Lowe's Companies, Inc.

Lowe's started when two GIs returned from World War II.

Today, we proudly... Good morning, everyone, and welcome to the Lowe's Company's fourth quarter 2019 earnings conference call. This call is being recorded. Please note, if you press star 1 to enter the question queue prior to the start of today's call, your signal does not register. You will need to press star 1 again to re-enter the queue. Also, supplemental reference materials are available on Lowe's Investor Relations website within the investor packet. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company's results and to be used as a reference document following the call. During this call, management will be using certain non-GAAP financial measures. These supplemental reference materials include information about these measures and a reconciliation to the most directly comparable GAAP financial measures. The statements made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Management's expectations and opinions reflected in those statements are subject to risks and the company can give no assurance that they will prove to be correct. Those risks are described in the company's earnings release and its filings with the Securities and Exchange Commission. Hosting today's conference will be Mr. Marvin Ellison, President and Chief Executive Officer, Mr. Bill Bolts, Executive Vice President, Merchandising, Mr. Joe McFarland, Executive Vice President, Stores, and Mr. Dave Denton, Chief Financial Officer. I will now turn the program over to Mr. Ellison for opening remarks. Please go ahead, sir.

Good morning, everyone. In 2019, we made significant progress in transforming our company. While we're only one year until multi-year transformation, we're confident that we're on the right path to capitalize on solid demand and in a healthy home improvement market and generate long-term profitable growth. I'll now take a moment to discuss our fourth quarter results. For the quarter, total company comp sales grew 2.5 percent. Our U.S. home improvement comps were a positive 2.6 percent. Our U.S. monthly comps were a negative 0.7 percent in November, positive 6.2 percent in December, and a positive 2.1 percent in January. However, when you normalize for Black Friday holiday shift from 2018, our U.S. monthly comps were relatively balanced with growth of positive 2.8% in November, positive 2.9% in December, and positive 2.1% in January. While our monthly comps were relatively balanced, Q4 sales were softer than our expectations. This stems from three factors. First, we did not optimize our marketing execution to align with the compressed holiday season. Our November holiday marketing activity was concentrated closer to Black Friday, and as a result, we didn't fully capitalize on demand for appliances and other key holiday categories earlier in the month. Second, in Q4, we were lapping the exit of our Project Specialist Interior, or PSI, program in the prior year, which pressured install sales growth more than we anticipated during the quarter. And finally, as we discussed, Lowes Icom is still under construction. As customers increasingly utilize online shopping options for convenience and efficiency in the shorter holiday selling season, Lowes.com lagged market growth, delivering comp growth of approximately 3% for the quarter. Let me remind you, at the beginning of 2019, Lowes.com was sitting on a decade-old platform, and although we're in the process of replatforming the entire site to Google Cloud, that work will not be completed until Q2. The good news is for Lowell's.com, we know exactly what our issues are, and we have temporarily slowed our .com growth to resolve those issues. We recruited a very experienced and talented team, and we have a detailed project roadmap to modernize our website. We expect to see a trajectory change in this business in the second half of 2020, which we are very excited about. While e-commerce business is under repair, I'm very pleased with the strength and productivity of our brick-and-mortar stores. There are very few large retails in America delivering a 2.6% comp growth almost exclusively from their brick-and-mortar stores. This underscores the sales productivity improvement of our physical stores and our opportunity to unlock additional growth when Lowes.com sales accelerate. One of the key strategic steps to improving Lowes.com is the transformation of our supply chain. Consequently, we're also investing $1.7 billion in our supply chain over a five-year period. And in 2019, we opened three new bulk distribution facilities and four new cross-stock terminals. I look forward to updating you on our ongoing improvements of Lowes.com and our supply chain on future calls. Let me now take a moment and discuss the drivers of our sales growth in the fourth quarter. Our focus on pro continues to be a catalyst for our U.S. sales growth, with our pro comps outpacing DIY in the fourth quarter. Our commitment to implementing retail fundamentals in 2019 has paid dividends in our pro business. We're seeing compounding benefits from our investments in job lot quantities, department supervisors, and our improved in-store experience. These investments not only drove improved trends in pro comp sales, they also drove a 400 basis point improvement in pro customer service scores in the fourth quarter. As Joe will detail, in 2020, we are transitioning to a more strategic investments for our pro customers, such as designated loyalty and CRM programs to advance the pro experience and drive future growth with this critical customer. Our success focusing on retail fundamentals is also evident as we again drove strong sales performance in merchandising departments that have historically underperformed. Bill will add additional insight on our merchandising performance shortly. From a geographic perspective, we saw consistent growth across the business with all three U.S. divisions and 14 of 15 U.S. geographic regions generating positive comps. And during the fourth quarter, regions that outperformed the total company comps were Atlanta, Baltimore, Dallas, Houston, Nashville, and St. Louis. And once again, the West was our top-performing geographic division. Turning to Canada, in the fourth quarter, we posted comp sales that were slightly negative in local currency. As we outlined on our third quarter earnings call, we're making foundational changes to improve execution and deliver long-term improved profitability in Canada. The initiatives we laid out as part of our strategic reassessment remain on track, including closing 34 underperforming stores, rationalizing SKUs to present a more coordinated assortment to the customer across our banners, reorganizing our corporate support structure across Canada to more efficiently serve our stores, and migrating Canada to a US IT platform to eliminate inefficiencies and unnecessary technology duplication. We've also implemented key leadership changes in Canada. Last month, Tony Hirst was appointed President of Lowe's Canada. Tony is a strong and accomplished leader with more than 25 years of retail and home improvement leadership experience. And during the fourth quarter, we also appointed Chris West as our Senior Vice President of Merchandising in Canada. Chris has over 20 years of experience in retail merchandising and is excited to return home to Montreal. We remain confident in the long-term potential of our Canadian business, and I know that Tony and Chris are the right people to lead Lowe's Canada into this exciting new chapter for our customers and associates. Despite pressure from lowered and expected comparable sales growth in the fourth quarter, we delivered adjusted diluted earnings per share of 94 cents, which exceeded expectations, supported by improved gross margin trends, enhanced process execution, and strong expense management. Turning to 2020, we're pleased to enter the year from a position of strength as we look to build upon the strong foundation we established in 2019. we expect to capitalize on a supportive microeconomic environment by executing on our four strategic areas of focus. Driving merchandising excellence, transforming our supply chain, delivering operational efficiency, and intensifying customer engagement by focusing on the pros. Our improved Lowes.com platform will allow these four strategic areas of focus to create a true omnichannel ecosystem for Lowes so we can efficiently serve our customers any way they choose to shop. And our intense focus on retail fundamentals combined with improving systems and technology will continue to pay dividends across the business in 2020. And in closing, I'd like to take a moment to thank our associates for their hard work and commitment to serving our customers and our communities. I spend quite a bit of my time in stores, and our associates continue to demonstrate that they are the cornerstone of our current and future success. We're looking forward to a great 2020. And with that, I'll turn the call over to Bill.