Core Viewpoint - Lowe's Companies, Inc. has completed the acquisition of Artisan Design Group for $1.325 billion, enhancing its capabilities in the interior surface finishes market [1][10]. Acquisition Details - The acquisition was fully funded using Lowe's available cash resources, and the company has suspended its share repurchase program for the remainder of the year [2]. - Lowe's plans to repay $1.75 billion of debt maturing in September 2025 in conjunction with this transaction [2]. Strategic Significance - The integration of ADG allows Lowe's to expand into a complementary distribution and installation channel, enhancing its reach beyond traditional retail operations [3]. - This acquisition is expected to be accretive to Lowe's earnings per share starting in fiscal 2026, significantly improving its Pro customer offerings [5]. - The transaction provides immediate entry into a $50 billion market characterized by fragmentation, with increased construction activity projected to drive demand [6]. Market Opportunity - The U.S. housing market is expected to require approximately 18 million new homes by 2033, indicating sustained demand within the professional segment [6]. - ADG generated approximately $1.8 billion in revenues in fiscal 2024, and Lowe's anticipates continued growth from this business due to operational synergies and increased scale [7]. Growth Factors - Lowe's has demonstrated resilience and strategic focus, particularly in its Pro segment, which has shown mid-single-digit comparable sales growth [11]. - Digital transformation and AI integration are significant growth drivers, with online sales increasing by 6% year over year [12].

Financial Data and Key Metrics Changes - The company reported net sales of $400.4 million for the fourth fiscal quarter, representing a decline of 11.7% compared to the prior year [4][14] - Adjusted EBITDA for the quarter was $47.1 million, or 11.8% of net sales, down from 12.1% in the same period last year [8][16] - Adjusted net income was $24 million, or $1.61 per diluted share, compared to $28.2 million, or $1.78 per diluted share last year [16] - The gross profit margin decreased by 160 basis points to 17% of net sales from 18.6% in the prior year [15] - For the full fiscal year, net sales were $1.7 billion, a decrease of 7.5% year-over-year [18] Business Line Data and Key Metrics Changes - Remodel net sales, which include home centers and independent dealers, decreased by 10.4% in the fourth quarter [14] - New construction net sales decreased by 13.4% for the quarter compared to last year [14] - The home center business saw a low single-digit negative comp, while the pro business reported a positive comp for the quarter [5][6] Market Data and Key Metrics Changes - Existing home sales fell by 0.5% month-over-month to a seasonally adjusted rate of 4 million in April 2025, with a year-over-year decline of 2% [4] - The NAHB housing market index fell to 34 in May, marking the lowest level since November 2023 [7] - Single-family housing starts experienced negative comps from January to April [7] Company Strategy and Development Direction - The company focuses on three main strategic pillars: growth, digital transformation, and platform design [10] - Key accomplishments include product innovation, capacity investments, and channel expansion, with over 30% of made-to-order sales coming from products launched in the last three years [10][11] - The company is enhancing its manufacturing capabilities and transitioning independent distributor customers to a new brand [11][12] Management's Comments on Operating Environment and Future Outlook - The management expects demand trends to remain challenging, with net sales for fiscal year 2026 projected to range from low single-digit declines to low single-digit increases [9][20] - The outlook is influenced by macroeconomic factors, including interest rates, tariff changes, and consumer behavior [20] - Management believes that a decline in mortgage rates and increased consumer confidence could positively impact the housing market [9] Other Important Information - The company repurchased 1.17 million shares during fiscal year 2025, representing about 7.5% of outstanding shares [19] - Free cash flow totaled $65.7 million for the current fiscal year, down from $138.5 million in the prior year [18] - The company has a net leverage ratio of 1.56 times adjusted EBITDA at the end of the fourth quarter [19] Q&A Session Summary Question: Impact of tariffs on full year guidance - Management indicated that the outlook was significantly influenced by tariffs, estimating a cost impact of approximately $20 million [26][27] Question: Gross margin improvement - The improvement in gross margins was attributed to operational adjustments made in response to previous demand softness [28][30] Question: Revenue guidance assumptions - The revenue guidance assumes a recovery in both remodel and new construction markets in the second half of fiscal year 2026 [35][36] Question: Cost side considerations - Management acknowledged potential commodity inflation and labor costs as factors to consider for the full year guidance [43] Question: Savings from facility closure - The closure of a components facility is expected to yield annual savings of $5 million to $6 million [45] Question: Automation investments progress - Management described the company as being in the early stages of its automation investment journey, with significant spending planned for fiscal year 2026 [53][54]

Financial Data and Key Metrics Changes - The company reported net sales of $397.6 million, a decline of 5.8% compared to the prior year, which was below expectations due to softer demand in the remodel market and a significant decline in new construction activity [7][23] - Adjusted EBITDA was $38.4 million, representing 9.7% of net sales, down from 12% in the previous year, indicating a 230 basis point decline year-over-year [12][26] - Adjusted net income was $15.9 million or $1.05 per diluted share, compared to $25.1 million or $1.56 per diluted share last year [26] Business Line Data and Key Metrics Changes - New construction net sales decreased by 10.4%, while repair and remodel net sales were down 2.3% [24] - The home center made-to-order business remained flat year-over-year, while the stock kitchen business saw mid-single-digit growth [8] - The distribution business experienced a decline of double digits due to reduced new construction activity [9] Market Data and Key Metrics Changes - Single-family housing starts showed negative comparisons versus the prior year, particularly in markets like Atlanta, Florida, and Southern California [10] - The company noted a rotation down in made-to-order new construction offerings, leading to an unfavorable mix impact [10] Company Strategy and Development Direction - The company is focused on three main strategic pillars: growth, digital transformation, and platform design [17] - Recent initiatives include the conversion of distribution business customers to the new brand 1951 Cabinetry and the launch of new finishes and styles [18][19] - The company is also evaluating pricing strategies to mitigate inflationary impacts and potential new tariffs [32] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about ongoing macroeconomic challenges, including declining consumer sentiment and inflation risks, with expectations of a mid-single-digit decline in net sales for the full fiscal year [14][30] - The outlook for adjusted EBITDA is revised to a range of $210 million to $215 million, driven by softening sales volumes and increased manufacturing deleverage [31] Other Important Information - The company announced the closure of its Orange, Virginia manufacturing location, which is expected to improve operational efficiencies [27] - Free cash flows totaled $31.5 million year-to-date, a decrease from $131.7 million in the prior year, primarily due to changes in operating cash flows [28] Q&A Session Summary Question: What portion of your reduced guide is attributed to the slower R&R environment and builders reducing inventory? - Management indicated that both factors were key contributors to the overall comp rate for the quarter and that the full-year outlook assumes a similar operating environment in Q4 [38] Question: Have you begun to see any positive impacts from the hurricanes last fall or potentially the fires in Southern California? - Management noted some positive comps in Florida from hurricane-impacted stores, but nothing material for the overall quarter [40] Question: Can you discuss pricing considerations and the options you're contemplating? - Management stated that if tariffs are implemented and cannot be fully mitigated, pricing action will likely be necessary, with discussions ongoing about potential surcharges [44][47] Question: Is dealer demand bottoming, and what is the outlook for R&R? - Management expressed hope that demand is bottoming out, with expectations for an increase in the future, particularly in the second half of 2025 [50][51] Question: Can you quantify the impact of mix headwinds within the new construction business? - Management confirmed a rotation down in product offerings, with builders trying to lower price points to improve affordability [55] Question: What would be the annual benefit from closing the Orange facility in terms of EBITDA and gross margins? - Management indicated that the impact would be incorporated into the fiscal year '26 outlook, with further details to be provided in the next call [63]