Lowe's Companies, Inc.

Good morning, everyone, and welcome to Lowe's Company's second quarter 2020 earnings conference call. My name is Michelle, and I will be your operator for today's call. As a reminder, this conference is being recorded. I will now turn the call over to Kate Perlman, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Here with me today are Marvin Ellison, our President and Chief Executive Officer, Bill Bolts, our Executive Vice President, Merchandising, Joe McFarland, our Executive Vice President, Storrs, 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 2020. 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 will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release and on our investor relations website. With that, I'll turn the call over to Marvin.

Good morning, everyone. I'd like to start out by thanking our associates for their tremendous actions to support our customers and communities across both the U.S. and Canada. We are grateful for their hard work and ongoing commitment to safety. Without question, this has been the most challenging personal and business environment that any of us have operated in. Throughout all the uncertainty that we faced in the second quarter, we never lost focus that our number one priority as a company is protecting the health and well-being of our associates and customers through a safe store environment and shopping experience. In the second quarter, we continued to prioritize the financial support of our associates and community while providing the customers with the products and services they need to manage and care for their homes. We are pleased and humbled that we were the first choice for many customers who needed home improvement items for their businesses and homes during this unprecedented time. And I would like to thank those customers who trusted us and for rediscovering Lowe's. More specifically, during the second quarter, we invested an incremental $460 million in support for our frontline associates, communities, and store safety. Through the first half of 2020, the company has invested $560 million in incremental financial support for our associates. In recognizing that helping people make their homes better extends into our neighborhoods, communities, and country, we've committed $55 million in grants to support minority-owned and rural small businesses. In total, during the COVID-19 pandemic, we've committed $100 million in assistance to those in our community who need it most. Our financial results this quarter demonstrate that we've experienced unprecedented demand in many of our business categories due to customers spending more time at home during the COVID-19 pandemic. However, these results could not have been realized without our efforts over the past 18 months to implement our retail fundamental strategy. which dramatically improved and modernized our business infrastructure. These modernization efforts have created technology and operational platforms to meet customer demand and grow our business during these challenging times. And some of these initiatives include hiring home improvement and retail subject matter experts in key leadership roles, which has allowed us to quickly make informed decisions and implement necessary changes during the COVID-19 crisis. Re-platforming Lowes.com from a decade-old infrastructure to the cloud and developing a top-rated mobile app has allowed us to grow online sales triple digits. A customer-centric labor scheduling system that gave stores the flexibility to align payroll with the unique needs of the customer and the associate. Deploying a new price management system to provide our merchants with better data to maintain cost discipline and take more strategic approach to pricing and promotions. Enhanced pro product and service offerings combined with the new Prology platform that helps us keep pros working and offers them meaningful rewards while providing us with better customer insights. And our field merchants and merchandise service teams who play an essential role in helping our stores quickly reconfigure to support social distancing and also respond to the significant increase in demand. While we still have work to do, we're pleased with the progress we've made thus far to modernize our company, and we're looking forward to building on this momentum in the back half of 2020 and for years to come. Now let me turn to our second quarter results. We delivered strong sales growth beyond our expectations, with total company comp sales growing 34.2% over the prior year, Diluted earnings per share grew 75% to $3.74. Our U.S. home improvement comps was 35.1% due to robust project demand from DIY and pro customers that was broad-based across channels, product categories, and geographies. Overall, we saw sharp acceleration from Q1 demand trends, including significant increases in the number of new pro and DIY and millennial customers. DIY comps outpaced pro comps in the quarter, driven by our consumer mindset that was heavily focused on the home, and while the share shifts away from other activities like dining out, vacations, and purchasing apparel. Pro sales were also strong, with comps in the mid-20s, with demand accelerating in May and remaining strong throughout the quarter. Our pro performance was supported by the progress we've made with retail fundamentals like job lot quantities and improved service levels. From a geographic perspective, growth was balanced across the U.S. store footprint, with positive comps of 30 percent or more in all 15 geographic regions in all three U.S. divisions. Importantly, we saw strong sales trends in urban areas. In fact, comp sales in our urban markets outperformed remote or rural markets by over 500 basis points. This is an important data point because it reflects the success of our business model in all geographic settings, as well as the importance of having a strong pro business as well as an effective omnichannel strategy to compete in urban settings. On Lowes.com, sales grew 135% as pro and DIY customers increasingly shopped online, driving online penetration to 8% of sales. And as I mentioned earlier, we completed the replatforming of Lowes.com to the cloud during the quarter, This enabled us to improve site functionality and sustain triple-digit growth without any systems interruptions. I'm very pleased with the work of our CIO, Samantha Nigabale, and her team to complete this replatforming effort in record time. And in Canada, we posted positive comps that exceeded 20% driven by similar consumer focus on the home, as well as strong execution by our new leadership team. While we're pleased with their efforts to serve the incremental demand this quarter, our Canadian team remains focused on the work ahead to improve operating efficiency while driving sales. Looking ahead, we are confident that we'll continue to build on the momentum that we delivered in the first half. And in the second half of this year, we are reinvesting in the business to elevate our product, simplify our store environment, and improve our service offering. These investments will include store resets to improve product adjacencies, bay productivity, and sales per square feet. We're also advancing our supply chain infrastructure with our recent announcement that we'll open 50 cross-dock delivery terminals, seven bulk distribution centers, and four e-commerce fulfillment centers over the next 18 months. Our investments in our stores and investments in our supply chain evolution reinforces our commitment to becoming a world-class omnichannel retailer. We're making the right investments to drive long-term sales growth, operating profitability, and sustainable shareholder returns. In closing, I'd like to reiterate how incredibly proud I am of our associates and their dedication to supporting customers in our communities during this time when they need us most. And with that, I'll turn the call over to Joe.