Lowe's Companies Q3 2021 Earnings Report

Lowe's Companies EPS Results

• Actual EPS: $2.73
• Consensus EPS: $2.35
• Beat/Miss: Beat by +$0.38
• One Year Ago EPS: $1.98

Lowe's Companies Revenue Results

• Actual Revenue: $22.92 billion
• Expected Revenue: $22.06 billion
• Beat/Miss: Beat by +$854.94 million
• YoY Revenue Growth: +2.70%

Lowe's Companies Announcement Details

• Quarter: Q3 2021
• Date: 11/17/2021
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 16, 2021
• Conference Call Time: 7:00PM ET

Lowe's Companies (NYSE:LOW) 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. Lowe’s serves residential customers and trade professionals across the United States with a focus on combining in-store merchandising and customer service with investments in supply chain and digital capabilities to support omnichannel shopping and professional customer relationships.

The company traces its origins to a hardware store founded in 1921 in North Carolina and has grown into one of the largest specialty retailers in its sector. Lowe’s is headquartered in Mooresville, North Carolina. Marvin R. Ellison has served as president and chief executive officer since 2018, leading efforts to enhance customer experience, expand professional services, and modernize operations. The company’s long history and scale make it a prominent player in the home improvement and building supply industry.

Lowe's Companies Q3 2021 Earnings Call Transcript

Key Takeaways

• Lowe’s delivered comparable sales up 2.2% company-wide and 2.6% in the U.S., driving a two-year comp of ~33%; e-commerce grew 25% with 9% penetration and a 158% two-year comp.
• Pro sales outpaced DIY, rising 16% in Q3 (43% two-year) while orders over $500 increased 11%, led by strong demand for appliances and flooring.
• Operating margin expanded by 240 bps to 12.2%, lifting adjusted EPS to $2.73 (up 38%), driven by disciplined pricing and productivity initiatives.
• Fulfillment improvements continued with expansion of the market-based delivery model for big and bulky items—boosting margins, cutting inventory and improving on-time rates—with a national rollout planned over 18+ months.
• The company generated $1.9 billion in free cash flow, invested $410 million in capex, and announced an extra $3 billion share repurchase in Q4, bringing full-year buybacks to ~$12 billion.

Presentation

[Operator]

Good morning everyone, and welcome to Lowe's Companies third quarter 2021 earnings conference call. My name is Sherry, and I will be your operator for today's call. As a reminder, this call is being recorded. I will now turn the call over to Kate Pearlman, Vice President of Investor Relations.

[Kate Pearlman, VP of Investor Relations at Lowe's Companies]

Thank you and good morning. Here with me today are Marvin Ellison, Chairman, President, and Chief Executive Officer, Bill Boltz, our Executive Vice President, Merchandising, Joe McFarland, our Executive Vice President, Stores, and Dave Denton, our Executive Vice President and Chief Financial Officer. I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on Lowe's Investor Relations website. During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2021. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the Risk Factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings. Additionally, we'll be discussing certain non-GAAP financial measures.

[Kate Pearlman, VP of Investor Relations at Lowe's Companies]

A reconciliation of these items to U.S. GAAP can be found in the Quarterly Earnings section of our Investor Relations website. Before we turn to our third quarter results, I would like to announce that we will be hosting a Lowe's 2022 Financial Outlook virtual investor event on Wednesday, December 15, from 8:00 A.M. to 9:00 A.M. Eastern Time. We would like to provide greater transparency around our 2022 expectations in this still uncertain operating environment. Marvin will speak to the key growth initiatives in our Total Home strategy, while Dave will outline our 2022 financial targets and priorities to assist with your modeling. After our prepared remarks, we will host a Q&A session. With that, I'll turn the call over to Marvin.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Thank you, Kate, and good morning, everyone. Our momentum continued this quarter with comparable sales up 2.2% for the total company and 2.6% for the U.S. on top of over 30% growth last year. This resulted in comp sales of 33% for the total company and 33.7% for the U.S. on a two-year basis. These outstanding results were driven by disciplined execution of our Total Home strategy, which allowed us to grow our share of wallet with both pro and DIY customers as they gained confidence in Lowe's as the right destination for all of their project needs.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Our results also benefited from the great work by our merchants and supply chain teams who delivered competitive in-stock positions as we leverage our scale and carrier relationships to build inventory in key high-demand categories despite widespread disruption in the global supply chain. Later in the call, Bill will discuss how we are navigating these unprecedented challenges in order to meet the continued strong demand for home improvement products. After Labor Day, we saw an increase in DIY demand on the weekends as travel activity slowed down and children returned to school. As a result, consumers were once again spending more time on projects in their homes. Our elevated product assortment across our home decor offerings are resonating with consumers, resulting in particularly strong performance in appliances and flooring and contributing to an 11% increase in ticket over $500.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

The strength in the higher ticket categories reflects the continued consumer confidence in their homes as a sound investment and reflects the early success of our Total Home strategy. We're also making significant progress growing Pro sales. Pro once again outpaced DIY this quarter with Pro growth over 16% and over 43% on a two-year basis. Over the past two years, we have relentlessly focused on improving the Pro offering in our stores and online with better service levels, deeper inventory quantities, a more intuitive store layout combined with an increased number of Pro national brands. As we continue to drive higher Pro growth, we will increase sales productivity and operating leverage across our stores. Later in the call, Bill will discuss our continuing efforts to expand our Pro product offerings, and then Joe will discuss how we continue to enhance our Pro shopping experience.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

For the past 18 months, the home has increased in importance for all of us and perhaps especially for our baby boomer customers who are increasingly interested in aging in place in their own homes. This morning, we are delighted to announce the launch of our Lowe's Livable Home product and installation services in a unique collaboration with AARP. We will offer affordable on-trend solutions like walk-in bathtub, grab bars, stair lifts, non-slip floors, pull-down cabinets, and wheelchair ramps. These solutions will help our customers modify their homes to fit their lifestyle needs. Our collaboration with AARP will leverage their trusted brand and expertise as we help to educate our customers on how to approach aging in place. We look forward to updating you on this very exciting initiative on future calls. Now turning to lowes.com.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Sales grew 25% on top of 106% growth in the third quarter of 2020, which represents a 9% sales penetration this quarter and a two-year comp of 158%. As we modernize our omnichannel offering, we continue to gain traction with consumers who increasingly expect a seamless, integrated shopping experience.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

As a further indication of the strides we've made in upgrading our dot-com platform, I'm pleased to announce that we have recently launched Lowe's One Roof Media Network. Our recognition for the first time in 17 years as Fortune's Most Admired Specialty Retailer and our inclusion as one of the top three marketers of the year in Ad Age's annual list means that we are well-positioned to put our vendor partners at the forefront of the home lifestyle movement, helping them to capitalize on the shift in consumer behavior and sentiment toward the home. We're excited to participate in this rapidly growing segment of digital advertising. During the quarter, operating margin expanded approximately 240 basis points, leading to diluted earnings per share of $2.73, which is a 38% increase as compared to adjusted diluted earnings per share in the prior year.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Our improved operating performance continues to reflect the great execution of the team, as well as the benefits of our new price management system and the success of our perpetual productivity improvement initiatives, or PPI. Dave and Joe will provide further details on both these initiatives later in the call. Now turning to our results in Canada, where our performance lagged the U.S. as the Canadian business is more heavily weighted towards lumber. The Canadian leadership team remains focused on driving productivity by leveraging technology and processes that have already yielded strong results in the U.S. I'd now like to take a moment to discuss how we're expanding our fulfillment capabilities to meet the ever-increasing consumer demand for omni-channel shopping solutions.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

This quarter, we completed the conversion of our second geographic area, the Ohio Valley region, to the market-based delivery model for big and bulky product, building on the success we gained in Florida. As a reminder, in the market-based delivery model for big and bulky products, flowing from our supply chain directly to consumers' homes, bypassing the stores altogether. This replaces the legacy store delivery model, which is highly inefficient and relies on each store to function as its own distribution node for these products. This new delivery model is already driving higher sales in appliances, improved operating margins, reduced inventory, and higher on-time delivery rates. We plan to complete the rollout across the entire U.S. over the next 18-plus months. Now let's talk about the importance of culture at Lowe's.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

This year, we're celebrating our centennial with a $10 million investment in 100 communities across the country, with projects ranging from renovating homeless shelters, updating youth centers, and addressing unique needs for communities all around the country. You can go to lowes.com and see a full list of all 100 community projects. This is our way of expressing our appreciation for our loyal customers and paying tribute to the company's longstanding commitment to community service. In addition to commitment to the community, at Lowe's, we are proud of our relationship with and support of our military veterans and active duty service members. This is demonstrated by the $1 billion in discounts that we give our military families in our country this year through our military discount program. Joe will discuss this program in more detail later in the call.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Before I close, I would like to extend my appreciation for our frontline associates. Every week, I'm fortunate to travel across the country visiting stores, and I'm impressed by our associates' resilience and commitment to serving our customers and our communities. I'm very pleased to announce that for the seventh consecutive quarter, 100% of our stores earned a Winning Together profit-sharing bonus. This $138 million payout to our frontline hourly associates is $70 million above the target payment level and reflects our appreciation for the hard work of our hourly workforce. With that, I will now turn the call over to Bill.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

Thanks, Marvin, and good morning, everyone. In the third quarter, U.S. comparable sales increased 2.6% and 33.7% on a two-year basis as our Total Home strategy continues to gain traction with our DIY and pro customers. This quarter, we drove positive comps across our home decor and hard lines divisions. Comps in the building products divisions were down slightly as compared to the prior year as we cycled over a period of extremely high DIY demand for lumber. Growth continued to be broad-based on a two-year basis, with all product categories up more than 17% in that timeframe. In our home decor division, appliances and flooring delivered standout performances as we leveraged our competitive in-stock positions and updated product assortments to deliver strong positive comps on top of 20% growth in these categories last year.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

Within appliances, sales of refrigerators, freezers, and washers and dryers were particularly strong. In flooring, vinyl flooring remains the top-performing category, supported by innovative product like the WetProtect from Pergo, which is exclusive to Lowe's. We are pleased to see the new product offerings in our own allen + roth brand resonating with our customers, like the new allen + roth Lifestyle Performance Rugs. These rugs have the appearance of an indoor rug, but they are hose washable, which makes them ideal for busy families with kids and pets.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

Turning to our performance in our hard lines division, customers also invested in outdoor entertainment and upgrading their outdoor living spaces, as well as holiday decorations for their homes and yards, driving strong positive comps in seasonal and outdoor living and lawn and garden, resulting in two-year comps over 43% in each category. We were also pleased with our performance in Halloween as we sold through much earlier than in previous years, and our early sales of holiday trim-a-tree are tracking ahead, as well as consumers are getting a jump start on their holiday decorating. In addition to early sales of holiday, we have also seen customers purchasing cold weather products like snow throwers earlier than in years past. With broader awareness of potential global supply chain disruptions, we are seeing many consumers looking to purchase products as soon as they are available in our stores.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

In the quarter, we also leveraged our number one position in outdoor power equipment to deliver over 20% growth in battery-operated outdoor power equipment. Both our DIY and pro customers are enjoying the zero-emission rechargeable products available in the EGO, Kobalt, CRAFTSMAN, and SKIL brands. We continue to expand our brand and product assortment, building on the powerful lineup of brands that include John Deere, Honda, Husqvarna, Ariens, and CRAFTSMAN. In building products, comps were down slightly due to a decline in DIY lumber sales, despite double-digit comps in electrical and strong positive comps in rough plumbing and building materials. We feel good about the traction that we are gaining with the pro customer as we continue to build out our product assortments that are tailored to their needs. This quarter, we completed the launch of the SPAX fastener program in our stores.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

SPAX is the market leader in multi-material construction screws. We also continue to build out our pro power tool accessory program with new launches from Spyder and DEWALT. This quarter, Spyder will be launching their new Tarantula circular saw blades, offering seven new options to tackle a wider variety of tough construction jobs, all of which are exclusive to Lowe's. DEWALT will be launching their new Elite Series circular saw blades, which are designed to maximize productivity for heavy-duty projects, and these will also be exclusive to Lowe's. These new products are strong additions to our pro brand lineup, which includes great pro brands like Simpson Strong-Tie, DEWALT, Metabo, Bosch, Spyder, GRK, FastenMaster, ITW, Lufkin, Marshalltown, Estwing, Eaton, SharkBite and LESCO, and the recent additions of FLEX, SPAX and Mansfield. Now shifting to lowes.com.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

We delivered sales growth of 25% in the quarter and 158% on a two-year basis. Following the launch of Lowe's Virtual Kitchen Design and Visual Search in Q2, we enhanced our omni-channel customer experience with the introduction of our paint visualizer on lowes.com in the third quarter. We are continually working to remove friction from the buying process and to fully integrate the online and in-store shopping experience. Before I close, I'd like to discuss how we're navigating the unprecedented disruptions across the global supply chain that are impacting the retail industry. As one of the largest importers in the U.S., we are fortunate to be able to leverage our scale and carrier relationships to secure shipping and transportation capacity and work to minimize the impact of cost increases.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

We're also taking a very proactive approach by ordering inventory earlier than in years past, including our seasonal buys for both 2021 and 2022. This gives us more time to manage through any unforeseen delays in either the production or the distribution of our orders. Once the product lands in the U.S., we are able to leverage our growing network of coastal holding facilities so that we can hold the product upstream from our regional distribution centers and bulk distribution centers until it's needed. From there, we can quickly flow the product to the right areas of the country. Looking ahead, we are ready to flex our seasonal pads to a variety of different winter and early spring offerings after we sell through our trim-a-tree product.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

The investments that we made in the U.S. stores reset last year expanded our operating capabilities and has allowed us to respond rapidly to the changing consumer shopping habits, like the early season buying that we're seeing right now. Once again, I'd like to thank our merchants, supply chain team and our vendor partners for their hard work and support, which has allowed us to manage through this changing environment. Thank you, and I'll now turn the call over to Joe.

[Joe McFarland, EVP of Stores at Lowe's Companies]

Thanks, Bill, and good morning, everyone. As Marvin mentioned, this quarter, 100% of our stores earned their Winning Together profit-sharing bonus, resulting in a payout of $138 million to our frontline hourly associates. I would like to thank our associates not only for their outstanding execution this quarter, but for their commitment to the communities during the numerous severe weather events across the country. The current hiring environment remains competitive and we continue to align labor to meet demand. Our labor management system has allowed us to serve the needs of our customers while addressing the lifestyle demands of our associates. Lowe's offers a unique opportunity for job seekers as we foster a culture that is geared towards associate skill and career development. During the quarter, we expanded Lowe's University leadership curriculum across all of our stores.

[Joe McFarland, EVP of Stores at Lowe's Companies]

Lowe's U provides all associates with new learning and development opportunities in addition to the standard onboarding courses. Our program provides small, digestible lessons that improve their product and how-to knowledge and is tailored to the associate's role. The additional training complements their existing knowledge and supports improved customer service and leadership development. Lowe's University is available for all store associates via our smart mobile devices on the sales floor or in the newly created Lowe's U Learning Labs in our stores, and we continue to expand it into our contact centers as well as our distribution centers. In addition to competitive wages and benefits and rewarding career opportunities, Lowe's U will play a pivotal role in our efforts to retain an experienced and engaged workforce.

[Joe McFarland, EVP of Stores at Lowe's Companies]

I would also like to provide you with an update on our perpetual productivity improvement initiatives, which continue to drive payroll leverage through the quarter.

[Joe McFarland, EVP of Stores at Lowe's Companies]

As a reminder, PPI is an ongoing process and a series of initiatives that scale over time instead of one large single project. One example is the simplified interface that we introduced in the checkout area last year, which allowed us to accelerate the cashier training process and improve the customer experience. We have begun introducing this simplified interface to other selling stations throughout the store, including appliances, kitchens and bath, and millwork. This new interface will replace the primitive green screen technology that is cumbersome and difficult to learn. Associates are starting to use this intuitive modern platform for consultative selling. With more time to focus on the customer, the associate is now better able to capture the entire project. Lowe's homegrown self-checkouts is another PPI initiative that will drive increased labor productivity as we scale it over time.

[Joe McFarland, EVP of Stores at Lowe's Companies]

This new option, which was designed specifically for the home improvement shopper, is so much easier to use that we are already seeing higher customer adoption rates. These two initiatives are fantastic examples of what PPI is all about, leveraging technology to reduce tasking and drive labor productivity while improving the associate and the customer experience. Shifting to Pro. I would like to thank our Pro team for delivering outstanding results once again this quarter, driving Pro comps of over 16% for the quarter and over 43% on a two-year basis. Our Pro customers are expressing appreciation for our new in-store convenience features, including Pro trailer parking, free phone charging stations, and air stations for refilling tires. This helps them get in and out of our stores quickly with additional conveniences that cut down on the number of stops they need to make during the week.

[Joe McFarland, EVP of Stores at Lowe's Companies]

Time is money for this busy customer, so we're focused on helping them maximize the time they spend on the job site. We recently completed our inaugural Pro Pulse survey, which provides great insight into what is on the Pro's mind and how they view their future business opportunities. We are encouraged to learn more about their optimistic outlook and their strong job pipelines. I look forward to updating you on future calls on our ongoing initiatives to grow share with this very important customer. In honor of Veterans Day, I would like to thank my fellow veterans at Lowe's for their service. 25,000 strong across our company. As a veteran, I'm particularly proud of the commitment to the 10% discount for active duty service members and our veterans and their families every single day with no purchase limit.

[Joe McFarland, EVP of Stores at Lowe's Companies]

I also wanted to mention that we offered our first responders a Lowe's discount for the first time this quarter. This recognition reflects our heartfelt appreciation for their commitment to serving others during the ongoing pandemic. At Lowe's, we remain focused on improving the communities where our associates work and live, and there is no better way to do this than to support our first responders. I would like to close by once again thanking our store associates for their continued hard work and dedication and the great results they delivered this quarter. With that, I will turn it over to Dave.

[Dave Denton, EVP and CFO at Lowe's Companies]

Thank you, Joe. I'll begin this morning with a few comments on the company's disciplined capital allocation program. In Q3, we generated $1.9 billion in free cash flow, driven by better-than-expected operating results. Capital expenditures totaled $410 million in the quarter as we invest in our strategic initiatives to drive the business and support long-term growth. We returned $3.4 billion to our shareholders through a combination of both dividends as well as share repurchases. During the quarter, we paid $563 million in dividends at $0.80 per share. Additionally, we repurchased 13.7 million shares for $2.9 billion and have over $10.7 billion remaining on our share repurchases authorization.

[Dave Denton, EVP and CFO at Lowe's Companies]

Today, I'm excited to announce that we are now planning to repurchase an incremental $3 billion of shares in Q4. This will bring our total share repurchases to approximately $12 billion for the full year, a clear reflection of our commitment to driving long-term value for our shareholders. Our balance sheet remains very healthy with $6.1 billion in cash and cash equivalents at quarter end. Adjusted debt to EBITDAR stands at 2.14x, well below our long-term stated target of 2.75x. Now I'd like to turn to the income statement. In the quarter, we reported diluted earnings per share of $2.73, an increase of 38% compared to adjusted diluted earnings per share last year.

[Dave Denton, EVP and CFO at Lowe's Companies]

This increase was driven by better-than-expected sales growth, improved gross margin rate, and SG&A leverage as a result of strong execution across our business. My comments from this point forward will include approximations where applicable. In the quarter, sales were $22.9 billion with a comparable sales increase of 2.2%. Comparable average ticket increased 9.7%, driven primarily by higher ticket sales of appliances and flooring as well as product inflation. Keep in mind that commodity inflation did not have a material impact on comparable sales in Q3. As deflation in lumber was largely offset by inflation in other categories, including copper. Year-to-date, commodity inflation has lifted total sales by approximately $2.1 billion and improved comp growth by 300 basis points.

[Dave Denton, EVP and CFO at Lowe's Companies]

In the quarter, comp transaction count declined 7.5% due to lower sales to DIY customers of smaller ticket items, as well as lower DIY lumber unit sales. In the quarter, we once again cycled over a period where consumer mobility was limited, so many of our DIY customers were working on smaller home improvement projects. Comp transactions increased 16.4% last year, which resulted in a two-year comp transaction increase of 7.7%. We continue to gain momentum in our Total Home strategy as both pro and DIY customers alike increasingly look to Lowe's for a one-stop solution to their project needs. We delivered growth of over 16% in pro, 25% on lowes.com and positive comps across all home decor categories.

[Dave Denton, EVP and CFO at Lowe's Companies]

U.S. comp sales increased 2.6% in the quarter and was up 33.7% on a two-year basis. Our U.S. monthly comp sales were down 0.4% in August, up 1.1% in September, and up 7.7% in October. Trends improved as we moved through the quarter with stronger weekend traffic post-Labor Day. As Bill mentioned, we are seeing some indications of early seasonal buying consistent with broader retail trends. Looking at U.S. comp growth on a two-year basis from 2019 to 2021, August sales increased 28.4%, September increased 33.3%, and October increased 40%. U.S. comp transaction count improved each month of the quarter, ending October up double digits on a two-year basis. Gross margin was 33.1% of sales in the third quarter, up 38 basis points from last year.

[Dave Denton, EVP and CFO at Lowe's Companies]

Product margin rate declined 25 basis points. Lumber margins were pressured, particularly towards the beginning of the quarter as we sold through the higher cost inventory layers after the steep drop in lumber prices in early July. As our Canadian business is more heavily concentrated in lumber, the margin pressure was more acute there than in the U.S. These pressures were largely mitigated by data-driven pricing and product cost management strategies across many other product categories. Gross margins also benefited from 5 basis points of favorable product mix due to a lower percentage of lumber sales versus the third quarter of last year. In addition, higher credit revenue benefited margins by 60 basis points, while improved shrink contributed 20 basis points of benefits this quarter.

[Dave Denton, EVP and CFO at Lowe's Companies]

These benefits were partially offset by 30 basis points of increased supply chain costs due to higher importation and transportation costs, as well as the expansion of our omni-channel capabilities. We are leveraging our scale and our carrier relationships to minimize the impacts of these higher distribution costs. However, we are not immune to these rising costs, and we expect that we will continue to absorb higher costs in our distribution network going forward. SG&A at 19.1% of sales leveraged 230 basis points versus LY due to better than expected sales and disciplined expense management. We incurred $45 million of COVID-related expenses in the quarter as compared to $290 million of COVID-related expenses last year. The $245 million reduction in these expenses generated 110 basis points of SG&A leverage.

[Dave Denton, EVP and CFO at Lowe's Companies]

Additionally, we incurred $100 million of expenses related to the U.S. stores reset in the third quarter of last year. As we did not incur any material expense related to this project this year, this generated 50 basis points of SG&A leverage compared to LY. Finally, we've generated approximately 50 basis points of favorable SG&A leverage from our PPI initiatives. We are very pleased with our operating income performance as we are driving solid growth in operating profits while significantly expanding operating margin rate. For the quarter, operating profit was $2.8 billion, adding $600 million or a 28% increase over last year. Operating margin of 12.2% of sales for the quarter increased approximately 240 basis points over LY, driven by improved SG&A leverage and higher gross margin rate.

[Dave Denton, EVP and CFO at Lowe's Companies]

The effective tax rate was 26.1%. This is above the prior year rate, where there was a timing shift that benefited Q3 at the expense of Q4. At the end of the quarter, inventory was $16.7 billion, which is $1 billion higher than the third quarter of 2020, when our in-stock positions were pressured due to strong consumer demand and COVID-related supply constraints. Inflation did not have a material impact on inventory levels as deflation in lumber was largely offset by inflation in other categories, including copper. Our push to land spring product earlier than normal has increased our inventory position modestly, and this approach also limits our ability to significantly improve inventory turns in the near term.

[Dave Denton, EVP and CFO at Lowe's Companies]

However, as both Marvin and Bill have indicated, our relatively strong in-stock positions create a competitive advantage in the current environment given the ongoing global supply chain constraints. Now, before I close, I'd like to comment on our current trends and our improved 2021 financial outlook. We are seeing continued momentum in our business as reflected in better than expected results. Month to date, November U.S. comparable sales trends are materially consistent with October's performance level on a two-year basis as we continue to see early holiday spending trends. Our improved expectations for 2021 include sales of approximately $95 billion for the year, representing two-year comparable sales growth of approximately 33%. This compares to our prior expectations of approximately $92 billion of sales, which represents approximately 30% comparable sales growth on a two-year basis.

[Dave Denton, EVP and CFO at Lowe's Companies]

We continue to expect gross margin rate to be up slightly versus 2020 levels. With higher projected sales levels and our productivity efforts taking hold, we are raising our outlook for operating income margin to 12.4% from 12.2% for the full year. We expect capital expenditures of up to $2 billion for the year. As I mentioned earlier, we're now planning to return excess capital to shareholders via an additional $3 billion in share repurchases in Q4. This will bring our total share repurchases to approximately $12 billion for the full year, which is higher than our original expectations of $9 billion due to better than anticipated performance. In closing, we are operating ahead of expectations, expect to benefit from the secular tailwinds over the next several years.

[Dave Denton, EVP and CFO at Lowe's Companies]

I am confident that the combination of our strong operating results and our shareholder-focused capital allocation strategies will continue to drive meaningful long-term shareholder value. As Kate announced earlier, we look forward to providing you with our 2022 financial outlook on December fifteenth. With that, we are now ready for questions.

[Operator]

Thank you. We are ready for questions now. If you would like to ask a question, press star one on your telephone keypad. To withdraw your question, press star two. In order to allow questions for as many individuals as possible, please limit yourself to one question and one follow-up. Our first question is from Simeon Gutman with Morgan Stanley. Please proceed.

[Simeon Gutman, Senior Retail Analyst at Morgan Stanley]

Hey, good morning, everyone. My first question is on the Q4 guidance. Dave, you just gave us the color on the stacks holding for now. I know it's, you know, it's a crystal ball question, but is there any reason the stacks won't hold through the quarter? Then on margin, is there anything to be wary of? It sounds like not on gross margin. Anything on SG&A in terms of flow-through, why the business could see anything different than how the business performed in the third quarter?

[Dave Denton, EVP and CFO at Lowe's Companies]

Hey, Simeon, this is Dave. The short answer is no, there's no difference in Q4 versus the year-to-date performance. I would say that just obviously, Q4 is the lowest sales volume of the quarter, so obviously the flow-through is typically compressed in that quarter. I would also make an observation here that clearly we're operating in a very uncertain environment, and the company's focused on managing those items in which we can control. Despite this uncertainty, we do have a view of the future, and we develop plans that both drive our sales performance as well as our profit performance over time. We believe strongly that it's best practice that we share these views and our plans with investors so that you can better access and understand our performance. The company continues to focus on two things.

[Dave Denton, EVP and CFO at Lowe's Companies]

One is gaining share in the marketplace, and two is improving our profit performance. I think our outlook both for this year really demonstrates that we're focused on achieving both of those objectives and really, as you said, off to a really solid start as we enter Q4 and look forward to December to talk about 2022.

[Simeon Gutman, Senior Retail Analyst at Morgan Stanley]

Thanks for that, Dave. I guess my follow-up is on December fifteenth, and I think the point of December fifteenth is to talk about it then, but I'm gonna make a try anyway. Maybe this for Marvin and for you, Dave. Anything that's come up as far as investment cadence that you philosophically wanna expedite where you don't let margin flow? Then the part for you, Dave, is assuming that the business grows and the environment stays favorable into next year, is there any reason why the margins for this business shouldn't continue to grow?

[Dave Denton, EVP and CFO at Lowe's Companies]

Yeah, Simeon, good question. Listen, we'll go through that in depth a bit on December fifteenth. Really, we'll give you an outlook of how we expect the markets to perform from a macro perspective and how we as a company would plan to execute our financial plan into 2022. The short answer is, we do believe the market's really constructive within home improvement. We believe that, it is over the longer term. I think it's probably a little harder in the really near term to estimate exactly how we're gonna perform. I do think longer term, really nice tailwinds to the market. Number two, we've set a very specific plan to continue to improve our operating margin rate, and we are very focused on doing that, and we have line of sight long term to continue to expand that.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Hey, Simeon, this is Marvin. Just to set expectations for everyone, we have no plans to announce any big changes to our strategy. We have no plans to announce, you know, an acquisition. This is about transparency, to Dave's point. Look, we know that we're operating in very uncertain times, and other retailers and other larger public companies have decided, you know, not to share any outlook. We wanna be as transparent as we can because we know that you all are trying to set your models for next year. The intent of December is to do exactly what Dave says. For me to provide the strategic outlook on where we think the growth initiatives will deliver, and then Dave's gonna provide our best view of our outlook for 2022.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

That's the sole intent of the investor update on the fifteenth of December.

[Simeon Gutman, Senior Retail Analyst at Morgan Stanley]

Thank you. Good luck in the fourth quarter.

[Operator]

Our next question is from Michael Lasser with UBS. Please proceed.

[Michael Lasser, Managing Director and Equity Research Analyst at UBS]

Good morning. Thanks a lot for taking my question. The traffic has been declining as DIY, smaller DIY projects have been under pressure as we return to normalcy. Do you think that this is a good barometer, a good proxy for how traffic is gonna unfold over the next few quarters? Or could you be in a prolonged period where traffic is gonna be down for quite some time as we have this road back to whatever the new normal is? As part of that, can you give us a sense for how much non-commodity related inflation contributed to your performance in the quarter and recently, given that it looks like you're running a double-digit comp quarter to date.

[Michael Lasser, Managing Director and Equity Research Analyst at UBS]

This is important obviously, because to the extent that you do see a drag from DIY traffic being down and you have to lap the stimulus, perhaps some of the non-commodity related inflation can support your same-store sales growth even in the face of those headwinds. Thanks.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

2020 was one of the most unique periods, not only in retail, but in the history of our country and our globe. We saw a significant number of low dollar transactions for cleaning supplies, for PPE, and for other around the house related projects. When we look at traffic trends for DIY and for pro, Dave cited the numbers on a two-year basis. The reality is, the only way we can really get a true understanding of the trends of our business is to look at everything on a two-year basis, because last year was such a unique anomaly when it comes to revenue and traffic, and quite candidly, as it relates to operating expenses. At a high level, we feel great about our performance. As a company, we feel great about the macro indicators that support home improvement.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

As Joe mentioned in his prepared comments, our pulse survey with our pro customers give us enormous confidence that they're gonna continue to see growth in their business based on what they're seeing in their pipeline. As we look at initiatives like our Total Home strategy and our Lowe's Livable Home strategy, we think that we have great initiatives to support our DIY customers to create ongoing demand.

[Michael Lasser, Managing Director and Equity Research Analyst at UBS]

My follow-up question is, it would be helpful to have a bit of a flavor for your gross margin over the next couple of quarters. You've got some idiosyncratic drivers that are helping, given the more strategic approach to pricing and discounting. To what extent can that offset some of these very unique supply chain challenges that you're gonna continue to experience over the next couple of quarters, especially because it sounds like this credit portfolio benefit that you experienced in the third quarter won't be as significant moving forward. Thanks.

[Dave Denton, EVP and CFO at Lowe's Companies]

Hey, Michael, Dave here. Listen, from a gross margin perspective, as we've indicated previously, we expect gross margin to expand slightly this year in 2021. From a longer-term perspective, it is our expectation that we are going to essentially maintain flattish gross margin over time. Keep in mind that what we're doing here is we're essentially managing and improving product margin rate, at the same time investing in our supply chain capabilities that compress gross margin, but relieve the stores with a lot of SG&A that expands operating income. You should think about the algorithm from a financial perspective with that lens. We feel very strongly that the tools and processes that we are putting in place and have in place will allow us to manage to that objective.

[Michael Lasser, Managing Director and Equity Research Analyst at UBS]

Thank you very much, and have a good holiday.

[Operator]

Our next question is from Christopher Horvers with JPMorgan. Please proceed.

[Christopher Horvers, Senior Analyst at JPMorgan]

Thanks. Thanks for taking my question, and good morning. Just jumping back, obviously, really strong quarter to date. Seems like, you know, running, say, low double-digit kinda trend, you know, clear acceleration. You talked about some early buying of seasonal and holiday. You know, if you're running low double digit, and sort of implying like a flattish comp trend, I guess, and decelerating the CAGR relative to 3Q. I mean, is this sort of like a prudent estimate or are you able to look at some of the seasonal sell-through here in November and then project forward, like how much of a maybe divot that could create in the December timeframe? Just trying to understand really, you know, how you're thinking quantitatively about pull-forward risk and sort of the embedded deceleration.

[Dave Denton, EVP and CFO at Lowe's Companies]

Yeah. Hey, Chris, this is Dave. We feel very strongly that, you know, we're off to a really great start. A few of our bigger weeks are ahead of us coming forward here from a holiday perspective. Let's not get totally, you know, over-indexed and focused on Q4. We set a realistic and achievable forecast for the quarter. I think the merchant and store ops team are really well positioned to flex as we sell through holiday product, to be able to flex into other categories, to maintain momentum as we move throughout the quarter and set us up for a really strong 2022.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Chris, this is Marvin. Look, you can appreciate how difficult it is to provide a precise forecast in this environment. I'll just repeat what I've said. You know, we have certain retailers that hadn't provided any outlooks, so we don't wanna be punished for trying to provide a level of transparency around where we think the business is headed. I do want Bill Boltz to talk a little bit about the plans to flex that seasonal area, because we're seeing, you know, robust sell-through, which we're excited about, but we're prepared for that, and we're prepared to transition to other areas. I'm gonna let Bill talk about some of those plans.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

Thanks, Marvin. You know, just I think it's also important to understand that, you know, whenever you can sell through the holiday program early, that's a benefit for everybody. Obviously excited about the early sell-through of holiday. We do have, you know, really robust plans to transition that space. You know, we certainly shift into a gifting timeframe, you know, with our tools business. We move quickly into winter storage. It looks to pack stuff up and put things away, and that's become a big, big event for us. We've also built this winter bath and flooring event that is, you know, very, very successful, especially in our north where spring comes a little later. In our deep south markets, we'll transition to spring.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

We've got really good plans on how to, you know, how to rotate the floor and make seasonally relevant across the country.

[Christopher Horvers, Senior Analyst at JPMorgan]

Got it. That makes sense. Just, you know, can you talk a little bit about in terms of the average ticket, maybe disaggregate that into sort of AUR, UPT mix and so forth. Is there any area in your assortment that you're seeing negative price elasticity as you've passed through price increases?

[Dave Denton, EVP and CFO at Lowe's Companies]

This is Dave. You know, probably that's a level of detail we won't go into specifically, but I would just say one area that we continue to see really solid performance has been our appliance business. That's the business that, as you know, historically has been a very high-low business. We've been moving to more of an everyday, competitive price profile in that category, and it continues to perform quite well for us, both top line and bottom line.

[Christopher Horvers, Senior Analyst at JPMorgan]

Got it. Have a great holiday. Thank you.

[Operator]

Our next question is from Chuck Grom with Gordon Haskett. Please proceed.

[Chuck Grom, Managing Director at Gordon Haskett]

Hey, thanks a lot. Great quarter. The one metric that stood out to us as being a little bit light was just inventory, which is counterintuitive. You usually wanna be light, but right now you wanna be heavy. Just wondering about how you're thinking about your inventory balance throughout the quarter and your ability to chase sales here in 4Q.

[Dave Denton, EVP and CFO at Lowe's Companies]

This is Dave. We feel very good about our position from an inventory perspective. Obviously there are areas that we would love to be a little bit deeper in that the global supply chain has some constraints around. Relatively speaking, if you look at where we stand from an in-stock perspective and our depth of inventory relative to others in the marketplace, we feel like we're very nicely positioned and feel like we'll have a really strong Q4, nicely positioned from a spring perspective as we cycle into 2022.

[Chuck Grom, Managing Director at Gordon Haskett]

Okay, that's great. Marvin, just wondering if you could share some color on the Pro Pulse survey that you guys conducted in the third quarter. And particularly just wondering what you're hearing from pros on the backlog. Bigger picture, you know, penetration is much lower than Depot. Do you think over time you can grow it, and do you wanna grow it? Just some thoughts on that front. Thanks.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

No, thanks for the question. I'll take the penetration question then I'm gonna let Joe just provide a little bit of detail on what we learned from the Pro Pulse survey. The thing that we talk a lot about here is the importance of being customer-centric. What I've learned from past mistakes is when you set penetration targets for customer segments, you tend to make decisions to support the target versus decisions to support the needs of the customer. We have every expectation that penetration number is gonna grow. You know, anytime you deliver, you know, a 16% comp number, which, you know, equates to a 43% growth on a two-year basis, it gives you at least confidence that the business is headed in the right direction. At a high level, we expect the penetration to grow.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

We know when it grows, it provides, you know, great operating leverage, you know, throughout the whole store and space productivity, but we are not setting targets that we're trying to chase. Let me let Joe give just a little bit of detail on some of the key learnings from the Pro survey.

[Joe McFarland, EVP of Stores at Lowe's Companies]

Yeah. Chuck, thanks for the question. Listen, we put this Pro Pulse survey out and really

[Joe McFarland, EVP of Stores at Lowe's Companies]

Got some great responses and insights for 2022. Things like 80% of pros expect the increased home improvement demand seen in the pandemic is going to greatly improve and continue into 2022. They're more reliant on their teams than ever. We've got insight into the top five projects in 2022 that the pros will be focused on. A lot of our pros are saying this is the time of year to take advantage of all the holiday deals. They're planning on a lot of tool purchase, supply purchases. We feel really good about the capabilities we have increased in the pro and what the pros are telling us.

[Chuck Grom, Managing Director at Gordon Haskett]

Great. Good luck. Thank you.

[Operator]

Our next question is from Steven Forbes with Guggenheim. Please proceed.

[Steven Forbes, Managing Director and Equity Research Analyst at Guggenheim]

Good morning. I wanted to focus on OpEx productivity. Dave, I think you mentioned 50 basis points of leverage during the quarter from your PPI initiatives. I'm curious if you can expand on how the initiatives are progressing relative to the original timeframe provided last year. The idea, right, is just trying to get an understanding of how much opportunity is still ahead of us.

[Dave Denton, EVP and CFO at Lowe's Companies]

Hey, Steven. In general, the PPI efforts are tracking along fairly consistent with our plan for 2021. I would say the one area that we think really over the next 18 months that we have opportunities to continue to improve from an OpEx perspective is really around our market delivery rollout. Keep in mind we have that now, as Marvin indicated in his remarks, in two markets today. We're working to roll that out over the remainder of our markets over the next 18-24 months. When that is fully operational, that will dampen a bit on gross margin, but really relieves the store from a lot of labor and SG&A, ultimately enhancing our flow-through.

[Dave Denton, EVP and CFO at Lowe's Companies]

That's probably the biggest area over the next couple of years where we're leaning in to really drive operating profit improvement. We feel really bullish about where we stand today and optimistic about the outlook of that program.

[Steven Forbes, Managing Director and Equity Research Analyst at Guggenheim]

Thanks. Just a quick follow-up, 'cause if I remember correctly, another large opportunity was store inventory management systems. Maybe just provide an update on where the business is in sort of rolling out and optimizing the line of sight into inventory location at the store level.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Yeah, you know, Steve, we're excited. You know, Joe and his team have done great work with our IT team to just give our associates and our customers better visibility to inventory. I'm gonna let Joe just give you a couple, two or three of the key points to this new inventory management system and why we're so excited about the productivity that we're gonna gain from it.

[Joe McFarland, EVP of Stores at Lowe's Companies]

Yeah. Thanks, Marvin. Listen, we've been laser-focused on trying to improve the accuracy of our on-hands in store. It helps greatly when customers are searching online for the different products they want to pick up in the store. A big challenge for the last 30 years, I can remember in home improvement, is where the overstock product is, where the product is in multiple locations in the store. We're very, very pleased, number one, with the ease of use for our associates, the adoption of the tools that we're giving them, and it's just great partnership through the store operations team, as well as the IT team. We feel really good about the productivity enhancement that's gonna continue to drive.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Steve, when Joe and team surveyed our associates' activity during the day, we found out that one of the most non-productive activities and events that happens on a daily basis is looking for product. Because, as Joe said, it's very difficult historically to put a location system in the overhead. In home improvement, you know, it has a lot, what we call off-shelf locations for attachments. Now we have the ability to do that, and we think it's gonna unlock incredible customer service benefits and also productivity for our store associates.

[Steven Forbes, Managing Director and Equity Research Analyst at Guggenheim]

Thank you. Best of luck.

[Operator]

Our next question is from Brian Nagel with Oppenheimer. Please proceed.

[Brian Nagel, Managing Director and Senior Sell-Side Equity Research Analyst at Oppenheimer]

Hi, good morning. Great quarter. Congratulations.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Thanks, Brian.

[Brian Nagel, Managing Director and Senior Sell-Side Equity Research Analyst at Oppenheimer]

The first question I have, just with regard to the Pro and the efforts. Clearly a lot of emphasis, you know, from the management team over the past several quarters to really improve the Pro offering. You talked about it in prepared comments, but the question I have is, as you look at it now, is the infrastructure basically built or there are still tweaks you have to make in order to sort of, say, make your offering even more compelling to the professional customers?

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

It's a really good question, Brian. I would say the short answer is that the foundation of the infrastructure is built. If you think about it, we started with what we call retail fundamentals in Pro. Joe and his team started with basic things like staffing at the desk, loading assistants, something as simple as having the ability for the Pro to actually check out at the Pro desk. We had no point-of-sale terminals at the Pro desk where pro even check out. Those things were just problematic. Bill and in partnership with supply chain, and Joe started to work on things like job site quantities. Bill and his team have been working tirelessly on improving the number of national brands.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Over the past 10 years, prior to coming here, Lowe's had diluted most of their national brands out of the assortment, supplementing them with proprietary brands. We know that pros are more attracted to national brands. Bill and his team, Bill gave the list that we're at, and we're continuing to build on that. Now we're building our loyalty platform, and now we're building our CRM platform and now we're gonna be building fulfillment platform. The foundation is in place. We just have to earn the pros trust and respect, because for so many years, they would show up, service was terrible, we're out of stock, and we couldn't allow them to get in and out quickly or to grow their business.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Now that we have the foundational elements in place, it's all about consistent execution and reaching out and engaging the customers. I give Joe, Bill, and our pro teams a lot of credit for getting us where we are thus far.

[Brian Nagel, Managing Director and Senior Sell-Side Equity Research Analyst at Oppenheimer]

Marvin, that's very helpful. I appreciate it. The second and follow-up question I have, just with regard to supply chain. You know, Lowe's has been managing, you know, the headwinds extraordinarily well, and it was evidenced by the sales or gross margins. The question I have is, as you look out, you know, in all the different moving pieces of the ongoing supply chain crisis around the world, you know, are there potentially incremental risks that you see as you move into 2022?

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Well, the short answer is yes, but I don't know that the risks are more pronounced than anything that you've heard about or that's been discussed in the marketplace. You said another way, when Bill and I talk about spring, the risk that he's looking at is no different than the broader risk of any merchant, you know, looking at it, you know, from a supply demand standpoint. When I talk to Don, who's our supply chain leader, I mean, we have similar risks. The good news is, as Bill mentioned in his prepared comments, we have scale because of size. And because of that, we've been able to leverage our carrier relationships and also just strategic initiatives like these coastal holding facilities that Bill talked about to land product early, get it in country, and then distribute it where needed.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

We're gonna continue to do that. It gives us the ability to buy early, land it early, so that we can have possession of it, and that has worked for us. Again, we're not immune. I couldn't be more proud of the team's efforts, to your point, to increase gross margin, increase operating income, and also sustain competitive in-stocks in the midst of the most complex global supply chain environment that any of us have operated in.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

Yeah, Brian, just to add one thing. You know, we mentioned the Pro Pulse survey, and over 80% of our pro customers are citing pervasive supply chain issues as a challenge. But they're also very, very optimistic about all their 2022 projects.

[Dave Denton, EVP and CFO at Lowe's Companies]

Sherry, this is Dave. We have time, Thank you, Brian. Sherry, we have time for one more question.

[Operator]

Great. Our next question is from Liz Suzuki with Bank of America. Please proceed.

[Liz Suzuki, Senior Equity Research Analyst at Bank of America]

Great. Thank you for squeezing me in. Just on the subject of product innovation, I mean, what are the most exciting or highest growth product categories that you think could be game changers for the next few years? Like, you know, LED lighting was several years ago, or LVT in the flooring category. What's the next innovative product that's gonna take over its category?

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

I'll give it to Bill. What I'll tell you is, I mean, we're really excited about a lot of innovation in outdoor power equipment, in flooring, power tools. I'll let Bill just highlight, you know, excited about that's coming our way.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

Yeah. Thanks, Marvin. I think, you know, there's innovation all across the store. You think about, you know, smart product, you know, whether that's in lighting, whether that's in light bulbs, whether that's in appliances or even just smart home products in general. You think about the new launch of our FLEX brand and power tools, you know, new lithium battery technology, you know, innovation in flooring with WetProtect from Pergo. You know, you think about the battery technology and outdoor power, and that continues to expand and what, you know, EGO has done in their categories with zero-turn riding mowers that operate off of a battery. You go into, you know, categories that you may not think there's innovation in, but you get into building materials and building products.

[Bill Boltz, EVP of Merchandising at Lowe's Companies]

There's innovation in, you know, that's coming in, you know, ZIP Wall. There's innovation in drywall. There's innovation all across the store. We're very excited and very pleased with what the merchants have done to continue to probe for new. We found innovation in our private brands, as I was able to mention on allen + roth, with the Lifestyle Performance Rugs. Literally, you can take a garden hose and hose these rugs down. You know, and you think about pet spills, you think about kids, you think about, you know, crayons, and you can just hose it off with your garden hose. Pretty cool stuff. A lot of stuff going on.

[Marvin Ellison, Chairman, President, and CEO at Lowe's Companies]

Liz, we'll be talking more to-

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

Participants

Executives

• Bill Boltz, EVP of Merchandising
• Dave Denton, EVP and CFO
• Joe McFarland, EVP of Stores
• Kate Pearlman, VP of Investor Relations
• Marvin Ellison, Chairman, President, and CEO

Analysts

• Brian Nagel, Managing Director and Senior Sell-Side Equity Research Analyst at Oppenheimer
• Christopher Horvers, Senior Analyst at JPMorgan
• Chuck Grom, Managing Director at Gordon Haskett
• Liz Suzuki, Senior Equity Research Analyst at Bank of America
• Michael Lasser, Managing Director and Equity Research Analyst at UBS
• Simeon Gutman, Senior Retail Analyst at Morgan Stanley
• Steven Forbes, Managing Director and Equity Research Analyst at Guggenheim