Lowe's Companies, Inc. Q2 FY2027 earnings call

• Total Home Strategy and Core Execution
  • The company delivered 5 consecutive quarters of positive comparable sales, demonstrating strategy resilience amid dynamic near-term macro conditions. Long-term fundamentals for home improvement remain intact, but near-term discretionary DIY demand remains under pressure due to economic uncertainty and cautious consumer spending, which was partially offset by strong Pro, Online, and Home Services performance.
  • Strategic acquisitions of Foundation Building Materials (FBM) and Artisan Design Group (ADG) are progressing well in integration, positioning the company to gain share with larger Pro customers long-term.
  • Perpetual Productivity Improvement (PPI) initiatives continue to deliver cost discipline and operational efficiency, freeing associate time for customer service and creating flexibility for strategic investment. Key PPI advancements include the rollout of self-watering plant tables, a new centralized associate communications portal, and expansion of pet and workwear assortments to improve space productivity.

Product and Assortment Strategy

• Exclusive new product launches and brand expansions include the full rollout of Cree light bulbs, addition of Traeger grills to the brand lineup, and completion of the Daltile hard surfaces rollout planned for Q3. Hundreds of new power tool, hand tool, and storage products are being added across DEWALT, Bosch, and Kobalt to serve both DIY and Pro customers.
• Assortment expansions for premium appliances and premium outdoor furniture will enable the company to capture demand across all price points, leveraging the K-shaped consumer spending trend.
• The MyLowe's Rewards loyalty program has over 30 million members, who shop more frequently and spend more per visit than non-members; the company continues to add exclusive member benefits and events.

Store and Omnichannel Experience

• Same-day fulfillment continues to grow in adoption, becoming an increasingly important part of Lowe's omnichannel offering. Next-day delivery and installation for major appliances is available across nearly all U.S. ZIP codes, the fastest fulfillment in the home improvement industry.
• The Mylow Companion AI tool for in-store associates is seeing strong adoption, enabling faster customer question resolution and freeing associate time for customer service.

Overall company: Second quarter 2026 total sales were $26 billion, an 8.3% increase year-over-year, with comparable sales rising 0.2% overall. Comparable average ticket increased 2.3%, while comparable transactions declined 2.1%. Gross margin was 33% (down 80 basis points year-over-year on an adjusted basis), SG&A was 17.2% of sales, and adjusted operating margin was 14% (down 62 basis points year-over-year). GAAP diluted EPS was $4.27, and adjusted diluted EPS was $4.40, beating expectations even after excluding tariff refund benefits.

Pro segment: Delivered continued quarter-over-quarter growth, driven by small and medium-sized Pro customers. Growth was supported by strategic investments in differentiated assortment, strong in-stock positioning, dedicated service, tailored digital tools, and the MyLowe's Pro Rewards loyalty program. Positive comp sales were delivered across Pro-focused categories including rough plumbing (6 consecutive quarters of growth), millwork, electrical (4-5 consecutive quarters of growth), and lumber.

Online segment: Online sales grew 15.7% year-over-year, with growth driven by investments in digital experience (tailored site/app experiences, expanded visualization capabilities, marketplace expansion), improved fulfillment options (free and same-day delivery), and the AI chatbot Mylow. Mylow has supported over 25 million customer and associate questions, and online customers who use Mylow convert at 3x the rate of non-users.

Home Services: Delivered another quarter of growth, particularly in replacement projects. Experience enhancements improved conversion, cycle time, and customer satisfaction, positioning the segment to capture larger project demand.

Merchandise categories: 9 of 13 merchandise divisions delivered positive comparable sales. Building products saw broad-based growth across rough plumbing, millwork, electrical, and lumber. Home decor had positive comps in appliances (7 consecutive quarters of growth), paint, and kitchen and bath. Hard lines grew comps in lawn and garden and tools and hardware.

• Full year 2026 guidance was revised downward to the bottom end of the prior range. Management now expects total sales of approximately $92 billion, roughly flat full-year comparable sales, an adjusted operating margin of approximately 11.6%, and adjusted diluted EPS of approximately $12.25. Capital expenditures are still expected to be up to $2.5 billion.
• The updated guidance includes the Q2 2026 tariff refund benefit, but excludes any potential additional future tariff benefits in the second half. It also reflects continued near-term demand pressure in the residential construction end market for FBM and ADG.
• Third quarter 2026 comparable sales are expected to be in line with the full year flat outlook, and adjusted diluted EPS is expected to be approximately 7% lower than the prior year third quarter.
• The full year outlook assumes status-quo demand conditions matching the first half of 2026, with no additional macro deterioration baked in. Q4 2026 comparable sales will face a 50 basis point drag from lapping the 2025 winter storm, leading to an implied negative Q4 comp.
• Management expects to reach its targeted 2.75x adjusted debt-to-EBITDA leverage ratio by mid-2027.

• Near-term macro risks: Elevated interest rates, inflation, high fuel and energy prices, and broad economic uncertainty are driving continued consumer caution and suppressing discretionary DIY spending. Elevated mortgage rates are also suppressing new home construction activity, creating significant near-term demand pressure for FBM and ADG (which are 45% and 100% exposed to residential construction, respectively).
• Cost pressures: Elevated and rising fuel, transportation, and energy input costs continue to pressure gross margins, and these pressures are expected to remain elevated through the second half of 2026.
• Competitive risks: Transitory heightened competitive pressure emerged in July 2026, as competitors used IEEPA tariff refunds to run aggressive unprofitable promotions on seasonal categories, which negatively impacted Lowe's July comparable sales.
• Weather risks: Adverse weather (including rain over the Memorial Day selling weekend and drought conditions in key summer markets) negatively impacted sales in weather-sensitive outdoor and seasonal categories during the quarter.

Q: Management noted heightened competitive pressure to end Q2 2026. Where is this pressure emerging, and what proactive plans does Lowe's have to combat it in the back half? / A: Heightened pressure was isolated to July 2026, driven by competitors using tariff refund dollars to cut unprofitable prices on seasonal categories like grills, patio, and live goods. Lowe's does not view this price aggression as the new normal, expecting it to be transitory as competitors will not have additional tariff refunds to fund this behavior in the back half. For the back half, Lowe's will focus on planned initiatives: driving member-exclusive events for MyLowe's Rewards, continuing momentum in consistently growing Pro categories, rolling out new innovative products across key tool and appliance brands, expanding premium appliance and outdoor furniture assortments, completing the Daltile flooring rollout, adding the Traeger grill brand, and maintaining operational and margin discipline.

Q: The guidance was revised to the bottom of the prior range. What changed in the outlook, and will the demand slowdown change capital allocation priorities between DIY and Pro? / A: The downward revision reflects carrying forward the first half's weak DIY demand and residential construction pressure into the second half, rather than expecting an upward demand tilt that was in the prior initial outlook. Q4's implied negative comp mainly comes from lapping last year's winter storm, which creates a 50 basis point headwind. Management will not shift long-term capital allocation: Lowe's has a strong balance sheet and will continue investing for the long term, rather than running the business quarter-to-quarter. Acquisitions of FBM and ADG are positioned to capture long-term growth from the eventual recovery in residential construction, and management maintains its disciplined focus on high return on invested capital to benefit shareholders long-term.

Q: Competitors used tariff refunds for aggressive pricing; did Lowe's choose not to match these actions, and is this the new competitive environment? / A: Multiple competitors received tariff refunds and used the funds to run aggressive promotions to drive units and clear seasonal inventory; this is transitory, not a permanent shift to the historically rational home improvement pricing environment. Lowe's chose not to match the unplanned, unprofitable promotions, as it was financially imprudent to do so. Management expects this pressure will not continue into the second half, as competitors will not have additional tariff refunds to fund this pricing behavior, and Lowe's will maintain its disciplined, rational approach to competition and margin management.

Q: What is driving the strong 15.7% online sales growth, and what explains the overall 2.1% decline in comparable transactions? / A: Online growth is driven by multiple factors: two consecutive quarters of double-digit comp growth, with strength across both Pro and DIY customers. Growth comes from improved digital experiences, expanded visualization capabilities, strong adoption of new fulfillment options (free and same-day delivery), and the Mylow AI chatbot which triples conversion for engaging users. The overall transaction decline is almost entirely centered on DIY, specifically in weather-sensitive outdoor and seasonal categories, impacted by poor Memorial Day weekend weather and drought conditions in southern regions, aligning with the broader softness in discretionary DIY demand.