Lowe's(LOW) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third quarter sales reached $20.8 billion, with comparable sales increasing by 0.4% year over year, despite a 100 basis point headwind from Hurricanes Helene and Milton [4][29] - Adjusted diluted earnings per share were $3.06, reflecting a 6% increase compared to the previous year [4][28] - Gross margin improved to 34.2%, up 50 basis points from the prior year [30] - Adjusted operating margin rate was 12.4%, an increase of 10 basis points year over year [30] - Inventory at the end of Q3 was $17.2 billion, down approximately $400 million compared to the previous year [30] Business Line Data and Key Metrics Changes - Positive comparable sales were reported in 10 of 14 merchandise divisions, with notable strength in appliances, flooring, paint, and kitchens and bath [15][29] - Online sales grew by 11.4% during the quarter, driven by increased traffic and strong conversion rates [5] - Home services experienced double-digit comparable sales growth, indicating strong performance in this key initiative [24] Market Data and Key Metrics Changes - The U.S. homeowner market remains healthy, with strong balance sheets and continued consumer spending, although affordability and economic uncertainty weigh on consumer confidence [12][13] - The average homeowner has record levels of equity, approximately $400,000, which may lead to increased investment in home improvement projects [13] Company Strategy and Development Direction - The company is focused on its 2025 Total Home Strategy, which includes enhancing pro offerings, accelerating online sales, and leveraging loyalty programs [5][6] - The acquisition of Foundation Building Materials (FBM) aims to expand product offerings and enhance fulfillment capabilities, particularly in urban markets [11][12] - Investments in AI are expected to improve customer engagement and operational efficiency, with virtual assistants significantly increasing conversion rates [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the long-term health of the home improvement sector, despite current macroeconomic uncertainties [14] - The company anticipates that lower interest rates could stimulate demand for home improvement projects, particularly through home equity loans [13][64] - The outlook for 2026 remains cautious, with expectations for flat comparable sales for the year [33] Other Important Information - The company is on track to achieve its multi-year goal of reducing in-store SKU count by 15% by the end of 2025 [21] - The marketplace initiative is showing early promise, exceeding expectations in seller onboarding and customer adoption [72][73] Q&A Session Summary Question: How is the business trend looking in light of recent performance? - Management noted positive comp performance to start the quarter, with improvements in top-line performance since exiting October [37][39] Question: What is the outlook for kitchen and bath categories? - Management believes Lowe's is gaining market share in kitchen and bath, supported by improved technology and product offerings [45][46] Question: Can you elaborate on the improving sentiment among pros? - The small to medium pro business remains stable, with 75% of pros feeling confident in their job prospects [52] Question: How does the company view the current housing market? - Management acknowledged elevated mortgage rates but highlighted the strong equity position of homeowners as a potential driver for future home improvement spending [62][64] Question: What are the early margin scenarios for FBM and ADG? - Initial estimates suggest a 50 basis point impact on margins in 2026, with a focus on gross margin improvements [56]