Lowe's Companies, Inc. (LOW) Earnings

Management highlights

- Core Business & Strategic Execution * Delivered four consecutive quarters of positive comparable sales, despite continued pressure on DIY discretionary big-ticket projects in a challenging housing market with elevated interest rates and low housing turnover. * The total home strategy continues to drive market share gains, with consistent outperformance of the pro segment relative to DIY. * Recent merchandising realignment reduced divisions from 14 to 13, combining power tools and outdoor power equipment into a single standalone power equipment division to improve battery platform management and supplier coordination. - Pro Customer Initiatives * Maintained strong momentum with small-to-medium pro customers, supported by competitive national brand assortment, strong in-stock levels, and the MyLowes Pro Rewards loyalty program. * Launched an AI-powered materials list tool that converts customer-provided lists (photos, handwritten, PDFs, spreadsheets) into quotes, reducing processing time from days to minutes. * Pro Extended Aisle continues to scale, expanding product assortment and delivery capabilities without adding in-store inventory, and is directly contributing to pro segment outperformance. - Digital & AI Innovation * Online sales grew 15.5% YoY, driven by improved user experience, strong online promotions, and enhanced fulfillment including same-day delivery. * Free same-day delivery for purchases over $25 is now available for all MyLowes Rewards and MyLowes Pro Rewards members, increasing loyalty program engagement. * Milo, the AI-powered shopping assistant, now supports over 1 million customer inquiries monthly, with a 3x higher conversion rate for users versus non-users. * MyLow Companion, the AI associate support tool, has processed over 5 million associate inquiries since launch, added voice-to-text and Spanish language capabilities, and improved associate productivity and customer satisfaction. - New Business & Acquisitions * Launched HomeCare Plus, a $99/year subscription routine home maintenance service exclusively for MyLowes Rewards members, leveraging in-store trained associates to build long-term customer loyalty. * Integration of acquired FBM and ADG (new home interior solutions platforms) remains on track, with cost synergy extraction underway and cross-selling opportunities being explored. FBM has seen strong performance on commercial contracts (data centers, municipal projects) despite weak new residential construction. - Social & Community Investment * The Lowe's Foundation announced a $250 million commitment to train 250,000 new skilled tradespeople, addressing the industry-wide labor shortage that impacts pro customer operations and long-term industry growth.

Guidance

- Management affirmed the full fiscal 2026 guidance provided at the start of the year, with no upward or downward revision: * Total sales expected in the range of $92 to $94 billion * Comparable sales expected in the range of flat to up 2% * Adjusted operating margin expected in the range of 11.6% to 11.8% * Adjusted diluted full-year earnings per share expected between $12.25 and $12.75 * Capital expenditures projected to be up to $2.5 billion - Q2 2026 guidance: * Comparable sales are expected to be roughly in line with the midpoint of the full-year guidance range * Adjusted operating margins will face near-term pressure from acquisition impacts, concentrated Q2 sales driving investments, and higher transportation costs; management expects to offset these pressures via productivity initiatives in the second half of 2026 * Adjusted diluted earnings per share for Q2 is expected to be approximately 2% below the prior year * First half 2026 results remain on track to match initial expectations - Management remains on track to meet its target deleveraging goal of a 2.75x adjusted debt to EBITDA leverage ratio by mid-2027; adjusted debt to EBITDA was 3.1x at the end of Q1 2026.

Segment performance

Overall Q1 2026 total sales: $23.1 billion, up 10.3% year-over-year, with comparable sales up 0.6%. Comparable average ticket increased 1.5%, while comparable transactions declined 0.9%. Gross margin was 32.7% (down 70 bps YoY), SG&A was 19.2% of sales (leveraged 17 bps YoY), adjusted operating margin was 11.5% (down 43 bps YoY). Inventory ended the quarter at $18.4 billion. Hardlines: Positive comparable sales across all merchandise divisions, including lawn and garden, seasonal, cleaning, tools, hardware, and power equipment. Standout growth in live goods, landscape products, hardscapes, patio furniture, riding lawnmowers, workwear, and pet categories. Workwear and pet categories remain on track for full national store rollout by end-2026. Building Products: Growth in pro-focused categories, particularly rough plumbing and electrical. Standout performance in irrigation/sprinkler products due to warmer March weather and strong in-stock levels. Strength in HVAC and water heaters, supported by expanded Lowe's home services. Millwork (windows and doors) delivered positive comparable sales, driven by leading exclusive channel brands. Home Decor: Positive comparable sales in both appliances and paint. 70% of appliance transactions are urgent replacement purchases; 12.5% of total Q1 sales come from appliances, with performance supported by next-day delivery/installation capability across nearly all U.S. zip codes. Paint delivered growth across interior paint, sundries, tools, stain, and spray paint, driven by improved in-store and digital customer experience.

Risks & headwinds

- Elevated interest rates and continued low housing turnover have created sustained pressure on DIY big-ticket discretionary projects, which make up approximately one-third of Lowe's total business - Recent increases in oil and energy prices have raised costs for fuel, and commodity products including resin and plastics, creating margin pressure starting in Q2 2026 - Ongoing changes to U.S. tariff policy introduce uncertainty for supply chain and product costs, particularly expected new rulings in the second half of 2026 - The broader consumer macro environment remains uncertain, with lower-income consumers showing continued caution amid ongoing economic volatility - The new residential construction market remains weak, which creates near-term headwinds for the recently acquired FBM and ADG businesses - The skilled labor shortage across the construction and home improvement industry creates operational challenges for pro customers, which can indirectly impact demand for Lowe's products

Analyst Q&A

• Q: Is March 2026 strength just deferred February demand from winter storms, and could spring demand shift into Q2? How has tax stimulus impacted your business so far, and what do you expect for the back half?

  A: Q1 weather impacts were mixed: February storms dragged full quarter comps by 30 bps, while March and April had more normal spring temperatures. SpringFest event timing and consumer demand were aligned with expectations going into April. Tax refunds had limited impact on Q1 results, with only ~20% of total refunds distributed so far spent, and ~50% held in consumer savings. Roughly $50 billion in remaining refunds tied to filing extensions are expected to be distributed over the next 3-4 months, with potential spending benefits concentrated in Q2 for higher-income consumers, which is already included in current guidance.

• Q: What is the long-term member spend hypothesis for the new HomeCare Plus subscription, and early engagement trends? How is the Pro Extended Aisle initiative progressing, and are revenue synergies materializing?

  A: HomeCare Plus is early in launch, but it is a unique long-term play to build deeper loyalty with DIY customers by leveraging the existing MyLowes Rewards platform and trained in-store associates that customers already trust, filling an unmet need in the market. Pro Extended Aisle is scaling as planned, expanding product assortment without adding in-store inventory, and it is directly contributing to the pro segment's ongoing outperformance relative to DIY. Management expects pro to continue outperforming DIY for the full year, with Pro Extended Aisle a core driver of that result.

• Q: With 70% of categories posting positive comps but total comp only up 0.6%, what is driving this gap? How large is exposure to the weaker big-ticket discretionary DIY segment?

  A: The gap comes from ongoing pressure in big-ticket DIY discretionary categories, which has been a multi-year trend. Roughly two-thirds of Lowe's overall business is concentrated in more stable repair, maintenance, and replacement (RMR) categories, while the remaining one-third is big-ticket discretionary DIY, which continues to lag, creating the net gap despite broad RMR category strength.

• Q: How is AI driving back-office and operational productivity beyond customer-facing and frontline associate tools, specifically in areas like demand planning, replenishment, and pricing?

  A: Lowe's organizes AI efforts across three frameworks: how we shop, how we sell, and how we work. Back-office productivity work falls under the "how we work" pillar, with heavy ongoing investment in AI for demand planning, assortment planning, allocation, replenishment, and pricing & promotion. These initiatives are already contributing to the $1 billion annual perpetual productivity improvement (PPI) target for 2026, and give management confidence that PPI can offset near-term cost pressures.