Lowe's Companies Q2 Earnings Call Highlights
Key Points
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- Lowe’s second-quarter sales rose 8.3% to $26 billion, while comparable sales increased 0.2%, marking five consecutive quarters of positive comparisons. Growth in professional customers, online sales, and home services offset weaker discretionary DIY demand.
- Online sales grew 15.7%, supported by higher traffic, conversion, fulfillment options, and the MyLowe AI tool. However, inflation, interest rates, fuel costs, weather, and increased promotional competition pressured transactions and margins.
- Lowe’s maintained its full-year outlook near the low end of its prior guidance, calling for roughly flat comparable sales and adjusted EPS of about $12.25. Management expects continued residential-construction pressure but remains focused on long-term investments in products, services, and housing-related demand.
Lowe's Companies (NYSE:LOW) reported second-quarter sales of $26 billion, up 8.3% from a year earlier, as growth in its professional customer, online and home-services businesses helped offset continued pressure on discretionary do-it-yourself spending.
Comparable sales increased 0.2% in the quarter, extending the company's streak to five consecutive quarters of positive comparable sales. However, performance varied through the period, with comparable sales down 0.4% in May, up 1.7% in June and down 1.2% in July. Chief Financial Officer Brandon Sink said the timing of the July Fourth holiday added about 75 basis points to June comparable sales and created a similar drag in July.
GAAP diluted earnings per share were $4.27, while adjusted diluted EPS was $4.40 after excluding $96 million in pretax acquisition-related intangible asset amortization. Both measures included an $0.11-per-share benefit from IEEPA tariff refunds. Sink said adjusted EPS exceeded expectations even excluding that benefit.
Pro, Online and Services Support Results
Chairman and CEO Marvin Ellison said Lowe's continued to gain traction under its Total Home strategy, led by its Pro, digital and home-services operations. The company reported another quarter of growth among professional customers, particularly small and medium-sized Pros.
Joe McFarland, executive vice president of stores, said Lowe's survey of core Pro customers found their backlogs remained steady, though homeowners are favoring smaller repair and maintenance projects rather than larger remodeling work.
Online sales rose 15.7% during the quarter, driven by increased traffic and conversion, tailored website and mobile-app experiences, expanded visualization tools, marketplace growth, and fulfillment options including free delivery and same-day delivery, Ellison said.
The company's MyLowe artificial-intelligence tool has answered more than 25 million questions from customers and associates since its launch, according to Ellison. Online customers who use MyLowe convert at three times the rate of those who do not use the tool, he said.
Lowe's also cited growth in home services as customers used its offerings for replacement projects. Ellison said enhancements to the experience have improved conversion, project cycle times and customer satisfaction.
DIY Demand and Competitive Pricing Remain Pressures
Management said elevated fuel prices, inflation, interest rates and broader economic uncertainty continued to influence household budgets and discretionary spending. Comparable average ticket increased 2.3%, reflecting modest price inflation and Pro strength, while comparable transactions declined 2.1%, primarily due to weather-sensitive outdoor and seasonal categories.
Ellison said weather conditions during Memorial Day weekend weighed on quarterly performance, especially in outdoor categories. Sink said the company was encouraged by its two-year sales trends, which accelerated during the quarter and reached positive 3.4% in July after accounting for holiday timing effects.
Lowe's also encountered increased price competition late in the quarter. Ellison said competitors used tariff refunds to cut prices in seasonal categories such as grills, patio furniture and live goods during July.
“We don't think it's the new normal. We think it's transitory,” Ellison said, adding that Lowe's did not match certain promotions because it did not view them as financially prudent. The company expects the home-improvement sector to return to a more rational promotional environment during the second half, while continuing to use loyalty offers and other customer-facing initiatives to remain competitive.
Merchandise Performance and Second-Half Plans
Lowe's recorded positive comparable sales in nine of its 13 merchandise divisions. Building products posted broad-based growth in rough plumbing, millwork, electrical and lumber, while home décor gained in appliances, paint, and kitchen and bath. Appliances delivered its seventh consecutive quarter of positive comparable sales growth.
Hardlines sales also increased in lawn and garden and tools and hardware. Bill Boltz, executive vice president of merchandising, said customers responded to value offerings in live goods, hardscapes and landscape products, as well as outdoor power equipment brands including John Deere, Toro, Ariens and EGO.
For the second half, Lowe's plans to expand premium assortments in appliances and patio furniture, add new products across DEWALT, Bosch, Kobalt and CRAFTSMAN, and complete the rollout of Daltile hard-surface flooring. The company also expects to launch Traeger grills in select stores and online nationwide later in the year.
Boltz said MyLowe's Rewards has more than 30 million members, who shop more frequently and spend more per visit than nonmembers. Lowe's also remains on track to expand pet and workwear assortments to all stores by year-end.
Margins, Cash Flow and Updated Outlook
Second-quarter gross margin was 33%, down 80 basis points from the prior year’s adjusted gross margin. The result included dilution from the Foundation Building Materials and Artisan Design Group acquisitions, partly offset by favorable credit revenue. Tariff refunds contributed about $80 million, or 30 basis points, to gross margin, but were largely offset by elevated fuel and transportation costs.
Adjusted operating margin was 14%, down 62 basis points from the prior year. Selling, general and administrative expense represented 17.2% of sales, leveraging 14 basis points versus the prior year. Sink said productivity efforts and expense discipline supported profitability despite softer-than-expected sales.
Inventory ended the quarter at $17.7 billion, up about $1.4 billion year over year, reflecting normalization from prior tariff-related timing disruptions, investments in in-stock levels and roughly $500 million from the FBM acquisition. Lowe's generated $3.1 billion in free cash flow and spent $542 million on capital expenditures during the quarter.
- Sales: approximately $92 billion
- Comparable sales: roughly flat
- Adjusted operating margin: approximately 11.6%
- Adjusted diluted EPS: approximately $12.25
- Capital expenditures: up to $2.5 billion
The updated outlook is at the bottom end of Lowe's previous guidance range and includes tariff benefits recognized in the second quarter, but excludes potential additional tariff refunds in the second half. For the third quarter, the company expects comparable sales in line with its full-year outlook and adjusted diluted EPS about 7% below the prior-year adjusted result.
Management said the outlook assumes continued pressure in residential construction, affecting both FBM and ADG. Ellison said Lowe's remains committed to investing for the long term, citing aging U.S. housing stock, longer homeowner tenure and what he described as deferred demand for home-improvement projects.
About Lowe's Companies (NYSE:LOW)
Lowe's Companies, Inc is a leading home improvement retailer that operates large-format stores and digital channels serving both do-it-yourself homeowners and professional contractors. The company offers a broad assortment of products including building materials, lumber, appliances, tools and hardware, plumbing and electrical supplies, paint, flooring, kitchen and bath fixtures, outdoor and garden products, and home decor. Lowe's also provides a range of services such as installation, home improvement financing, tool and equipment rental, and contractor-focused sales programs.
Operations are centered on a nationwide brick-and-mortar store network supported by distribution centers and an e-commerce platform that enables online ordering, delivery and in-store pickup.
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