowes told analysts the company had changed its pricing strategy to be “competitive” rather than offering promotions

Lowe’s CFO said that their product margins had improved “as we leveraged our disciplined pricing and product cost management strategies.” “Brandon Sink — Executive Vice President and Chief Financial Officer: Our U.S. monthly comps were up 8.5% in February, down 7.8% in March, and down 6.9% in April. In March, we cycled over the third round of government stimulus and the storm recovery sales in Texas while April sales were negatively impacted by unfavorable weather. Looking at U.S. comp growth on a two-year basis from 2020 to 2022, February sales increased 34.5%, March increased 25.3% and April increased 6%. Gross margin was 34.03% of sales in the first quarter, up 74 basis points from last year. Product margin rate improved 50 basis points as we leveraged our disciplined pricing and product cost management strategies to effectively manage product cost inflation and lumber price volatility. Also, higher credit revenue drove 25 basis points of benefit to gross margin this quarter, while a favorable product mix drove 20 basis points of benefit.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

Lowes’ CEO said the company was “scraping and we’re doing pricing analysis real time, both in-store and online by geography,” instead of doing promotions, and that with “product inflation, we have to carry that forward to the consumer.” “Marvin Ellison — Chairman and Chief Executive Officer: So, let me take — this is Marvin. I’ll take the first part of that. We’ve spent a lot of time putting in improved systems from a pricing standpoint. So, we are scraping and we’re doing pricing analysis real time, both in-store and online by geography. One thing that Bill put in place early on when he arrived is that every day competitive pricing strategy where we’ve gotten off this high-low promotional cadence that Lowe’s was known for to more of an everyday competitive price. And the only way you can be competitive every day is you have to have a good line of sight to the competitive prices of your competition by category, by geographic location. And so, we’ve done a lot of that. And in some cases, with inflation — product inflation, we have to carry that forward to the consumer. But in a lot of cases, we’re just focused on being competitively priced. And I’ll let Brandon provide some financial specifics of what that looks like.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

Lowes said rising energy costs were not a significant concern for their business

Lowes’ CFO told analysts that fuel costs were a “minor cost of the overall portfolio.” “Brandon Sink — Executive Vice President and Chief Financial Officer: Yeah. Yes, Simeon, I would just add to your question on fuel costs, transportation, also add import container cost into that mix. The teams have done a great job just giving us visibility to where those costs are, when they’re going to hit. And it is correct to say, as we manage the totality of the portfolio, that that’s a consideration set along with direct costs from the vendor. So, we are managing that appropriately, managing in this retail environment. So, that would be the only additional thing I would add to the comment. On transportation, in particular, on fuel, it is a more minor cost of the overall portfolio. When we look at the totality of supply chain, and we feel like we’re doing some other things like managing trailers, intermodal, and leaning into some of those other things to also help offset that.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

Lowes’ CEO said the company was not concerned about interest rates because “the key economic drivers of our business, it remains home price appreciation. ”Marvin Ellison — Chairman and Chief Executive Officer: It’s really more of an acknowledgment of what we’re all seeing in just a broader macroeconomy. And I think what’s interesting for home improvement is that we’re aware that we have inflation concerns. We’re aware that there is rising interest rates. But as we look at the home improvement sector, we still remain very confident in the outlook and we’re very confident in the sector. And so, I’ll just repeat what I’ve said. We’ve seen no material trade down from our customers. We closely monitor Pro and DIY. We look at it intently as you can imagine. And when we think about the key economic drivers of our business, it remains home price appreciation. It remains the age of housing stock, you know, it remains, you know, those things that give the homeowner confidence and continuing to invest in the home. And as we talk to our Pro customers, they’re booked up for the year. We talked to our DIY customers. They would just wait for the sun to come out. And so, we feel good about the home improvement sector. And my statement was just more of an acknowledgment of the broader macro environment that we’re all seeing.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

Lowes stressed the company was benefitting from ongoing housing price appreciation driven by the lack of supply
 

Lowes’ CEO: “we have unprecedented home price appreciation, but we also have an unprecedented supply demand issue for the availability of homes. So, our data tells us, this is less of bubble and it’s more of a supply demand issue where you have 1.5 million, 2 million homes of demand versus the availability” “Marvin Ellison — Chairman and Chief Executive Officer: And, Liz, this is Marvin again. I just want to reinforce the point on the value of home price appreciation to consumer confidence. And it’s one of the reasons why I think home improvement is a unique retail sector in kind of this macro environment where there are a lot of questions about the health of the consumer. What our data tells us, and it correlates historically, is when your home value is going up, you simply have more confidence to invest in that home because you see it as an investment and not an expense. And we have unprecedented home price appreciation, but we also have an unprecedented supply demand issue for the availability of homes. So, our data tells us, this is less of bubble and it’s more of a supply demand issue where you have 1.5 million, 2 million homes of demand versus the availability. And so, if you think about what Bill said about trading up, our customers, they feel more comfortable investing in home because they think they’re going to get a return on that investment. And I think that’s the value of home price appreciation to our business.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

Lowes told analysts it was benefitting from commodity inflation increasing their average ticket size in sales

Lowes’ CFO: “Inflation is going to continue to be a bit of a tailwind for us as well.” Brandon Sink — Executive Vice President and Chief Financial Officer: We have some of our biggest volume weeks ahead with Memorial Day, Father’s Day, J4. We’re pleased with the sequential sales improvement, confident in the full Q2 recovery of the $350 million. And then when we look at the balance of the year, I think with the weather trends, Q2, $350 million. We’re going to continue to see the Pro strength 20% comp in Q1, 64% two-year. Inflation is going to continue to be a bit of a tailwind for us as well. But all that being said, our range is down one to plus one. We’re confident in that go-forward for the full year. And that yields Q2 to Q4. That’s a slight positive comp over the balance of the year for the one year.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

A Lowes Executive told analysts the company was benefitting from persistent consumer demand “ and, to a lesser extent, commodity inflation.”“Bill Boltz — Executive Vice President, Merchandising Now, turning to building products. We continue to see broad-based strength across key Pro categories, including electrical, building materials, rough plumbing, millwork, and lumber, driven by strong Pro demand and competitive in-stock positions. Building on last year’s strong performance, we delivered a positive 38% two-year comp in building products, which continues to reflect the persistent underlying strength in consumer demand for larger core home improvement projects and, to a lesser extent, commodity inflation.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)

Lowes CFO told analysts the company’s average ticket size in sales was benefitting from “product inflation” and “commodity inflation.” “Brandon Sink — Executive Vice President and Chief Financial Officer: Comparable average ticket grew 9.1%, driven by higher Pro sales, increased levels of product inflation, and 150 basis points of commodity inflation. This was offset by comp transaction count declining 13.1% due to a later start to spring, as well as the impact of cycling over government stimulus and storm recovery in the prior year. Keep in mind that comp transactions increased 11.8% last year, which results in a two-year comp transaction count decrease of 2.9%. U.S.” (Lowes Q1 2022 Earnings Call Transcript, 5/19/2022)