Lowe's Companies, Inc. Q1 FY2027 earnings call

Core Business Strategy & Quarterly Execution

• Delivered positive comparable sales for the fourth consecutive quarter, despite a slow start to the quarter from February winter storms that impacted the beginning of the spring selling season. The annual SpringFest event performed well, with strong in-stock levels, targeted loyalty member deals, and traffic-driving in-store events that drove strong seasonal category growth.
• Pro customer segment maintained strong momentum: the MyLowe's Pro Rewards loyalty program continues to resonate with small-to-medium Pro customers, supported by a competitive national brand assortment, consistent in-stock levels, and new AI-powered tools that reduce quote generation time from days to minutes. Pro is expected to continue outperforming DIY for the full year 2026.
• Online sales grew 15.5% year-over-year, driven by user experience improvements, strong promotional offers, and enhanced fulfillment. Free same-day delivery for purchases over $25 was rolled out for all MyLowe's Rewards and Pro Rewards members to drive loyalty and engagement. AI-powered shopping assistant Mylow now supports over 1 million monthly customer inquiries, with a conversion rate triple that of non-users.
• Home Services delivered another quarter of growth, capturing market share in the fragmented category. Newly launched HomeCare+, a subscription routine home maintenance service exclusive to MyLowe's Rewards members, leverages in-store trained Red Vest associates to build long-term customer loyalty and relationships.

Operational & Organizational Updates

• Realigned merchandising divisions from 14 to 13, merging power tools and outdoor power equipment into a single stand-alone power equipment division to better align battery platform management and coordination with supplier partners.
• Leveraging AI across front and back-office operations: Mylow Companion, an AI tool for in-store associates, has now processed over 5 million associate inquiries, added voice detection and Spanish language support, and improved associate productivity and customer satisfaction. AI is also being rolled out for back-end functions including demand planning, inventory replenishment, assortment planning, and pricing, to drive perpetual productivity improvement (PPI).
• Near-term integration of recent acquisitions FBM and ADG remains on track: cost synergy extraction from overlapping procurement spend is underway, and cross-selling opportunities are being explored. These acquisitions position Lowe's to enter the $250 billion total addressable market for new residential and commercial construction interior solutions.
• Lowe's Foundation announced a $250 million commitment to train 250,000 new skilled tradespeople, addressing a critical industry-wide labor shortage that directly impacts Pro customers and long-term industry demand.

Overall first quarter 2026 sales reached $23.1 billion, an increase of 10.3% year-over-year, with comparable sales up 0.6% overall. Comparable average ticket increased 1.5%, while comparable transactions declined 0.9%. Gross margin came in at 32.7%, down 70 basis points year-over-year, while SG&A was 19.2% of sales, a 17 basis point leverage from the prior year. Adjusted operating margin was 11.5%, down 43 basis points year-over-year. End-of-quarter inventory totaled $18.4 billion.

• Hardlines: Delivered positive comparable sales across every merchandise division, including lawn and garden, seasonal, cleaning, tools, hardware, and the newly formed stand-alone power equipment division. Standout growth was seen in live goods, landscape products, hardscapes, patio furniture, riding lawn mowers, workwear, and pet categories, with workwear and pet on track for full national rollout by the end of 2026.
• Building Products: Delivered growth in Pro-driven categories including rough plumbing, electrical, irrigation, sprinklers, HVAC, and water heaters, driven by strong in-stock levels and supporting Home Services offerings. The millwork category (focused on windows and doors) delivered positive comparable sales, supported by exclusive industry-leading brands.
• Home Decor: Delivered positive comparable sales in both appliances and paint. 70% of appliance transactions are urgent replacements, and Lowe's unique omnichannel and next-day delivery/installation capability across nearly all U.S. ZIP Codes drove strong performance. Paint category growth was fueled by improved digital experiences (including a paint color visualizer) and enhanced in-store associate support through partnerships with key vendors.

Approximately 2/3 of Lowe's overall portfolio is repair/maintenance/replacement, while 1/3 is big-ticket discretionary. 60-65% of total revenue comes from DIY customers, with the remaining 35-40% from Pro customers.

• Lowe's maintains its original full-year fiscal 2026 guidance, with no upward or downward revision. Full-year sales are expected to range between $92 billion and $94 billion, with comparable sales expected in a range of flat to up 2%.
• Adjusted operating margin for full-year 2026 is expected to range between 11.6% and 11.8%, with full-year adjusted diluted earnings per share expected between $12.25 and $12.75. Full-year capital expenditures are expected to be capped at $2.5 billion.
• Second quarter 2026 comparable sales are expected to fall roughly at the midpoint of the full-year guidance range. Second quarter adjusted operating margins are expected to face near-term pressure from acquisition impacts, concentrated seasonal sales and promotional investments, and higher transportation costs, which the company expects to offset via productivity initiatives in the second half of the year. Second quarter adjusted diluted earnings per share is expected to be approximately 2% below the prior year.
• The company expects performance acceleration in the second half of 2026, driven by the full national rollout of workwear and pet categories, continued traction from Pro Extended Aisle, online growth, expanded fulfillment, and potential tailwinds from unspent tax refunds. If all these factors align, the company could reach the upper end of the full-year comparable sales guidance range.

• Elevated interest rates and low housing turnover have created continued pressure on big-ticket discretionary DIY spending, the most difficult housing market environment for the company since the 2008 financial crisis.
• Recent increases in oil prices have created new near-term cost pressure on fuel, resin, and plastic products, with the most visible impact expected in the second quarter of 2026.
• Ongoing changes to U.S. tariff policy, including new 232 and 301 tariff actions expected in the second half of 2026, create inflation pressure on imported goods.
• The uncertain macroeconomic environment has made lower-income DIY consumers more cautious about discretionary spending, creating ongoing K-shaped demand trends across income cohorts.
• The home improvement industry faces a widespread skilled labor shortage that constrains growth for Pro customers and the broader industry.

Q: Asked if Q1 strength in March was just deferred February demand from winter storms, and if any spring demand shifted into Q2. / A: Management stated that overall weather impacts were roughly balanced for Q1 overall: February storms created a 30 basis point drag on full-quarter results, but March and April saw more normal spring temperatures. April exit rates were in line with expectations, and Q2 is well-positioned with strong seasonal product offerings, key holiday sales events, and expected tailwinds from remaining unspent tax refunds.

Q: Asked about early engagement and member spend hypothesis for the newly launched HomeCare+ subscription service, and growth update for the Pro Extended Aisle initiative. / A: HomeCare+ is still early in its launch, but initial results are positive. The service is a long-term play to build deeper loyalty with DIY customers by offering a unique, differentiated offering leveraging existing trusted in-store associates, exclusively for MyLowe's Rewards members. Pro Extended Aisle continues to scale with new suppliers and capabilities, and its momentum directly contributed to another strong quarter of Pro sales growth, with Pro expected to outperform DIY for the full year.

Q: Asked how to interpret 0.6% total comp growth despite 70% of product categories delivering positive comps, and what the mix of positive/negative performers looks like. / A: Ongoing pressure is concentrated in big-ticket discretionary DIY categories, which have lagged for multiple years, while most repair, maintenance, and replacement categories (as well as Pro, Home Services, and online) are positive. The overall portfolio mix is roughly 2/3 resilient repair/maintenance and 1/3 lagging discretionary, a split that has not changed in recent years.

Q: Asked how AI can drive back-end operational productivity beyond the customer and associate-facing tools already highlighted. / A: Lowe's has a structured framework for AI adoption across how customers shop, how the company sells, and how the company works. Beyond customer and associate-facing AI (which already delivers clear improvements to conversion and associate productivity), AI is being heavily invested in for back-end functions including demand planning, inventory allocation and replenishment, assortment planning, and pricing. A growing share of the company's $1 billion annual PPI target is now allocated to these AI-driven back-end productivity efforts, which are on track to deliver results this year.