Lowe's(LOW) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2025, the company reported sales of $24 billion, with comparable sales increasing by 1.1% [7][26] - Adjusted diluted earnings per share reached $4.33, marking a 5.6% increase compared to the previous year [7][25] - Adjusted gross margin improved to 33.8%, up 37 basis points from the prior year [26] - Inventory at the end of Q2 was $16.3 billion, down $499 million year-over-year [27] Business Line Data and Key Metrics Changes - Positive comparable sales were reported in nine out of fourteen merchandise divisions, particularly in pro and online segments [12] - Strong performance was noted in seasonal categories, especially in lawn and garden, tools, and building products [12][14] - The flooring category showed strength across carpet, tile, and adhesives, with the introduction of Dal Tile expected to enhance offerings [65] Market Data and Key Metrics Changes - The macro environment remains supportive for homeowners, with strong balance sheets and low unemployment contributing to a positive outlook for the home improvement industry [10] - Analysts estimate approximately $50 billion in deferred project demand due to delayed discretionary projects over recent years [10] - The need for an estimated 18 million new homes by 2033 indicates a healthy pipeline for home improvement and new construction [11] Company Strategy and Development Direction - The acquisition of Foundation Building Materials (FBM) is seen as a transformational move to enhance the company's pro offerings and diversify revenue streams [5][6] - The company aims to leverage FBM's capabilities to serve larger professional customers within a $250 billion total addressable market [5][42] - The strategy focuses on integrating acquisitions to create a comprehensive interior solutions platform for large pro customers [41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the uncertain environment while providing value to customers [28] - The outlook for the home improvement market remains flat, with expectations for gradual improvements in the underlying business [29][77] - Management highlighted the importance of continuous improvement initiatives and the positive sentiment among professional customers regarding their job prospects [21][64] Other Important Information - The company generated $3.7 billion in free cash flow during Q2, with $1.3 billion allocated for the acquisition of ADG [28] - The acquisition of FBM is expected to close in 2025, with a purchase price of $8.8 billion [44] - The company plans to maintain its investment-grade credit ratings while focusing on growth and shareholder returns [45] Q&A Session Summary Question: Can you expand on Foundation's year-to-date performance in 2025? - Management refrained from providing specific details until after the transaction closes but expressed excitement about FBM's historical performance [50] Question: What percentage of the 33,000 SKUs will be net new to Lowe's offering? - Management indicated it is too early to provide specifics but sees significant opportunities for complementary products [51] Question: Can you provide insights from the pro sentiment survey? - Pros reported stable backlogs and confidence in job prospects, although labor costs are rising [63][64] Question: What is happening in the flooring category? - Strength was noted in both DIY and pro segments, with the introduction of Dal Tile expected to enhance offerings [65] Question: Can you provide customer numbers or makeup for FBM? - FBM has about 40,000 customers, with a balanced mix of residential and commercial clients [72] Question: How much of the guidance for the back half is due to pricing? - Management indicated that pricing strategies are dynamic and will continue to be competitive [78] Question: Is there a secondary investment cycle emerging in the core Lowe's supply chain? - Management acknowledged the need for continuous investment in the platform but does not foresee another large acquisition soon [86]