Marvin R. Ellison
Chairman, President & Chief Executive Officer at Lowe's Companies
Thank you, Kate, and good morning, everyone.
In the fourth quarter, comparable sales declined 6.2% as DIY customers continued to remain cautious with their home improvement spend and harsh weather impacted large parts of the U.S. in January. In spite of these challenges, I'm very pleased with the excellent customer service in our stores and strong operating profit performance for the quarter, driven by a disciplined focus on our perpetual productivity improvement initiatives or PPI.
Looking at the full fiscal year 2023, we delivered sales of $86.4 billion, adjusted operating margin of 13.3% and adjusted earnings per share of $13.09.
Beginning with our DIY sales results. November and December trends improved from the third quarter, followed by a sharp drop in traffic during periods of extreme weather in January. Macroeconomic factors, like persistent inflation and a stagnant housing market, continue to make DIY customers and consumers hesitant to spend on big ticket purchases for their homes. And those who did engage in home improvement activities took on smaller, non-discretionary projects with a heightened focus on value. This impacted demand for bigger ticket interior categories, like kitchen and bath, flooring and appliances.
In the last quarter, we shifted our strategy to adapt to these changing consumer behaviors, resulting in a record Black Friday and Cyber Monday online sales and improved holiday sell-through and margins. While we're pleased to see these results, we're now focused on winning spring and we're excited to see how the customer responds to our more targeted traffic-driving marketing strategy and our lineup of great spring products at an outstanding value. Bill will provide more detail on our compelling product assortment for spring later in the call.
Amongst the most exciting changes for this spring is our new DIY loyalty program that we announced in January. This first of its kind rewards program designed for DIY customers gives these value-focused homeowners more reasons to choose Lowe's. In a marketplace where nearly all DIY home improvement customers shop multiple retailers, MyLowe's Rewards loyalty program is designed to get these DIY customers to choose Lowe's over other retail competitors for the home improvement needs. We expect this to drive traffic and return visits, while also enabling us to personalize offers and experiences for our loyalty members, creating a flywheel effect that increases DIY loyalty and demand over time, both in-store and online. MyLowe's Rewards will be available nationwide in March, just in time for spring, making Lowe's the only national home improvement retailer with a distinct loyalty offering for both Pro and DIY customers.
Now, moving to Pro. Despite a challenging macro environment, and difficult weather in January, our comparable Pro sales were flat for the quarter. As a reminder, our core Pro customer is a small- to medium-sized business owner. And in our recent Pro survey, these customers told us their backlogs are in line with last year, and they are cautiously optimistic about their ability to generate and close leads in 2024. We remain focused on executing our holistic Pro strategy with more convenient fulfillment options and enhanced product assortment, creating a best-in-class digital experience and a rewards program that incentivizes long-term loyalty. As these investments scale and mature, they will increasingly save Pro's time and money, enabling us to earn more of their business as we aim to grow Pro at two times the market rate.
Now, turning to online. Comparable sales were flat for the quarter, and we're pleased to see higher conversion rates and lower returns, a positive indicator that customers are responding to our faster fulfillment and improved digital experience. Our talented technology team remains focused on developing a best-in-class omnichannel experience to seamlessly serve our multi-generational customer base, including co-creating innovative customer solutions with world-class technology companies, like our immersive kitchen design app for Apple's new Vision Pro headset and using generative AI to improve how we sell, shop and work like our home improvement ChatGPT plug-in.
Now, let's transition to our view of the macro. As we look forward, many of you are asking when we expect home improvement demand to inflect. Although it's a very fair question, unfortunately, it's still very difficult to predict. And while there is increased confidence of a soft landing, there's still a lot of speculation on the timing of anticipated interest rate cuts in the pace of slowing inflation. It's also unclear how quickly the consumer will react to these changes and how quickly their spending habits will change. Overall, the consumer is financially healthy. But in this post-pandemic timeframe, customers are still showing a preference of spending on services with elevated demand for travel, restaurants and other experiences. And while we anticipate these trends will normalize, the timing is uncertain. Also, existing home sales are at levels we've not seen in almost 30 years. And even as mortgage rates decline, two-thirds of homeowners remain locked in at rates below 4%, which may keep many on the sidelines.
Due to these factors, we expect DIY demand to remain under pressure, and Brandon will provide more detail on our 2024 expectations later in the call. However, we're very confident in our strategic plan and in our ability to execute at a high level in the multitude of economic environments.
Despite near-term uncertainty, let me remind you why we remain bullish on the medium- and long-term outlook for home improvement. The three core demand drivers of our business, disposable personal income, home price appreciation and the age of housing stock, remain supportive. When you pair these factors with trends, like chronic undersupply of homes, millennial household formation, baby boomers aging in place and a sustained number of people working from home, you can see why we are confident that home improvement demand will trend upwards over time across both homeowners and Pros. And in the meantime, we're focused on controlling what we control, and making the right investments in our Total Home strategy to modernize our supply chain and IT infrastructure, localize and improve our merchandising assortments, rolling out a Pro and DIY loyalty program, continuing to elevate our store environment and developing a best-in-class digital and omnichannel experience.
All of these investments in our Total Home strategy will position Lowe's to win in the short run and set us up for strong sales and profit growth when the home improvement market recovers.
Before I close, I'd like to extend my appreciation to our hard-working associates for their commitment to serving customers. In recognition of the dedication, we awarded our frontline associates with an end-of-year discretionary bonus of $140 million. This is our way of saying thank you to hourly associates and assistant managers who serve our customers and make our communities better. As I travel across the country visiting stores and conducting town halls to hear directly from our frontline associates, I'm consistently humbled by their passion, commitment and their expertise.
Now, I'll turn the call over to Bill.
