Lowe's Companies, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Total Home Strategy: Small to medium Pro delivered growth; Pro extended aisle expanded product assortment. Online sales grew 11.4% with enhanced online experience. Leveraged loyalty ecosystem (MyLowe's Rewards members shop more often). Home Services had double-digit comps. Completed rollout of rural format in 150 stores and on track to roll out workwear and pet in over 1,000 stores; SKU rationalization to reduce in-store SKU count by 15% by end of 2025.
• AI Framework: Virtual assistants Milo and Milo Companion answer nearly 1 million questions monthly. AI driving sales conversion and associate customer satisfaction. Engineers using AI for productivity gains.
• Acquisition of Foundation Building Materials (FBM): Expanded product portfolio, strengthened fulfillment capabilities, and provided complementary products to Pro customers. FBM's commercial sales performing well with data center, residential, and medical projects.
• Macro Environment: U.S. housing healthy but affordability and uncertainty affect consumer confidence. Lock-in effect from homeowners' record equity and potential for lower interest rates spurring home equity financing.

Segment Performance

• Home Decor: Delivered positive comps in appliances, flooring, paint, and kitchens and bath. Appliances saw 4 straight quarters of comp and unit growth, with a wide assortment of top brands and next-day delivery. Flooring had broad-based strength across soft services, vinyl, and tile, with STAINMASTER PetProtect being a key strength. Paint launched Sherwin-Williams Pro Block Quick Dry primers. Kitchens and bath completed showroom resets for better shopping experiences.
• Building Products: Drove positive comps in millwork, rough plumbing, lumber, and electrical. Supplemented Pro offering with Pro extended aisle, and saw innovation in millwork with products like the Larson 60 MT storm door.
• Hardlines: Delivered positive comps in lawn and garden (live goods and hardscapes) and tools (hand tools and tool storage). Lawn and garden benefited from mild weather and outdoor project inspiration. Tools had value offerings and strong online engagement during events.

Guidance

• Fiscal 2025 comp sales now expected to be roughly flat, at the bottom end of previous guidance. Full year sales expected ~$86 billion including FBM sales of ~$1.3 billion in Q4.
• Adjusted operating margin expected ~12.1%, including 20 basis points of dilution from FBM and ADG. Adjusted diluted EPS expected ~$12.25, a 2% growth over prior year.
• Capital expenditures expected up to $2.5 billion for the year. Annualized impact of FBM and ADG on consolidated adjusted operating margin expected to be ~50 basis points.

Risks

• Macro Environment: Uncertainty in consumer confidence and housing market affecting home improvement spending.
• Acquisition Integration: Challenges in integrating FBM and ADG impacting margins initially.
• Tariff Pressures: Tariffs affecting costs and potentially margins as they move through the system.

Question and Answer

Q: Chris Horvers from JPMorgan asked about business trends, flat guide for Q4, and acceleration in 2026.

A: Marvin Ellison and Bill Boltz discussed positive comp start to Q4, broad-based strength in November, and Brandon Sink mentioned cautiously optimistic outlook for 2026 with early signs of Pro and online strength.

Q: Zack Fadem from Wells Fargo asked about improving Pro survey sentiment.

A: Marvin Ellison and Joseph McFarland discussed stable small to medium Pro business, MyLowe's Pro Rewards loyalty platform, and Pro extended aisle investments driving growth.

Q: Simeon Gutman from Morgan Stanley asked about housing macro and medium to larger Pro strategy.

A: Marvin Ellison and Brandon Sink discussed homeowner equity and HELOC potential, and focus on small to medium Pro with MyLowe's Pro rewards and FBM integration.

Q: Kate McShane from Goldman Sachs asked about marketplace performance.

A: Marvin Ellison and Bill Boltz discussed early positive performance of marketplace with strong seller onboarding and product expansion.

Q: Seth Sigman from Barclays asked about operating leverage and margin sustainability.

A: Brandon Sink discussed focus on 12.1% operating margin, balance of gross margin and SG&A, and impact of acquisitions on margins.

Q: Greg Melich from Evercore ISI asked about traffic and ticket breakdown.

A: Brandon Sink discussed drivers of ticket growth (Pro business, appliances, modest price increases) and impact of storm-related pressure on transactions.

Q: Robert Ohmes from Bank of America asked about fourth quarter promos and flooring strength.

A: William Boltz discussed consistent promotional cadence and flooring strength from Stainmaster and product innovation.