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22-05-2025
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Q1 2025 Lowe's Companies Inc Earnings Call
Kate Pearlman; Vice President of Investor Relations & Treasurer; Lowe's Companies Inc Marvin Ellison; Chairman of the Board, President, Chief Executive Officer; Lowe's Companies Inc William Boltz; Executive Vice President - Merchandising; Lowe's Companies Inc Joseph Mcfarland; Executive Vice President - Stores; Lowe's Companies Inc Brandon Sink; Chief Financial Officer, Executive Vice President; Lowe's Companies Inc Simeon Gutman; Analyst; Morgan Stanley Steve Forbes; Analyst; Guggenheim Securities Robbie Ohmes; Analyst; Bank of America Scot Ciccarelli; Analyst; Truist Securities Seth Sigman; Analyst; Barclays Steven Zaccone; Analyst; Citi Christopher Horvers; Analyst; J.P. Morgan David Bellinger; Analyst; Mizuho Securities Peter Benedict; Analyst; Robert W. Baird & Co. Operator Good morning, everyone, and welcome to Lowe's Companies first quarter 2025 earnings conference call. My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded. I'll now turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasurer. Kate Pearlman Thank you, and good morning. Here with me today are Marvin Ellison, Chairman and Chief Executive Officer; Bill Boltz, our Executive Vice President, Merchandising; Joe McFarland, our Executive Vice President, Stores; and Brandon Sink, 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'll be making comments that are forward-looking, including our expectations for fiscal 2025. 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'll be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP can be found in the quarterly earnings section of our Investor Relations website. Now I'll turn the call over to Marvin. Marvin Ellison Thank you, Kate. Good morning, everyone, and thank you for joining us today. In the first quarter, we delivered sales of $20.9 billion with comparable sales down 1.7%, in line with our expectations. Despite ongoing challenges in the housing market, I'm pleased with our team's focus and execution in the face of significant macro uncertainty, we continue to deliver operational excellence combined with value and outstanding service to our customers. This dedication drove an increase in our customer satisfaction scores, and we also earned recognition from J.D. Power, which recently named Lowe's number one in customer satisfaction among home improvement retailers. This recognition demonstrates that our investments in technology and our clean and enjoyable stores, along with our friendly and knowledgeable associates all reinforce our commitment to being the most helpful brand in home improvement. And although we are pleased with our continued progress in customer service, our financial results also reflect ongoing pressure in DIY bigger ticket discretionary demand and a slower start to spring versus last year with exceptionally unfavorable weather across much of the country in February. As weather normalized, we were encouraged by our business performance. Customers appreciated our spacious garden centers, great selection of outdoor power equipment and expansive assortment of grills and patio furniture. And they also took advantage of our early spring offers which included special deals for MyLowe's Rewards members. Later in the call, Bill will provide more detail on our approach to spring and the momentum that we're seeing. Before I discuss our Q1 results in more detail, I'd like to spend time discussing our company's commitment to diversify our global sourcing efforts. To provide a better perspective about our global sourcing, roughly 60% of our purchases originate in the US or approximately $30 billion on an annual basis. Over the past several years, we've been partnering with our private and national brand suppliers to diversify our global sourcing efforts. As a result, approximately 20% of our purchase volume is currently concentrated in China. Although we are pleased with this reduced dependency, we're not satisfied, and we're working to accelerate our diversification efforts. Our global sourcing team has identified exciting diversification opportunities in the US and around the globe that we're actively pursuing. We're also using our best-in-class product cost management and sophisticated pricing capabilities, while leveraging the strength of our cross-functional teams across merchandising, assortment planning, supply chain, and finance. We will combine these capabilities and continue to work with our national and private brand suppliers while using a portfolio approach to ensure we continue to bring value and innovation to our customers. In the meantime, let me tell you how we're planning to drive sales growth by continuing to strengthen two key pillars of our Total Home strategy, accelerating our Pro and online growth. I'll begin with our mid-single-digit growth in Pro sales this quarter. Since 2018, this leadership team has transformed our Pro product and service offering, with a powerful program lineup, targeted inventory investments, and a competitive loyalty program. Now that we've established an effective playbook and a strong foundation of execution to serve the small to medium Pro, we're excited to engage a larger Pro with their planned span in a new distribution channel. To that end, we announced a deal in April to acquire Artisan Design Group, or ADG, which is a leading provider of design, distribution, and installation services for interior surface finishes, including flooring, countertops, and cabinets. ADG serves national, regional and local homebuilders as well as property managers. We expect this acquisition to increase our penetration of Pro plan spend and will position us to gain share in a highly fragmented $50 billion market. And with an estimated 18 million homes needed in US by 2033, new home construction is expected to be a major driver of Pro plan spend over the next decade. We've been impressed with ADG's strong leadership team and their customer-centric operating model reflected in the best-in-class customer satisfaction scores that it earned from top builders in the US. The transaction is expected to close this quarter, so we'll provide an update on our progress during our next call. Now let's talk about another key pillar of our Total Home strategy, accelerating online sales. In the first quarter, online sales were up 6% driven by increases in both traffic and conversion rates. We're pleased with the technology transformation that's making these gains possible. For example, we're now able to offer an expanded assortment, more value, and an even wider extended hour with our launch last year of the first online product marketplace in home improvement. While we're still in the early days of this initiative, we recently partnered with Miracle, a global leader in marketplace technology to help us scale even faster. Through Miracle, trusted marketplace sellers will be able to easily manage their catalogs on This will add new product categories across the home and offer DIY and Pro customers a full spectrum of value and premium products. We can accomplish all of this without having to carry the inventory or invest in new fulfillment centers. As we scale our new product marketplace and unlock its potential, I look forward to keeping you updated on our continuing efforts to drive online growth. Now allow me to transition to how we're leveraging new AI capabilities to better serve our customers. In collaboration with Open AI, we launched MyLowe's, the first AI-powered Home Improvement Virtual Adviser. Since home improvement is inherently complex, MyLowe's provides step-by-step instructions for any project with any level of complexity from how to fix a leaky faucet to how to build a deck and everything in between, and it helps customers find and purchase the right tools and materials for their projects directly on or the Lowe's App. We're encouraged by our progress in leveraging AI to streamline the customer experience and I commend our technology and digital team for their outstanding contributions. Notably, in Q1, Lowe's mobile app earned a prestigious Webby Award and was recognized as the best mobile app for 2025. This is another reflection that our investments in technology and innovation are paying off. Before I wrap, let me update you on our commitment to be a good neighbor in the communities where we do business. Earlier this month, we celebrated our commitments to supporting our communities by announcing our efforts to measure our impact in a new way, through our Here to Help initiative with a goal to deliver 10 million square feet of impact nationwide this year. This includes our ongoing efforts to create safe, affordable housing respond to disasters and revitalize communities like our five-year $100 million commitment to improve home towns across the country. This new initiative reflects our commitment to improve the communities where our associates live and work, and we look forward to providing you with updates later in the year. In closing, I want to thank our frontline associates for their continued hard work especially in this key spring selling season. And with that, I'll turn it over to Bill. William Boltz Thanks, Marvin, and good morning, everyone. We're pleased that our first quarter sales were in line with our expectations, driven by broad-based strength in Pro and Online across multiple merchandising categories. Beginning in hard lines, after a slow start February, our spring season is off and running. As the weather improved, we delivered solid growth in key categories, including patio furniture, fertilizer, grass seed, generators, and irrigation. Customers responded to our innovation products and new affordable designs even when it came to some discretionary purchases. For example, our private branded Ashton 5-piece patio dining set by Style Selections was a big hit at less than $400. We're also continuing to earn DIY customers' loyalty through MyLowe's Rewards. We just marked the first anniversary of this program, which has more than 30 million members who spend nearly 50% more than non-members. We're cultivating their loyalty and using data-driven marketing to engage them with the right message at the right time to convert sales. For example, during our Spring Fest event, we offered members special deals every two weeks on lawn and garden products, patio furniture, outdoor power equipment and more, plus member-only doorbusters in-store and online. And new this year, in early April, we launched Mulch Madness. During this event, customers saved on five bags of Mulch for $10, and for the first time, members also received 5x bonus points and a free gift. We also brought customers industry-leading innovation this spring with products like the new EGO Line IQ Attachment-Capable String Trim. This product makes it easy to load the trimer line with the push of a button, and its attachment capabilities mean it can convert into eight different tools, including an edger, hedge trimmer, and pole saw. This is one of more than 20 new EGO items they're launching this year. We're also in stock with the industry's best brands to help customers complete all the projects like Scotts Fertilizer, Miracle-Grow Soils, Toro Lawn Mowers, along with products from Craftsman and Kobalt. Now turning to Building Products. We delivered positive comp sales in Building Materials and Rough Plumbing with strength in roofing, drywall, plumbing repair, water heaters, and air circulation categories. And in Lumber, we delivered growth in siding, treated lumber, and composite decking. In fact, Lowe's has the largest selection of composite decking brands, including the top two with Trex and TimberTech along with an improved offering from Deckorators. Let's talk about Home Decor. Our continued strength in appliances helped us deliver growth in both transactions and average ticket and we saw growth across all major categories, including refrigeration, laundry, cooking, and dishwashers. As the industry leader in appliances, we have the widest assortment of top brands using our market delivery model, we can deliver these big and bulky products next day to virtually every ZIP code in the US. And Of course, our knowledgeable Red Vest associates are always there to help customers choose the right products and highlight new and innovative items that can meet their needs. For example, we're introducing the next step in all-in-one laundry with the new Samsung bespoke AI vented all-in-one combo washer and dryer. This one machine washes and dries closing just over an hour without having to transfer loads and it uses the existing 110-volt outlet and dryer vending found in most homes. Our Paint department has become the home center color authority where we instill color confidence in consumers with trusted Sherwin-Williams colors. We're excited to see the new marketing campaign from Sherwin-Williams, which uses their iconic color palette to entice customers to shop Lowe's, including the Pro campaigns, where we continue to gain traction with our compelling value and expanded assortment. And while we're energized by new and innovative products, we're also mindful of the current market dynamics. Bigger ticket project spend remains under pressure in interior categories like flooring and kitchens and bath, with many customers still dosing to delay those larger purchases. I'd like to spend a few minutes discussing our approach to spring. Our teams have never been more in sync as we prepared for this important season. Our stores, supply chain, inventory, vendor, and merchant teams have worked hard to make sure that we provide the best service product value and innovation to our customers. For this spring season, we are ready with strong in-stocks across our core categories, including our seasonal items so that we can serve both our DIY and Pro customers with great values on items that they are looking for as we head into the upcoming Memorial Day, Father's Day, and July 4 holidays. Looking ahead, I'm not only pleased with the great deals and innovation that we have for our DIY and Pro customers. I'm also excited to see some of the best in-stock positions during my tenure at Lowe's. And when you combine that with the outstanding staffing and customer service in our stores, the result was our recognition as number one in customer satisfaction among home improvement retailers from J.D. Power. As I wrap up, I want to thank all of these teams as well as our MST associates for their support, partnership, and great execution this spring. And now with that, I'll turn the call over to Joe. Joseph Mcfarland Thank you, Bill. Good morning, everyone. Let me start by thanking our frontline associates for their hard work and dedication during the spring season. Their efforts are paying off with customer satisfaction scores up 100 basis points over last year, as we leverage better technology and ongoing process improvements to enhance the shopping experience. Turning to Pro. In our most recent survey, Pros indicated that project backlogs remain healthy, but they are feeling a little less confident as might be expected, given the uncertain macro environment. Although Pros may be a bit cautious right now, our ability to deliver mid-single-digit growth in Pro sales comp in Q1 is a reflection that our strategy is working. One highlight this quarter, we're really pleased with the successful nationwide relaunch of our Pro Loyalty Program. The updated program now called MyLowe's Pro Rewards, allows Pros to earn points from day one and is much more intuitive to use. Just one example. Pros only need to provide their phone number and check out, getting them back to the job site faster, and joining has never been easier with the addition of our new Spanish language enrollment option. With the program that's easier to use and understand, we're expecting greater utilization, driving repurchases and higher spend. Another way we're driving momentum is through our new technology Workbench for our Pro sales associates. They can use this digital tracking tool to quickly identify their leads and prioritize the quotes to close. This drives both the betterment customer experience and greater associate productivity. As discussed earlier, our planned acquisition of ADG represents a natural step in driving pro penetration by extending our reach with the new cohort of Pro customers, single and multi-family home builders. Turning now to our perpetual productivity improvement or PPI initiatives. In conjunction with the rollout of MyLowe's on for customers, we've also released MyLowe's Companion for our store associates built on the same technology. With immediate access to product details and project advice and inventory information, this AI-powered app gives associates the product and project knowledge to sell with confidence regardless of tenure or experience. Associates across all 1,700-plus stores can access MyLowe's Companion on their mobile devices, marking the first time a retailer has successfully implemented this kind of technology at scale. With this knowledge at their fingertips, our associates can quickly feel confident in answering customers' questions, even if they've just started in the store or been asked to cover a new department. We're also driving productivity with our gig delivery network, which has been an important component of our enhanced omnichannel customer experience. We're now using this capability to help us mix spring demand, specifically during the Mulch Madness event that Bill just mentioned. In the past, this high-traffic event will take a valuable flatbed distribution capacity. But this spring, we shifted a portion of the volume to gig delivery. This provides an efficient delivery experience for customers buying Mulch, while freeing up capacity to meet the delivery needs of other Pro and DIY customers. We're also pleased to announce that our East Ashville store reopened earlier this month after damage from Hurricane Helene. During the hurricane, the store has submerged in over 18 feet of water. So we are thrilled that we are now able to reopen it to serve our customers and community. And we're on track to open 5 to 10 new stores later this year, in line with what we shared at our analyst and investor conference. Of course, all of this is only possible because of our hard-working associates. As a demonstration of our appreciation, we closed our stores on Easter for the sixth consecutive year, giving associates time on this very special day to rest and recharge with family and friends. As I wrap up, I want to take a moment to thank our veterans, including our veteran associates who can be identified with our camouflage vests. Lowe's is ranked among the top military-friendly brands in the US, which speaks to our company's commitment to the military community. As a marine, I couldn't be more proud of Lowe's efforts to honor those who served, especially as we approach Memorial Day. Looking ahead, with excellent spring staffing levels and ongoing innovation across technology and service, I'm confident that we're offering a best-in-class omnichannel shopping experience for our customers this season. To close, I want to congratulate our store associates for being recognized by J.D. Power as the number one customer satisfaction among home improvement retailers. This is a testament to their ongoing commitment to serving our customers. With that, I'll turn it over to Brandon. Brandon Sink Thank you, Joe, and good morning. Starting with our first quarter results. Diluted earnings per share of $2.92 were in line with our expectations. Q1 sales totaled $20.9 billion, and comparable sales were down 1.7%, in line with our expectations as we cycled over an earlier start to spring last year. Comparable average ticket was up 2.1%, with continued growth at Pro and Appliances, somewhat offset by ongoing pressure in DIY discretionary project demand. Comparable transactions declined 3.8%, partly driven by unfavorable weather earlier in the quarter that pressured spring traffic, which make up a larger portion of our transactions this time of year. And given the poor weather early in Q1, comps were down 5.4% in February, up 1.7% in March, and down 2.6% in April. As our stores are closed on Easter Sunday, we estimate that the later timing of Easter benefited March comps and pressured April comps by a similar amount. Adjusting for the Easter shift, comp sales were down approximately 0.9% in March and up approximately 0.2% in April. Gross margin was 33.4% of sales in the first quarter, up 19 basis points from last year, driven by multiple PPI initiatives as well as some modest improvement in Shrink and Credit revenue. SG&A of 19.3% of sales de-levered 56 basis points driven by lower sales volumes, the wrap of incremental wage actions for frontline associates, and higher health care-related costs. Operating margin rate of 11.9% declined 50 basis points versus prior year and the effective tax rate was 23.9% in line with the prior year. Inventory ended Q1 at $18.3 billion, in line with prior year, with strong in-stocks across the store, including key spring seasonal items. Turning now to capital allocation. In the first quarter, we generated $2.9 billion in free cash flow. Capital expenditures totaled $518 million as we continue to invest in our strategic growth priorities, including the construction of new stores expected to open later this year. In the quarter, we paid $645 million in dividends at $1.15 per share. And in April, we repaid $750 million in debt maturities helping us deliver adjusted debt-to-EBITDAR of 2.99 times and our return on invested capital of 31% at the end of Q1. Last month, we announced a definitive agreement to acquire Artisan Design Group for $1.325 billion. We plan to use cash on hand to finance the transaction, suspend share repurchases this year, and repay the remaining $1.75 billion in bonds maturing in September. The transaction is expected to close in Q2, and it's expected to be accretive to diluted earnings per share in the first full fiscal year after closing. Looking forward to the remainder of the year, today we are affirming our fiscal 2025 outlook. We continue to expect sales ranging from $83.5 billion to $84.5 billion with comparable sales in a range of flat to up 1%. We expect operating margin in a range of 12.3% to 12.4% and full year diluted earnings per share of approximately $12.15 to $12.40. We also expect capital expenditures of approximately $2.5 billion as we invest in our Total Home strategic priorities and begin to ramp up new store builds. Please note that this outlook does not include any potential impacts related to the acquisition of Artisan Design Group. To assist with your modeling, here are a few items to keep in mind for the second quarter. We continue to expect comp sales in the first half to be roughly flat with approximately $400 million in spring demand shifting into Q2 where we are cycling particularly poor weather. As Bill mentioned, we also have strong in-stocks, including in critical seasonal categories as well as visibility up into our supply chain, so we're confident that we can meet customer demand this spring. Taking this into account, we expect second quarter comp sales to be approximately 150 basis points above the bottom end of our full year guide. We also expect second quarter operating margin rate to be approximately 10 basis points above the prior year adjusted operating margin rate. And in closing, we remain confident in our team's ability to execute at a high level and manage through this challenging environment as well as any team in retail. We continue to invest in our Total Home strategy and remain focused on delivering value to our customers and our shareholders. And with that, we'll open it up for your questions. Operator (Operator Instructions) Simeon Gutman, Morgan Stanley. Simeon Gutman My first question is on the relationship of comp to expense leverage or operating leverage for the rest of the year. I guess we don't know for the quarter, you gave us a little bit of help with the second quarter but it looks like that ratio is a little bit higher for the balance of the year, something like 25 basis points of expansion for whatever is left in comp. Is that right? Are you getting more of the business? Or is it just the timing because we don't know the comp cadence through the year, and it's the same. I think it was 10 basis points of leverage relationship. Brandon Sink Simeon, it's Brandon. So as it relates to the specifics on the comp guide, let me kind of break it down in terms of first half and second half. The first half, mainly a weather story. We're expecting roughly flat comps over the course of the first half, and we talked about the shift of the $400 million from spring to play out Q1 into Q2. Q1 played out as expected. So as I referenced expecting roughly 1.5% Q2, we feel like we have strong inventory levels, and we're ready. We have a lot of confidence in Q2 expectations. And then implied in the second half is roughly a plus one. We expect to continue to see momentum with our Total Home sales initiatives offsetting hurricane pressure. So that's kind of the shape of the top line. As it relates to margin, we're expecting gross margins to hold roughly flat for the full year. The PPI portfolio initiatives continue to offset cost and inflationary pressures. On the SG&A side, the team continues to outperform there managing a number of lines really well. We got $500 million roughly in OpEx offsetting there across a number of pressures that we're seeing. So that kind of gets you to the guide of 12.3% to 12.4%. Again, Q1 roughly in line with expectations, and that's how we're thinking about Q2 to Q4. Simeon Gutman Okay. And then shifting gears, maybe for Marvin, I wanted to ask about the Larger Pro and Artisan Design Group. I guess, is the deal signaling that you're planning to move quicker here if opportunities present themselves? How we think about that in relation for Lowe's? And then can you talk about how quickly the business is growing organically? Or whatever that growth rate of the business looks like? Marvin Ellison Yeah. We feel really good about the acquisition. We've been really disciplined with how we've managed our capital. And so any time we decide to make any acquisition is well thought-out and then we have a lot of confidence in it. I think the best way to answer your question is as we think about capital allocation, it really remains the same philosophy, and that's we're always going to invest in the business. We're going to always think first about how we can get the healthy return that's going to be long-standing and sustainable. Having said that, we also believe that it's important to find ways to grow. And as we look at ADG, as an example, we think that they are perfectly positioned for the recovery that has to happen over the next decade in housing. To us, we know we're in a repressed period. But as I mentioned, in my prepared comments, you got 18 million new homes needed by 2033 and Artisan Design Group is number one in their marketplace from a perspective of service and overall business, and we think that we have some really attractive adjacencies that we can add to that portfolio. And also during a very fragmented environment, which means that they have a healthy pipeline themselves of potential targets to continue to grow through acquisition. And we're going to allow them to continue to follow a really best-in-class process to pursue those potential targets within their pipeline. We're not changing our strategy. We've just been opportunistic. We feel like that we've created a really nice playbook and execution model for the small to medium Pro. The data reflects that with mid-single-digit positive comps this quarter, but this gives us an opportunity to kind of broaden our Pro portfolio and to now have the ability to be in a separate channel with a $50 billion TAM that just gives us additional opportunity to grow when the market continues to recover. Brandon Sink And Simeon, this is Brandon. Just specifics on financials. ADG delivered $1.8 billion in sales in '24. As I mentioned, we expect EPS to be accretive in the first full fiscal year. So that would be fiscal '26 and we're going to hold on giving anything more specific. We expect to close in Q2, and we'll hold off and be prepared to talk more in August. Operator Steve Forbes, Guggenheim Securities. Steve Forbes Brandon, I think in your commentary, you mentioned a percentage of transactions being sort of spring transactions more elevated in the first half of the year and maybe potentially more elevated in the second quarter this year. So any sort of context to help us better understand sort of how reliant right or how relevant spring is in terms of percentage of transactions first quarter versus second quarter? Brandon Sink I don't know that I'll get into the details, Steve, on Q1, Q2. I'll just say Q1 average ticket up just over 2%, continues to be driven by strength in Pro, also momentum in Appliances. We also saw some benefit from storm recovery projects. As you referenced, comp transactions down 3.9%. It is driven by fewer smaller ticket seasonal transactions and ongoing DIY pressures that we're seeing in the business. Large ticket for us, was slightly positive. Again, that's Appliances and Pro strength and that's a continuation that we saw from Q4. But I would say, as you look out at Q2, and for sure, over the balance of the year, we continue to expect average ticket to be the primary driver of comps, and we would expect to see transactions recover specifically in Q2 as the business starts to get momentum. Steve Forbes And then, Marvin, just a quick follow-up. I think one of the initiatives that wasn't mentioned in the prepared remarks is localization discussed during the Analyst Day and so forth. Any updates on sort of the localization strategy. How that's progressing? How many stores you're touching? How much of the opportunity is still ahead for Lowe's? Marvin Ellison Yeah, Steve. So I'll speak about it more from the standpoint of space productivity because we've taken localization and just really part of a broader initiative on just improving productivity, both in our physical space in our stores and virtually online. So I'll let Bill talk a bit about some of the key initiatives like workwear a pet that we're really excited about and what our plans are to continue to expand that and how we think that's going to give us an opportunity to just continue to have more productive space in our stores. William Boltz Thanks, Marvin. Steve, we're well underway with all three of those initiatives. We'll have Rural completed here kind of end of second quarter, early Q3. Workwear, we're well down the path of having roughly more than 1,000 stores complete by the end of this year and wrapping up early next year for the remainder of those. And then, we continue on the same track with our Pet initiative, and we're excited about that continuing to learn as we go, and continuing to adjust as we go as well as we roll out these stores and as we put these products in, but we're really pleased with the results of all three. Operator Robbie Ohmes, Bank of America. Robbie Ohmes The first question is just I was wondering if we could get a little more on tariffs in terms of pricing impacts that you guys might be expecting? And the impact on the private brand part of your business versus vendor announced price increases? And just color on how you're managing that there? And then I have a follow-up. Marvin Ellison So Robert, I'll take the pricing part, and I'll let Bill just provide a broader perspective on tariffs in general. I think for us, as always, we're going to take a portfolio approach to pricing. We're pleased we've built best-in-class tools for price management that's going to help us navigate any environment, and we have great elasticity data across products and geographies. I think the key for us is the merchants have been cultivating and developing just wonderful relationships with suppliers for the last six years. And this is when those relationships start to pay off. Before I hand it to Bill, I think the key point for us is, that we're going to be really price competitive in the home improvement channel, like we always are. We're not in the habit of donating market share to the competition, and so in this environment, we're going to be as keenly focused on competing on price as we are every single day, and we think we can do that and still deliver on the financial commitments that Brandon outlined in his prepared comments. So I'll let Bill talk a little bit more about the overall global sourcing philosophy that we have here. William Boltz Thanks, Marvin. And Robbie, I think it's important that everyone understands how we look at global sourcing, and we look at it really from two lenses, a direct and indirect perspective. Direct being where we direct import where Lowe's is the importer of record and then indirect, where we purchase from suppliers, and then they are the importer of record. And currently, as Brandon said in his remarks and Marvin said in his, roughly 60% of our purchases are out of the US. The next largest is China sitting at roughly 20%. And you can understand where some of those categories fall, a lot of holiday, [trim and tree], ceiling fans, small appliances, tools, et cetera, make up that 20%. But we've been working really hard over the last four or five years to diversify just as everybody has and partnering closely with both private and national brand suppliers to find different sourcing locations and working to do that. We're also trying to accelerate that as it relates to our private brand portfolio and doing the same with our national brands. And as Marvin said, it all comes down to relationships and we're really pleased with the relationships that we've built over the six-plus years, and we feel like we have a strong track record of managing our assortments, managing the cost as it comes to us, and we'll continue to run our playbook as it relates to that. Robbie Ohmes That's really helpful. And just a quick follow-up for Marvin. Marvin, marketplace, what's the dream for us here? Where do you -- how big could this be? And how important could this be? Marvin Ellison Well, I can tell you that we're excited about it. And the partnership with Miracle is important because it's the number one technology platform for large marketplace sellers. And so it's an easier pivot for them to transition to in an easier pivot for our digital team to load their catalogs in a very, very efficient way in a very time-sensitive way. We have high expectations. As we've looked at the entire retail landscape across the globe, and we look at brick-and-mortar retailers that have demonstrated the most effective omnichannel strategies and sustainable growth. One correlating factor is of marketplace existence. And we're pleased to be the first product marketplace in home improvement. We have, again, high expectations that not only can we manage core home improvement, which our team does really well now, but we also now with a marketplace environment can manage premium and value products and we can do it without adding capital-intensive fulfillment centers and without adding additional inventory to our balance sheet. So early days, but we're excited about the progress, and we're excited about the number of world-class sellers that are eager to join our marketplace, and we look forward to updating you all as this become a more mature initiative. Operator Scot Ciccarelli, Truist Securities. Scot Ciccarelli So given the softer trends you continue to see in bigger ticket products. First, how much of that mix do you think that generally represents? I know just changes quarter to quarter, but kind of on an annualized basis? And then second, what do you think you need to see to unlock greater activity in that segment? Is it improved consumer confidence? Or is it lower interest rates? Because presumably, those are post scenarios? Or is it something else entirely? Marvin Ellison So Scot, I'll take the first part, then I'll let Brandon and Bill join in add any additional commentary. I think from an overall consumer perspective, we feel like our overall consumer remains healthy from a balance sheet perspective. And as we look at the historic demand drivers of our business, they still remain positive, and I've repeated them in the past, home price appreciation, aging housing stock, personal disposable income is now growing faster than inflation. And overall, we see rising real income and lower debt. So overall, our consumer is in great shape. But we still, as we said in the prepared comments, have the DIY customer pulling back on large, big ticket discretionary. And that is, in essence, the issue that we're dealing with. And we believe that part of that is elevated mortgage rates and mortgage rates not falling perceived by many in the marketplace. And so we're just managing that as best we can. So I'll let Brandon and Bill provide any additional perspective after just giving you a view of what we see the consumer. Brandon Sink Scot, I would just add, as Marvin mentioned, consumer overall, very healthy. But for us in home improvement, especially big ticket, the affordability challenge remains the primary concern, inflation rates, as Marvin mentioned, rate still hovering 30-year mortgage around 7%. We've yet to really see at scale the consumer reengage in larger discretionary categories still mainly sitting on the sidelines. I think the good news is the trends aren't getting any worse. You referenced the greater than 500 ticket sentiment has softened a little bit more recently, but we haven't seen that necessarily translated into consumer behavior yet. So for us, as we look out, we're looking for sustained increase in discretionary projects and DIY traffic for the inflection point. We don't have that necessarily expected or baked into '25. It's sort of expected it's going to be more of the same at this point. William Boltz And Brandon, I think the only thing I would add is from a positive or a bright spot perspective, our Appliance business continues to be from a big ticket perspective, a good news story for us. And it's really a trend that's been ongoing since really the back half of last year and has trended into Q1. We saw strength across every single major category, which includes refrigeration, laundry, cooking, dishwashers. The team has done a really nice job of introducing new and innovative products. I spoke to some of those in our -- in my prepared remarks, whether that's all in one laundry, whether that's in cooking, whether that's in refrigeration and then you add in what we've done from a delivery perspective and the market leadership position that we have to be able to deliver to really any ZIP code within two days and same day is something that we're really excited about. And again, roughly 100,000 appliances break every day. So you've got to be ready for that and our in-stock position, appliances have never been better. So those are all positives when we look at that part of the big ticket business. Operator Seth Sigman, Barclays. Seth Sigman Sounded like Q1 was limited by weather. Can you give a little bit more perspective on what you're seeing in the markets where you've had steadier spring weather conditions? How much of those markets outperformed? And just related to that, if you look at the April adjusted comp, the positive 0.2, do you view that as the run rate of the business? And I guess you're kind of guiding to the first half being flat. So is that how you're thinking about it? Marvin Ellison Well, the simplest way for me to answer the question is when the sun is shining, our business performs a lot better. And so when you look at Q1, the variation by geography was driven exclusively by weather. And as weather continues to moderate, our business continues to get better, and that's reflective in the adjusted comp number you reflected for April. I mean we feel good about the trends in May, is consistent with the guidance that Brandon provided and consistent with our expectations. And Brandon, I don't know if you have anything else to add? Brandon Sink No, I would just add, Seth, just in terms of weather benefit, we did see 50 basis points of impact from hurricanes, Helene and Milton from back half of last year that turned into Q1 and those were mostly benefited in our Southeast region. So just in addition to the normal weather, I'll reference that. Seth Sigman Okay. Great. Very helpful. And then as I think about the full year guidance, you talked about first half being flat, it implies the second half could potentially accelerate in that range. If I recall, the initial guidance suggested that it would be more driven by your own initiatives? I'm just curious, is that still the case? Has your view on the macro for the back half changed at all? Just help us bridge that a little bit more. Brandon Sink Yeah. I think, Seth, no change from the macro assumptions from what we laid out in our guide in February. As I mentioned earlier, working through still a number of short-term challenges around rates cautious consumer affordability to lock in effect. Those are all things that we assumed at the beginning of the year. That's still the expectation as we move through Q2 and second half. And you're exactly right. The momentum is really around our Total Home strategy. There is some offset with hurricane pressure in the second half. That was about 100 basis points each in Q3 and Q4. But the benefit from our strategy as we look at both the Pro with loyalty, job site delivery, momentum with extended aisle. Marvin talked about marketplace momentum and with DIY in the second half, some of our category accelerators all that, and the ramp in the momentum is what's included in that second half comp expectation. Operator Steven Zaccone, Citigroup. Steven Zaccone I want to focus on DIY. Marvin curious, do you think the environment has gotten more competitive from retailers outside of the traditional home improvement channel? For example, the e-comm pure place has got bigger in your categories, and one is now growing their focus on rural. Do you see this as a threat to your business as you grow your rural framework? Marvin Ellison No, I appreciate the question. I think that retail has always been competitive. And with the ease of e-commerce coming into any type of space with easily parcel shipped product, it's going to just continue to get more and more competitive. Having said that, we do believe there's a lot to be said about product knowledge, about store environment, about ease of shopability both in-stores and online. And that's one of the reasons why we've invested so much in technology. And one of the reasons why we mentioned in our prepared comments, is reflected in J.D. Power's representation of Lowe's being number one in customer service in the home improvement sector. Yeah, I'll let Joe talk a little bit about some of the things that we're doing to compete with nontraditional competitors based on product knowledge based on giving our associates tools so that they can help customers solve problems in their homes. And we think that's going to be the difference between us growing and maintaining share and also taking share from other competitors that don't have the capital focus or the technology platform to continue to invest in innovation, which we think is going to play a huge role in being competitive. Joseph Mcfarland And Steve, just to follow-up on Marvin's comments, when I think about the MyLowe's app that we rolled out to our associates, and that product, project knowledge right at their fingertips, even for brand new associates, the adoption rate is far ahead of schedule the amount of input that the associates are giving back to the app. And we're really pleased with these tools. In addition, I mentioned our gig delivery network and how we're coming to market for things like Mulch Madness for the DIY customer, without impacting our Pro customer. We have the Extended Aisle in-store, and so really excited about all the different touch points that we have across the DIY network. As we continue our mode shifting to compete online, whether the product is in the store, whether it is in a warehouse or a special our associates are confident and they have access to it at their fingertips today. Steven Zaccone The second question I had also kind of strategic. The acquisition of Artisan Design Group. do you view this as the first of many, like basically do this acquisition grow some of the capabilities of the business and maybe we could see some more M&A in the future? Marvin Ellison No, I appreciate the question. I think the short answer is we're just going to be opportunistic. We believe that we've done a really nice job of being disciplined around looking at potential acquisition targets. Whatever we decide to potentially acquire, we wanted to tie directly to complementing our Total Home strategy, and we think ADG does exactly that. We still want to get this transaction closed as Brandon mentioned, we think that will get done by the end of this quarter. And we're going to just continue to look at all opportunities that we think will allow us to grow, allow us to bring returns to our shareholders and to continue to just use our capital in a very efficient way. So more to come on that. We look forward to just keeping you updated on ADG and how we believe that they can benefit us, and we can benefit them from a category adjacency standpoint that's going to be incredibly complementary in a marketplace we currently are generating $0 of revenue and that's new home construction, and we think that the potential growth opportunities over the decade is going to be incredibly attractive. Operator Christopher Horvers, J.P. Morgan. Christopher Horvers So my first question is on the Pro business, do you think there was any impact to the business related to weather in the first quarter? Mid-single digits, very strong. It did moderate from the pace last year. So was there any impact? And are you seeing improvement in that as the weather has broken? Marvin Ellison This is Marvin. The short answer is, was absolutely impacted the business in Q1. And as the season and weather start to moderate on a more seasonally consistent basis, the business improved along those same exact lines. Again if you do the adjustment for closing in Easter, we had comp improvement each month of the quarter with a adjustment of April being positive -- and we feel great about our Pro business. We feel great about the momentum in that business. And we also are really pleased with the adoption of our updated Pro Loyalty Program, MyLowe's Pro Rewards the ease of use and also the number of new customers that are joining the platform. So we feel like our playbook for the small and medium Pro continues to work, and we have really no concerns about the trajectory of our Pro business. Christopher Horvers And then a follow-up question on the tariff side. Historically, the industry has managed to gross margin rate, especially considering the technology that you referenced, Marvin and the leverage that you have over vendors. Does that remain your expectation, given where tariff rates sit? And then there's never been so much focus on inventory accounting methods. I think your FIFO, and does that portend some benefits, maybe earlier that you would ultimately just get back later, but a little bit of a sign curve around the merchandise margin? Marvin Ellison So Chris, I'll take the first part, and I'll let Brandon join in. From our perspective, I guess the best way for us to think about this is that -- we have tools that will allow us to manage this and manage this in a way that we're going to memorize any impacts to our customers. And as I said earlier, we're going to be price competitive. It's something that we feel is incredibly important to our business, and it's also important for us to maintain market share. And so we're not donating share to any competitor by sitting back and not being price competitive across any of the categories that we're selling, whether they're domestic or imported. We believe that through our portfolio approach and some of the work to build seeing, we do with line structures, we're going to be in great shape. We've done all the math and based on the current tariff environment, we feel very comfortable that we'll be able to deliver the financial guidance that Brandon updated. So I'll let Brandon talk to you a little bit about the accounting in our world and how we see that primarily impacting us in the back half of the year. Brandon Sink So Chris, this is Brandon. On the margin and the inventory piece of this, yes, I referenced earlier, our expectations for gross margin roughly flat for the full year. That's inclusive of any impacts from trade policy. And you referenced our accounting methodology for inventory is first in, first out. So FIFO accounting, which essentially means any incremental cost that we see will flow through our margin as we turn through our inventory layers. I referenced earlier, just the strength that we have in our current inventory. So our current inventory layers and visibility up in the supply chain, we do expect any incremental impact that we see to be more concentrated in the second half of our year, and that's baked into the expectation. So as you think about first half and margin, really minimal impact for any of this activity. And then as Marvin's referenced, as we look out at the second half, we're going to continue to take a portfolio approach with what we're doing and continuing to work through and minimize any impact to our customers. But that's what's baked in our expectation. Christopher Horvers Just to clarify that, meaning like really no FIFO impact early but some headwinds later? Or is it the tailwinds later than the headwinds as you get into '26? Brandon Sink Yeah. So Chris, the actual cost will be flowing through in the second half, but all of our mitigation actions and everything that Marvin and Bill have outlined, we expect to manage and we expect to offset the majority of that. Operator David Bellinger, Mizuho Securities. David Bellinger The first one on Appliances, one of the few categories that outperformed the company. Can you talk about the sales pull-forward if any, that you saw in that category? And also, have you seen any pull-forward in other large ticket categories, furniture, outdoor patio, grills? Anything like that, that helped to lift the Q1 comp later in the period or even early into Q2? William Boltz Yeah, David, it's Bill. We really didn't see anything that we could hang our hat on as being pulled-forward. And so we're specifically to Appliances, as I said in earlier response, really pleased with just the trajectory of that business and how it's performed really since the back half of last year into the first quarter of this year and how it's performing early in Q2. So 100,000 appliances break every day. The efforts that we've put around making that experience easier for our customer and for our associates to sell the product and for our customers to navigate both online and in-store are all things that we're really proud of. And then the work that our supply chain team has done to be able to deliver to virtually anywhere in the United States in two days or less, I think is one of our big competitive advantages. In addition to all the work that the merchants have done to bring just great product and innovation across every single category. And that's what drives this business and that's what we're excited about. Brandon Sink Yeah, David, I would just add, as Bill referenced, with appliances specifically, as we look at unit growth and acceleration. We started to see that early in Q3 last year and saw that accelerate to the better part of the back half of last year, obviously, strength as we got in here to Q1. So the activity sort of pre-post any change in trade policy is there. So at this point, we don't believe we're seeing any indication of any sort of widespread pull forward, but we're going to continue to monitor as we get into the balance of the year. And Rob, with that, we have time for one more question. Operator Peter Benedict, Baird. Peter Benedict The first one is around kind of your extended aisle effort and more specifically as it relates to the Pro and some of the things that you're doing there I know you're expecting some scaling of these micro initiatives, I guess, into the business over the back half of the year. Can you maybe give us a little more perspective on what exactly is happening with the extended aisle and how many vendors are starting to kind of take advantage of some of those capabilities? That's my first question. Marvin Ellison Well, Peter, I don't want to get into that level of specifics. But what I will tell you is as we did a soft launch of this initiative, all the vendors that we were able to get in our system their business performance accelerated dramatically. And so we're excited about this. And also, this also helps us with fulfillment because in many cases, a lot of these Pro vendors have their own delivery capabilities, and they're doing job site delivery in addition to providing us with great cost that we could provide great retailers on to our customers. I'll let Joe add a little bit of color to this because his team, along with Q. Vance's team are managing this really closely in the stores. Joseph Mcfarland Yeah. Thanks, Marvin. And Peter, just important to remember, early innings and says we onboard incremental suppliers throughout 2025 in scale. We're going to continue to see this business grow. Here's what it really does for us. It allows immediate visibility to our suppliers' inventory. And as well, we have our volume pricing and delivery speed all incorporated. We can now generate quotes within minutes, seven days a week, on things that used to take days and four to five days a week. And then as Marvin said, there's an option for direct deliveries right from the supplier to the customer. And so those are just a few of the unlocks that extended aisle gives, and we're really excited about it. Peter Benedict My follow-up would just be beyond the China exposure around 20%. Is there a way to think about where you could potentially take that over time? Or are we kind of at levels where the product coming from there is basically going to come from there? Marvin Ellison So Peter, I'll answer the first part, and I'll let Bill provide some perspective. My request would be for any retailer providing global sourcing percent by country of origin it'd be really good to get a definition of how they calculate that because as Bill articulated, we look at it from a direct and indirect, and we combine together. In a lot of cases, companies look at it only as direct where they are the import of record, and we try to have a really more holistic view of how we view it. So based on indirect and direct, we estimate is roughly 20%. And as we noted, we're working aggressively with our global sourcing team and the combination of Bill's team and Margi Vagell's supply chain team to reduce that exposure and we feel like we're in a great position to do that. And I'll let Bill provide a little bit more perspective on that. William Boltz Yeah. Peter, I covered some of this earlier, but it's -- again, we're looking at in partnership with both private brand and national brand suppliers to find different countries in order to produce this in producing this product. And in addition, as Brandon touched on, looking at SKU by SKU, product category by product category, looking at line structures, looking at assortments, looking at what makes sense going forward. And in some cases, some of those items may not make sense going forward. And so we want to make sure that we do the right thing, sourcing it from the right location and just because we found another country to produce it, it may not end up short term being the right country to do right out of the gate. So we're taking a very disciplined approach and the team is working really hard at it, looking at it across all the categories. And you can just imagine the level and magnitude of work that's required when you have to go do this SKU by SKU, vendor by vendor. Kate Pearlman Thank you all for joining us today. We look forward to speaking with you on our second quarter earnings call in August. Operator This concludes the Lowe's first quarter 2025 earnings call. You may now disconnect.
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Lowe's Companies (LOW) Q4 2024 Earnings Call Transcript
Lowe's Companies (NYSE: LOW)Q4 2024 Earnings CallFeb 26, 2025, 9:00 a.m. ET Prepared Remarks Questions and Answers Call ParticipantsOperator Good morning, everyone. Welcome to Lowe's Companies' fourth quarter 2021 earnings conference call. My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded. I'll now turn the call over to Kate Pearlman, vice president of investor relations and treasurer. Kate Pearlman -- Vice President of Investor Relations, Treasurer Thank you, and good morning. Here with me today are Marvin Ellison, chairman and chief executive officer; Bill Boltz, our executive vice president, merchandising; Joe McFarland, our executive vice president, stores; and Brandon Sink, 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 2025. Actual results 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'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in the quarterly earnings section of our investor relations website. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $328,354!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $46,837!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $527,017!* Right now, we're issuing 'Double Down' alerts for three incredible companies, and there may not be another chance like this anytime soon.*Stock Advisor returns as of February 24, 2025 Now, I'll turn the call over to Marvin. Marvin R. Ellison -- Chair, President, and Chief Executive Officer Thank you, Kate, and good morning, everyone, and thank you for joining us today. In the fourth quarter, we delivered sales of $18.6 billion and positive comparable sales of 0.2%. Looking at the full fiscal year 2024, we delivered sales of $83.7 billion, adjusted operating margin of 12.3% and adjusted earnings per share of $11.99. We are very pleased with our performance in 2024 in a very difficult home improvement macro environment. And we're also pleased to deliver positive comparable sales this quarter with results that exceeded our expectations and were driven by continued momentum in Pro and online, strong seasonal DIY performance and rebuilding efforts in the wake of recent hurricanes. Despite these better-than-expected fourth quarter results, we're still seeing a cautious consumer leading to continued near-term pressure on DIY discretionary spending, particularly in bigger ticket projects. And with this challenging backdrop, we remain focused on delivering strong operating performance while continuing to make the right long-term investments for growth. Turning to our Pro results in the fourth quarter, where we delivered high single-digit comps for the second consecutive quarter, we're gaining momentum with our Pro customer through a flywheel effect that we created with a Transform Pro offering with the right brands and products, greater inventory depth, improved job site delivery, dedicated service levels and a best-in-class digital experience. Last week, we took the next steps in tailoring our offering for the small to medium Pro with the nationwide launch of our redesigned Pro Loyalty program, MyLowe's ProRewards. Later in the call, Joe will share more detail about how we updated the program to drive greater engagement with our Pros. Shifting to online, we drove strong sales growth of 9.5% in Q4, reflected in broad-based improvement across all merchandising divisions included record-breaking sales during the Black Friday and Cyber Monday holiday. Through our new free DIY loyalty program, MyLowe's Rewards, we're generating excitement and driving more traffic to These results give us confidence that our online and omnichannel investments are paying off. These investments include a more intuitive user experience in the app and online, more same-day delivery options, combined with enhanced AI user experiences. And our digital enhancements are earning outside of recognition as Forrester just rated the Lowe's mobile app as the overall digital experience leader in U.S. retail mobile apps, highlighting not just table stake functionalities and omnichannel features, but also innovative AI-enabled solutions like Style Your Space that helps customers reimagine rooms that want to refresh through the touch of a button. Next month in collaboration with OpenAI, we will launch the first AI-powered Home Improvement Virtual Adviser on leveraging the same technology that our associates are using on their store companion app to give our customers helpful advice as they tackle their home improvement projects. This new virtual advisor will provide Lowe's customers with both project know-how and product recommendations with direct links to specific Lowe's products for a seamless checkout. This is another example of how we're leaning into emerging technology to enhance the customer experience, saving them both time and money. Now, allow me to transition to our view of the macro. Even though short-term interest rates have started to come down, this remains a challenging home improvement market. Mortgage rates are higher than they've been in more than two decades, creating a significant gap between today's rate for homebuyers and the lower rates many homeowners currently enjoy. This has led to a lock-in effect and the lowest pace of existing home sales in the U.S. in nearly 30 years. Although it is difficult to predict the timing of when we'll see lower rates and increased home improvement demand, we remain confident in the medium- to long-term outlook of our business. As I've stated before, the key drivers of our business are still supportive -- home price appreciation, disposable personal income growing faster than inflation and the oldest existing housing stock in U.S. history. These drivers will sustain long-term demand as homeowners invest in repairs and upgrades. And we anticipate that some homeowners will begin to tap into record levels of equity in their homes to fund larger renovation projects. Beyond these factors, structural trends, such as millennial household formation, baby boomers aging in place and the persistence of remote work, reinforce our confidence in the medium- to long-term strength of the home improvement industry. In the meantime, we've refined our Total Home strategy and are making investments that are closely aligned with the long-term drivers of home improvement demand. We unveiled our updated strategy at the December analyst and investor conference. It includes driving Pro penetration, accelerating our online sales, expanding our home services, creating a loyalty ecosystem and increasing our space productivity. In addition to the investments we're making in our Total Home Strategy, we're also continuing to take cost out of our operating model through our perpetual productivity initiatives, or PPI. Together, our Total Home Strategy, coupled with our disciplined focus on productivity, ensure that we are well positioned to capitalize on the home improvement recovery and take share when the market inflects. Deals that we outlined at our December conference captured a range of potential outcomes we could see in the home improvement industry this year. And we're very confident in our strategic agility and our ability to execute in any economic environment. So we are prepared to outperform the market in each macro scenario that we outlined in December. Before I close, I'd like to take a minute to thank our teams who stepped up to support our customers across Southern California who were impacted by the devastating wildfires. Although this is not an area where we have significant store presence, we felt it was important to help these communities recover. As a reflection of this commitment, Lowe's donated $2 million for relief efforts in the impacted areas. And please join me in continuing to keep those impacted by the wildfires with our thoughts and our prayers. I continue to visit across the country every week, which gives me a great opportunity to personally thank our frontline associates for their dedication and to learn how we can remove friction for them and improve the customer experience. To demonstrate our appreciation for our hard working for our frontline associates, we awarded year-end discretionary bonuses of $80 million, including our store managers and assistant managers across the company. This bonus reflects our appreciation for their leadership and commitment to customer service. And with that, I'll turn things over to Bill. Bill Boltz -- Executive Vice President, Merchandising Thanks, Marvin, and good morning, everyone. As Marvin mentioned, we are pleased with our sales performance in the fourth quarter. We are encouraged by the broad-based strength we delivered in Pro, with positive Pro comps across all merchandising divisions for the fourth quarter and the full year, as well as the continued momentum in our online sales. In addition, it's clear that our seasonal offers for the DIY customer hit the mark in categories like appliances, tools, storage and holiday gifts, as Lowe's was the go-to destination for many holiday shoppers. Starting with Home Decor. We delivered strong positive comps across all of our major appliance categories. We're pleased that we took share in a challenging market, especially when homeowners continue to exercise caution around spending on big-ticket discretionary items. Our results were driven by our investments in providing a seamless omnichannel customer experience, including the widest selection of the leading brands that offer innovation and value, whether consumers choose to shop online or in-store, or a combination of the two. We have built a best-in-class market delivery model to deliver big and bulky products, like appliances, patio furniture and grills, allowing us to double the number of next-day deliveries over the past few years. And as a reminder, instead of going through our stores, these products now flow from our supply chain directly to a customer's home or job site. In fact, we are the only retailer that can now deliver and install a major appliance the next day in almost every ZIP code. This is critical for customers who need to replace a broken appliance immediately. This type of purchase accounts for more than 70% of the industry's appliance sales. Our enhanced customer experience, along with the expanded capacity for rapid delivery, helps further strengthen our leadership position in appliances. We also continue to innovate and enhance our private brand lineup as consumers continue to look for more value across categories. For example, we're expanding our selection of large-format STAINMASTER luxury vinyl flooring nationwide, giving customers the on-trend look they want and the performance that they need. We're excited to have the STAINMASTER brand within our portfolio to now bring the most brand in carpet to new flooring categories like luxury vinyl and tile. We relaunched our Lowe's Essentials brand, which promises low prices on a range of home basics for value-conscious customers. We're starting with a handful of products priced at $10 and below, and special launch items under $5, including close hangers, gardening tools and water cans, positioned in the cart start area at the front of the store. And because our private brands typically have higher margins than their national branded counterparts, these products will help increase our private brand sales and support our margin goals. Turning now to Building Products, where we delivered positive comps in building materials in lumber, driven by the continued strength in Pro, as well as storm recovery and rebuilding across the Southeast. We were pleased with the continued growth in outdoor categories like roofing, siding and decking, driven by our investment in Pro inventory and our improved in-stocks. In hardlines, we saw a strong trim-a-tree sell-through and an improved margin performance in the fourth quarter. These results were supported by great execution from our merchandising services team, or MST. Our seasonal offering, including live holiday nursery, tools and pre-lit trees resonated with consumers during the holidays. We also saw customers get excited about our 10-foot tall animatronic Yeti name Bumble, which we sold through almost as fast as we could get them in stock. In addition, we delivered solid growth in apparel, where our expanded workwear lineup, including the extension of our Carhartt assortment to more than 1,000 stores, was popular among our holiday offers. And once again, customers couldn't get enough of the more unique items like our mini Lowe's bucket and mini Cobalt toolboxes, which drove engaging viral moments on social media. Looking ahead, we're excited for spring, our biggest season of the year. We are ready with a strong in-stock position and the best product and brand lineup in home improvement. Like in outdoor power equipment, where we are the only home center with both Toro, the leading gas-powered brand; and EGO, the leading battery-powered brand, truly an unmatched offering in retail. And in our garden centers, we're inspiring our customers to take on new projects this spring with vignettes that showcase all the products they need for vertical gardens, mailbox displays, tree rings and more. As they shop, customers can rely on interactive signage to help them select the right plants for their space and local growing zone, ensuring they get everything they need to complete their outdoor projects. We've also expanded our assortment of Sta-Green products, our own lawn and garden brand. The updated packaging and product make the extra performance and value easy for our customers to find. This year, we're in an even stronger position to meet customers' backyard needs, and we're seeing some early momentum in patio and grills in areas where the weather has already started to turn. Our patio assortments are localized for the market and we have a great lineup of grills across Webber, Charbro, Blackstone and Pit Boss, including new Lowe's exclusive products like the Webber Stealth family of grills. Overall, we're pleased that, where the weather has cooperated, spring is already off to a good start. Finally, we're excited to build on the great progress that we've made with our DIY loyalty program since we launched it last year. We have built a base of 30 million members who are now outspending nonmembers by near 50%. It's clear that these customers see the value in this free program, which now gives them even more incentive to choose Lowe's. This spring will lean into loyalty by offering exclusive member deals and doorbusters, featuring some of our best-selling products, and will support these offers with tech-enabled marketing designed to drive traffic and sales during this important season. We took the learnings from the successful launch of MyLowe's Rewards, and we've applied them as we redesigned our Pro Loyalty program, which Joe will discuss in detail in just a few minutes. In closing, I'd like to thank our vendor partners, our merchants and our inventory and supply chain teams for all their effort and hard work to continue to serve our customers, provide innovation and value and drive results. With that, Joe, I'll now turn the call over to you. Joseph McFarland -- Executive Vice President, Stores Thanks, Bill, and good morning, everyone. As Marvin mentioned, we're continuing to support communities impacted by the wildfires in California as they begin the rebuilding process. Our teams delivered truckloads of water and provided supplies like N95 masks, air purifiers and ash shifters to firefighters, evacuation centers and communities in need. To recognize our store and supply chain associates in these areas who help customers and routed supplies while their own families homes and communities. We're grateful for their dedication and commitment to assist with the recovery over the long haul. Turning to our Q4 performance. I'm pleased that we continue to deliver strong customer satisfaction scores including improved satisfaction with our BOPIS, or Buy Online Pickup in Store process, which we enhanced through our front-end transformation. Now, it's easier than ever for customers to get in and out quick, while they're picking up their online orders. We've earned these strong customer satisfaction scores while we set Black Friday and Cyber Monday sales records, which you heard about from Marvin. And since roughly half of our online orders are picked up in the store, the strong customer endorsement is particularly meaningful. It tells us that the investments we've been making in our front-end transformation are paying off. At our analyst and investor conference in New York, we discussed a number of ways we're driving productivity through our perpetual productivity improvement, or PPI initiatives. Let me give you some more insight into our efforts in this area as we continue to improve the freight flow process. Driven by new technology, as well as redesign labels and carts, we've dramatically streamline the process to remove friction for our associates and improved our speed to shelf. The trucks who bring products to our stores are now organized in a way that makes unloading easier. The labels include the aisle and bay location, and there are specific directions for how to load carts efficiently. This reduces the number of touches by associates. So products can go straight from the truck to a car to the specific bay without any unnecessary reloading. And to make the process even more efficient, these improvements give associates more detailed visibility to what's coming before it arrives. We are very pleased with the overall enhancements we continue to make in the operational performance of our stores. Transitioning now to our Pro performance. We continue to see broad-based growth across our geographies driven by our Pro-focused investments, resulting in high single-digit comps again this quarter. In our recent survey, Pros indicated they are confident in their near-term prospects with stable backlogs. Now, let me give you an update on our revamped Pro loyalty program, MyLowe's Pro Rewards, which we launched nationwide just last week. With our new program, we've tailored our offerings specifically for our target customer, small to medium Pros, who can start earning rewards immediately and can achieve higher rewards with lower levels of spending compared to the program offered our largest competitor. This program is easier than ever to use operating an intuitive customer experience and prioritizing features and functions Pros use most. As members, Pros have access to exclusive perks in store and Lowe's app and online, including member-only deals, volume discounts and a suite of business solutions. All of this is designed to help Pros save time and money. And both our DIY and Pro Loyalty programs run on the same platform and use the same currency, MyLowe's money. This not only simplifies the customer experience. It's already making it easier for associates to explain and support the program. This should drive greater engagement with our Pro customers and incentivize repeat purchases and more trips to Lowe's. With both loyalty programs now in one platform, our marketing team is able to better leverage the unique data the programs generate to tailor offers for our Pro and DIY customers. This is an exciting time for Lowe's as we continue to evolve our loyalty ecosystem and enhance the technology that powers it. We're making our program stronger every day and more valuable to our customers. And we're now the only home improvement retailer to offer distinct programs for both DIY and Pro customers. These programs are an important way we're bringing our value commitment to life for our customers by helping them save time and money. And as we look ahead to spring, we're ready to serve customers with improved staffing levels and strong cross-functional coordination across the organization. From store operations to merchandising to marketing, we're working together to provide our customers with unparalleled shopping experience, right on time to capture demand during our best-selling season of the year. Before I close, I'd like to thank our hard-working frontline teams for their contribution to our results this year. Their expertise and commitment to excellent service are what differentiates Loews. In particular, I want to recognize our store managers and assistant managers who hold some of those critical frontline leadership roles in the company. In appreciation for their efforts, we're awarding them discretionary year-end bonus, $10,000 for our store managers and $5,000 for our assisted managers. We're grateful for their incredible support and guidance they provide to their teams. And now let me turn the call over to Brandon. Brandon Sink -- Executive Vice President, Chief Financial Officer Thank you, Joe, and good morning, everyone. Starting with our fourth quarter results, we generated GAAP diluted earnings per share of $1.99. In the quarter, we recognized a pre-tax gain of $80 million on contingent consideration associated with the 2022 sale of our Canadian retail business. Excluding this benefit, we delivered adjusted diluted earnings per share of $1.93. My comments from this point forward will include certain non-GAAP comparisons that exclude this benefit, where applicable. Fourth quarter sales were $18.6 billion with comparable sales up 0.2%. Strong growth in Pro and online, as well as storm-related demand from hurricanes, Helene and Milton, drove better-than-expected results. We estimate the hurricane-related demand positively impacted Q4 comp sales by roughly 100 basis points as homeowners began the shift from securing their properties and cleanup toward recovery and rebuilding. Comparable average ticket was up 1.5%, driven by strong positive comps in appliances, continued momentum in Pro and storm recovery project spend. Comparable transactions declined 1.3%, with DIY discretionary pressure persisting especially in larger ticket interior projects. Our monthly comp sales were down 2.5% in November, up 4.8% in December and down 2.2% in January. The calendar shift of Black Friday weekend and Cyber Monday from November in 2023 into December in 2024 shifted some demand between periods. Additionally, January was negatively impacted by unfavorable winter weather in the final two weeks of the month, especially in southern markets. Gross margin was 32.9% of sales in the fourth quarter up 46 basis points from last year, driven by the benefits of our ongoing perpetual productivity improvement, or PPI initiatives, partly offset by supply chain investment costs. Adjusted SG&A of 21% of sales delevered 8 basis points versus prior year, driven by increased compensation and healthcare expenses, largely offset by benefits of multiple PPI initiatives. Adjusted operating margin rate of 9.4% of sales improved 36 basis points versus prior year. And the adjusted effective tax rate was 23.5%, slightly below prior year. Inventory finished the year up $515 million versus prior year, as we accelerated targeted spring seasonal builds ahead of this critical period. Turning now to capital allocation. In 2024, we generated $7.7 billion in free cash flow and returned $6.5 billion to shareholders through share repurchases and dividends. In the fourth quarter, we paid $650 million in dividends at $1.15 per share, and repurchased 5.5 million shares for $1.4 billion, returning $2.1 billion to our shareholders. Capital expenditures totaled $548 million in the quarter as we continue to invest in tech-driven productivity projects and key growth initiatives. Adjusted debt to EBITDAR ended the year at 3.01 times, and we delivered a return on invested capital of 32% for the year. Now, I would like to take a few minutes to discuss our 2025 outlook. In December, we laid out three scenarios detailing a range of potential outcomes based on the performance of the home improvement market. Core demand drivers remain supportive, real incomes are forecast to grow again in 2025, home prices are near record highs and we have the oldest housing stock in U.S. history. But there is still a good deal of near-term market uncertainty around the timing of an inflection in the home improvement market especially for larger ticket discretionary spend. We also expect mortgage rates to remain elevated, continuing to put pressure on existing home sales and some of the larger projects that are linked to those occasions. Based on these factors, we are forecasting the home improvement market to be roughly flat this year, with Pro outpacing DIY driven by the repair and maintenance occasion. However, the investments we have made to drive growth are resonating, which is reflected in our strong Pro and online results this quarter. And we are confident that the new initiatives we laid out as part of our updated Total Home Strategy will enable us to grow faster than the market and take share. Taking all of this into account, for 2025, we are expecting sales ranging from $83.5 million to $84.5 billion with comparable sales in a range of flat to up 1%. We expect operating margin in a range of 12.3% to 12.4%, with PPI initiatives across store operations, merchandising and supply chain, driving approximately $1 billion in productivity this year. This productivity will offset pressure from merit increases and general operating cost inflation, elevated healthcare expenses, investments in our Total Home strategic priorities and higher depreciation expense, which is forecasted to increase approximately $100 million over prior year, and we lean into our tech-driven strategic investments. Additionally, we expect net interest expense of approximately $1.3 billion as we plan to repay $2.5 billion in debt maturities this year, but will also have less interest income due to lower short-term investment rates. These assumptions result in expected full year diluted earnings per share of approximately $12.15 to $12.40. We also expect capital expenditures of approximately $2.5 billion as we invest in our Total Home strategic priorities and begin to ramp up new store builds. In 2025, we plan to open five to 10 new stores. To assist with your modeling, here are a few items to keep in mind for the cadence of the year. We expect comp sales in the first half to be roughly flat, with some spring demand moving from first quarter into the second quarter, where we are cycling particularly poor weather. Taking this into account, we expect first quarter comp sales approximately 200 basis points below the bottom end of our full year guide. We also expect first quarter operating margin rate to be approximately 50 basis points below the bottom end of our full year guide driven by deleverage on the lower sales volume, the wrap of incremental wage actions for our frontline associates and the prioritization of investments in our Total Home strategic initiatives, including category accelerators to capture the spring selling season. In closing, we remain focused on executing at a high level through the near-term market pressures by driving productivity, diligently managing costs and investing in our Total Home strategy, all while continuing to drive sustainable long-term shareholder value. And with that, we will open it up for your [Operator instructions] Our first question comes from the line of Christopher Horvers with J.P. Morgan. Please proceed with your questions. Christopher Horvers -- Analyst Thanks, and good morning, everybody. I wanted to talk a little bit about the strength that you saw in the fourth quarter and how you're putting that into context. You had -- maybe did you see election deferral? Was there any weather benefit sort of -- or weather benefit that maybe helped November and December? Obviously, you had the hurricane and the storm, do you think there was tariff pull forward? Putting that in the context of that comp in the context of how you guided the year, you're really not expecting much improvement even though we're another year out from the COVID pull-forward dynamics? Marvin R. Ellison -- Chair, President, and Chief Executive Officer Chris, this is Marvin. I'll take the first part, and I'll let Brandon give some specifics. Look, my main point is, overall, we're really pleased with how we performed in the quarter. Just as we said in the prepared comments, it remains a very difficult home improvement macro backdrop, and we're pleased across the board with the execution of the merchants store, supply chain and in our stores. As a result of that, we delivered the positive comp, and we still have confidence in 2025 in spite of the fact that we don't expect the market to have any growth. I'll let Brandon give you more specifics relative to Q4 and how we feel that relates to 2025. Brandon Sink -- Executive Vice President, Chief Financial Officer Thanks, Marvin. Chris, I'd just echo, really pleased with the execution in Q4. Beats top and bottom line, positive comps and EPS growth here for the first time in a couple of years. High single-digit growth in Pro and online gave us the ability to share in that success with our associates paying $80 million in discretionary bonuses back. You mentioned the weather was a drag, in particular for January, impacted the month just north of about 150 basis points. That is pressing into, here, the month of February, which is we've seen particularly poor weather here over the course of the first three weeks. That is factoring in to how we're thinking about Q1 and full year just from a company-specific standpoint. But from an overall macro standpoint, we expect the conditions to remain challenging in '25, as we talked about in the prepared remarks and all that's been taken into consideration as we looked at a flat home improvement market. And then, where we fall relative to that, we expect to drive about 100 basis points from our total home initiatives, and that's how we get to our guidance as we start thinking about '25. Christopher Horvers -- Analyst Got it. And then, as a follow-up, you talked about the investment pressures here in the first quarter, along with obviously the deleverage. But can you talk about the -- on the other side of it, can you talk about the shape of gross margin over there? You are still expecting, I think, the vendor clawbacks to cycle into the first half of the year, and I think they should be decent in terms of tailwinds. So do you expect gross margin up and then roughly flattish over the year? Brandon Sink -- Executive Vice President, Chief Financial Officer Yes. Chris, you cited the Q1 50 basis points that we highlighted on the operating margin, majority of that is from the sales deleverage. We have about $400 million that we expect to shift from Q1 to Q2. So that's going to put a little bit of pressure on Q1. There's also a few other unique items with the wage investment that we made in the second half of the year that we're cycling in. Some upfront investments, in particular, in the category accelerators that we're rolling out. We're expecting PPI to continue to ramp as we move through the year. Your question on gross margin, we are expecting that to be overall flat for the year. As we look at that, again, the PPI initiatives are offsetting pressure that we're seeing as we invest in the Pro business and our supply chain. I will also say we're very focused on continuing to invest in value for our customers. We're investing in sales and traffic-driving actions, especially as we look at first half seasonal promotions, marketing and price action to ensure that we maintain leadership. And we really like the model. We've created a model that allows us to make investments in the associates, improve our value proposition with our customers and still hit our rule of thumb as we start to see sales increase over the course of the year. Christopher Horvers -- Analyst Got it. Thank you. Have a great spring. Brandon Sink -- Executive Vice President, Chief Financial Officer Thanks, Chris. Operator Our next question as from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions. Simeon Gutman -- Analyst Good morning, everyone. Just to clarify, the sales guidance for the year, is this roughly the same framework from two months ago? Or did it move slightly because of either backdrop or even the lower -- some of the volatility that you saw? Because it sounds roughly the same. And if you are going to take market share, I think it would still lean closer to the one. So I'm just trying to put that out to understand if anything changed at all in the last couple of months. Brandon Sink -- Executive Vice President, Chief Financial Officer Sure, Simeon. This is Brandon. Roughly the same, I would say, from an overall macro. As I mentioned, the weather pressure in January we're factoring that in as we've seen a slower start here to February. I also mentioned we're lapping the expected hurricane benefit that actually outpaced our expectation in terms of what we saw in 2024. We saw about 100 basis points of benefit each in both Q3 and Q4, and that's going to create a slight drag for us as we look at the trough. But the conditions still remain challenging, elevated rates, cautious consumer, particularly around the big-ticket discretionary. Those are all things that we cited back in December. And again, relative market, still roughly flat. So overall, the framework we're trying to take into account some near-term company-specific items. But I would say overall, it's still the same framework. Marvin R. Ellison -- Chair, President, and Chief Executive Officer Simeon, this is Marvin. Just two additional points. So specific to February, where the weather has cooperated, spring is off to a good start in February. But overall, February is pressured because of the weather, specifically in parts of the South. And that's, again, not a surprise to anyone. Relative to the scenarios we laid out in December, in all three of those scenario, as a reminder, it included outperformance. And so, even though we look at the home improvement market or our relevant home improvement market in 2025 being roughly flat, we plan to outperform that. And so, if the market is better than what we anticipate, we anticipate our performance is going to be better than the market. So irrespective of what the market gives us, we believe we have the initiatives, the agility and the strategic plan to outperform it. Simeon Gutman -- Analyst Fair enough. My follow-up, it's about the relationship with PPI and then how the business performs. So let's just say the market ends up being a little lighter, you have a specific plan on what you're going to spend and invest in for this year. Does that change at all? And then, if it doesn't change, do you have toggles in PPI to help offset it to basically land the margin in a certain place? So can you just give us a sense of the flex that you have in both of those areas and how you approach them. Brandon Sink -- Executive Vice President, Chief Financial Officer Simeon, I would say definitely some flex in that. But right now, we've built the plan we highlighted in December. We have $1 billion of productivity that we're expecting to deliver here in '25. That's split roughly evenly across the portfolio, about $500 million in margin consisting of the merchant supply chain efforts, another $500 million on the expense side, mainly through the stores teams. We expect that to continue to sort of ramp as we move through the year. And as we've referenced, we're confident in the flywheel that we've created with PPI and believe we have the right opportunity here for '25, as well as the multi-year opportunities. So look, as things soften, as they get better, certainly can ramp up, ramp down in terms of near-term factors, as well as some of the larger initiatives, but really confident with the plan that we have and the operating margin that's been included in our outlook. Simeon Gutman -- Analyst Thanks. Best of luck. Brandon Sink -- Executive Vice President, Chief Financial Officer Thanks, Simeon. Operator Our next question is from the line of Peter Benedict with Baird. Please proceed with your questions. Peter Benedict -- Analyst Hi, guys. Thanks for taking the question. First just the outlook for the hurricane retail. I understand you start to cycle in the back half of the year. Any reason you would expect kind of a similar dollar lift, I guess, over the first half of the year versus what you're seeing? Is there anything unique or -- about the rebuild or the cadence of the rebuild you're seeing versus maybe what your expectations were? That's my first question. Brandon Sink -- Executive Vice President, Chief Financial Officer Yes. So Peter, I think definitely have some of it that we've baked in here in the first half. But as you know, especially in some of these hurricane markets, the timing of the insurance proceeds, when that's going to get awarded, how you spend. So we've tried to take a little bit more of a conservative approach. And as we think about the benefit that we do have baked in, as I mentioned, slightly lower than what we saw in the back half of the year, and that's how we can. But we're ready to support needed inventory from a Pro standpoint, ready to support across the Carolinas and Florida. But just in terms of financially what we've baked in, that's the assumption. Peter Benedict -- Analyst OK. That seems prudent. That leads me to my next question around the Pro. Really good to see the performance there. Can you maybe talk about the broadening of the engagement or the demand that you're seeing within the Pro segment? Give us a sense for -- or remind us how you define kind of small versus medium versus larger Pro? And then, any categories in particular that are kind of resonating as you continue to put these good growth rates with your Pro business? Marvin R. Ellison -- Chair, President, and Chief Executive Officer Yes. So Peter, I'll take the first part of that, and I'll let Bill talk about the category performance. We define the Pro based on the Pro shopping pattern and their annual spend. And again, we do quarterly surveys, so we're really engaged with these customers. We understand the business they're in and we understand what their annual spend, and we basically understand what their overall financial position is. And so, we define it in that regard. Now, the thing that we've been able to do is to really see the benefits of our Total Home investments really taking hold on things, like responding to product load-in, improved service levels, or more flexible and agile delivery. And we saw double-digit Pro growth online. And again, we just think we have a best-in-class online offering. And as you think about the overall engagement of the Pro, we think it has a lot to do with some of the brands that Bill and the merchant teams have brought to bear, in addition to the fact that we have made a commitment to have inventory where it needs to be and to have the delivery flexibility that we've really never had before. And we're excited about the relaunch of our loyalty program, MyLowe's Pro Rewards, based on the fact that the data that we received from those customers is that they wanted something that was more simplistic, but also something that they could earn and achieve higher rewards, lower spend levels, because, again, they are more of a smaller to medium-sized small business. Overall, we feel great. We think that momentum is going to continue. And I'll let Bill be specific about some of the categories that we've seen take off as a result of these efforts. Bill Boltz -- Executive Vice President, Merchandising Yes. Thanks, Marvin. And Peter, as I said in my prepared remarks, really pleased with the Pro business, both for the quarter and for the year, as we saw positive growth across every merchandising category for the quarter and for the year. And so, largely led by what you would think is those Pro-centric areas, but building materials, lumber will work some of those key categories. But also strength across appliances, paint and some other businesses across store tools, hardware. So it's really encouraging for us to see the strength both in the quarter and for the year across those merchandising categories. Peter Benedict -- Analyst Great. Thanks guys. Good luck. Bill Boltz -- Executive Vice President, Merchandising Thanks, Peter. Operator Our next question is from the line of Kate McShane with Goldman Sachs. Please proceed with your questions. Kate McShane -- Analyst Hi. Good morning. Thanks for taking our question. We wondered if you could talk to us about how you're thinking about transaction versus ticket throughout '25? How much inflation do you think can be in the space during the year? And specific to Q1, when you're going through why the margin would be slightly below the range for the year, you mentioned category accelerators as one of the drags. Is that something that's happening more in Q1 than the other quarters? And can you remind us what that looks like? Brandon Sink -- Executive Vice President, Chief Financial Officer Sure, Kate. This is Brandon. I'll hit the ticket transaction assumption for '25. We are expecting slight ticket growth, and that's mainly driven by the continued strength that we're expecting to see in Pro. The offset is that we also expect DIY traffic pressures to persist as we look at the balance of '25. Commodity inflation, not really a part of that formula. We expect that to be muted just as we've seen for the majority of '24, and that's as it relates to lumber and copper. As it relates to the Q1 pressure, I mentioned the main item just being the shift in sales due to the season that we're cycling last year. So you have the sales deleverage the wage investment. And I would say from a Total Home Strategy standpoint and the initiatives, a little bit of unique pressure in Q1, just given the timing of the rollout, in particular, the category accelerators, where we're going out and resetting and touching our stores as we look at the rural initiative rollout and some of the other things that we're doing there. So I would say that's the uniqueness there as it relates to Q1, in particular, with that initiative. Kate McShane -- Analyst Thank you. Brandon Sink -- Executive Vice President, Chief Financial Officer Thank you, Kate. Operator The next question is from the line of Greg Melich with Evercore ISI. Please proceed with your questions. Greg Melich -- Analyst Hi. Thanks. I wanted to just follow up a little bit there on inflation. What was it in the quarter? Was there anything that's part of that ticket growth? And are tariffs contemplated in your guide? Brandon Sink -- Executive Vice President, Chief Financial Officer Greg, I would say like-for-like inflation, pretty muted when we look at Q4. And then, your question on tariffs, it's not explicitly included or incorporated in our guide in terms of what's recently been enacted. But I would say, there, the situation very fluid. Our teams are already activating against the tariffs that have been ended. We're running the play. We're keeping a close watch on other potential policy changes or announcements that may be coming and prepare to respond. We're confident in our merchant and finance teams, across my team and Bill's team, have the right tools and processes in place. And we continue to run that and respond in an effective manner. Greg Melich -- Analyst Got it. And on the leverage, you've talked about at the analyst day that sort of 10 bips of leverage on the upside and potentially 15 on the downside. Is that still a good framework to think about given the demand levels here? Brandon Sink -- Executive Vice President, Chief Financial Officer Yes. I think it's spot on, Greg. We still have that framework in place, 10 on the upside, 15 on the down. It doesn't necessarily apply on a quarterly level. The framework works better when you're thinking about sort of the full year. But yes, very much still operating against that expectation. Greg Melich -- Analyst That's great. Thanks, and good luck. Brandon Sink -- Executive Vice President, Chief Financial Officer Thanks, Greg. Operator The next question come from the line of Michael Lasser with UBS. Please proceed with your questions. Michael Lasser -- Analyst Good morning. Thank you so much for taking my question. Where do some of the large ticket remodeling categories for Lowe's stand today versus where they were in 2019, specifically areas like kitchen case remodels and bathroom models, because it does seem like Lowe's is being disproportionately adversely impacted by the softness. So presumably, it would be a benefit as those categories improve? Marvin R. Ellison -- Chair, President, and Chief Executive Officer Well, Michael, this is Marvin. I think one thing we said consistently is that DIY discretionary big-ticket is under pressure, and everything you listed is DIY discretionary big ticket. And so, the obvious answer is those categories are under pressure since 2019. And with 70% of our revenue coming from the DIY customer, when those big-ticket discretionary categories feel pressure, it disproportionately impacts our business and our revenue. And so, I'll let Brandon give you any more context. Brandon Sink -- Executive Vice President, Chief Financial Officer Yes, Michael, we've been pretty consistent around sort of the over-reversion in the categories, as we look at flooring, decor, K&B relative to five years ago just in terms of what we've seen. So I certainly believe there's pent-up demand when the market inflects and when it turns, and we're ready for that. But another data point I'll call out is when we look specifically at larger tickets and the sequential improvement here in 2024. The term I would use is it looks like it's getting less worse. On our bigger ticket, we were high single-digit negatives over the course of Q1, Q2. We're coming out of Q4 here roughly flat on tickets over $500. So a good sign that we're seeing in those categories. Not projecting an inflection or a recovery certainly as we look at 2025, but we hope we're kind of bumping along the trough in the bottom here. Michael Lasser -- Analyst My follow-up is there was a description around some incremental activity to drive the DIY business between promotions, advertising and other initiatives. So a, can you quantify that? And b, how are you thinking about the cost to drive the DIY business today versus where it has been in the future -- versus where it's been in the past? Meaning, is it just becoming more expensive to maintain market share given all the changes that have taken place? Marvin R. Ellison -- Chair, President, and Chief Executive Officer Michael, I don't know exactly the context of the question, but what I will tell you is that we are not planning, nor have we seen any inflection point change in promotional cadence for DIY, nor are we anticipating doing anything to create any change in our cadence. The one thing that we will do is to leverage our DIY loyalty program, which we will be cycling over the launch in March, and we're very excited about that program. That is specific to the DIY. And as Joe mentioned, I mean, we're the only home improvement retailer with a distinct Pro and DIY loyalty program. Other than that, we're going to continue to be competitive in the marketplace. But we have no expectation that we're going to be investing more aggressively in the DIY marketing space. We're going to continue to run a very specific play. And one of the key benefits of a loyalty program is that it gives you more database, modernize one-to-one marketing capabilities than what we've had in the past. Brandon Sink -- Executive Vice President, Chief Financial Officer Michael, I would just add just in terms of the cost or the investment, whether it's in the promotional space, pricing actions, all that factored in as we look at 2025 in that flat gross margin expectation that our reference, marketing within SG&A flow-through all of that factored in, in terms of what it's going to take for us to continue to resonate, continue to take leadership in the right categories. And at the same time, deliver on our financial guide. Michael Lasser -- Analyst Thank you, very much and good luck. Brandon Sink -- Executive Vice President, Chief Financial Officer Thanks, Michael. Operator Our next question is from the line of Zach Fadem with Wells Fargo. Please proceed with your questions. Zachary Fadem -- Analyst Hey. Good morning. Do you think it's fair to say there was some post-election exuberance on behalf of the consumer as a whole in Q4 that maybe died down a little bit in 2025? As it sounds like you attribute this January, February air pocket to be more about weather. So just trying to think through the factors that give you confidence that trends can snap back as we move through Q1 and into Q2 and through the year? Marvin R. Ellison -- Chair, President, and Chief Executive Officer So Zack, this is Marvin. I appreciate the question. I will tell you that we have no real tangible data to support any election exuberance during the holiday season. But what we can point to specifically is the impact of weather on our business. As we look at -- for the points of January and February, as Brandon mentioned, as we look at the geographic rate of our business, it is crystal clear that where the sun is shining and we have seasonal normal weather, spring is resonating really well. And where we have unseasonably cool, wet and any frozen precipitation, the business is not performing well. So we see this more today as a weather story than any election impact or any other broader macro shock that could be happening. Again, we have no data to support that. Zachary Fadem -- Analyst Got it. Appreciate that. And then, on the policy environment, lots of moving parts here. You talked about the incremental potential for tariffs. Curious how you think through other policy dynamics like immigration and how that could impact your business? Marvin R. Ellison -- Chair, President, and Chief Executive Officer It's another really, really fair and timely question. What I will tell you is that like most large U.S. companies, we are paying very close attention to it. We are highly engaged with all of our customer segments. We have one of the best government relations teams of any public company in the U.S., and we are going to just be as agile as we can. The one thing that we do know is if there are any policies that impact our business, we will not be alone. And so, our objective is to just focus on controlling what we control and being very keenly aware of the marketplace. Again, your question is a timely and very fair question. But what I can tell you is we are prepared for everything and we're prepared for anything. And we believe that our team has the agility and the high level of execution ability to manage through any political environment or any policy changes that could be coming our way. Zachary Fadem -- Analyst I appreciate the time. Thanks, Marvin. Marvin R. Ellison -- Chair, President, and Chief Executive Officer Thank you. Operator Our next question is from the line of Brian Nagel with Oppenheimer. Please proceed with your questions. Mr. Nigel, your line is live for questions. Brian Nagel -- Analyst Sorry about that, I was on mute. Good morning. Thanks for taking my questions. So this may be a bit competitive, so I apologize. But I think a lot of us are looking at your results today -- congratulations on a nice quarter, together with the results of your competitor report yesterday and just really trying to make sense of that -- the sales pickup we saw late in 2024. So I guess -- and if this a repetitive part, I apologize. But Marvin, as you're looking at the business -- and again, recognizing there's a lot of moving pieces out there with weather, the election, like someone else has mentioned, but is there anything you can see that may give us some indication that there is a -- we have hit some type of positive inflection in the business despite these ongoing macro challenges? Marvin R. Ellison -- Chair, President, and Chief Executive Officer Brian, thanks for the question. What I would tell you, for us, it comes down -- and Brandon mentioned it, it comes down to discretionary big ticket for DIY. I mean, that, to us, is one of the key indicators that the homeowner is going to be returning to what we consider a normal cadence of home improvement spend. And so, we're going to be tracking that really, really close, and we're going to be paying attention to it. Another key for us is our home services business, i.e., home installations. That's another indicator for us that consumers are either tapping into the equity. And as you know, we have record amounts of equity. I think we, on average, roughly $400,000 per home. And so, we believe that, at some point, customers are going to get normalized in this high mortgage rate environment and they're going to start to tap into that equity, making the decision that they're going to stay in their existing home but modernize at home. So the moment we start to see that home services business start to tick up positive on a more continuous basis, that's going to be another positive sign for us. So those are two key developments that we look at that will really give us a sign that the inflection is hopefully around the corner. Brian Nagel -- Analyst That's very helpful. And then, my second question, somewhat related, but on the Pro business. So another great quarter, where you're clearly performing well and outpacing the market. A lot of internal initiatives are, sort of to say, taken hold at Lowe's. So I guess the question I have is, how should we think about the sustainability here? You're looking at these initiatives and the Pro business start to take hold, materialize. I mean, how should we think about this -- how much -- from your standpoint, I mean, given nothing else changing maybe in the macro environment, how much longer can Lowe's continue to put up these substantial market share gains in Pro? Marvin R. Ellison -- Chair, President, and Chief Executive Officer So again, another fair question. I'll just give you kind of a broad perspective, and I'll let Joe talk about some of the key initiatives that we're executing that gives us confidence. So the way we look at the total addressable market for Pro is that it's roughly a $500 billion market, and 50% of that is the small to medium Pro where we are focused as our key Pro customer segment. And that's an extremely fragmented marketplace. And as Joe cited in his prepared companies, when we surveyed our customers, they still feel confident in their backlog and they still feel confident in their ability to have really good sales, although they're paying really close attention, like we all are, to changing dynamics in the political process that we're in and policies and macro, etc. But overall, the confidence remains high. So we have a $250 billion fragmented marketplace where the customer feels confident in their ability to drive business. And so, that gives us an indication that there's still lots of opportunity for us to grow. And I'll let Joe give you some examples on some of the initiatives that gives us additional confidence. Joseph McFarland -- Executive Vice President, Stores Thanks, Marvin. And Brian, as we look at the Pro business, thinking about the relaunch of our MDP Pro Rewards, resonating with that Pro. But we talked about some of our asset-light investments we're making, things like our Pro fulfillment centers, our flatbed fulfillment centers, what we're doing outside sales and how we're leveraging Lowe's Pro supply. And so, we have a lot of continued initiatives. Just scratching the surface on what we're doing with Pro, and we have great confidence that it will continue into the future. Marvin R. Ellison -- Chair, President, and Chief Executive Officer And the last point I'll make on this, Brian, just to close it out, is we have a hypothesis that when the DIY customer comes back, and this customer will come back, we're perfectly positioned for that with our new Total Home Strategy. So we see that DIY customer coming back. And then, at the same time, we're going to be able to execute on our small to medium Pro initiative. We're going to continue to drive our omnichannel strategy. And when we do all of these things in concert, we think that it bodes really well for us in our future? OK. Rob, we have time for one more question. Operator Thank you. That comes from the line of Steven Zaccone with Citi. Steve Zaccone -- Analyst Great. Thanks so much for squeezing me in. I wanted to ask on the appliance side of the business. So it seems like we're seeing some stabilization from yourself and from your larger competitor. What are you seeing there? Do you think we're just kind of seeing natural replacement cycles, maybe some duress, some innovation? Just be curious to hear. Bill Boltz -- Executive Vice President, Merchandising Yes, Steven, thanks. This is Bill. So really pleased with our advance business. We saw really strong results in the quarter across all of the key categories. So we saw unit growth, as well as, you cited, innovation obviously driving it. It is largely driven by duress customers. I think our model sets up well to be able to take care of that customer. As I cited in my prepared remarks, the delivery model that we have set up is best-in-class. And being able to install and deliver an appliance in almost every ZIP code across the country is remarkable for us. And our line of business for appliances is equally as strong. And so, the consumer is finding ways to engage with us and the level of service that we're providing in our stores to take care of the customer are kind of all the pieces of the puzzle, I guess, for us that we're excited about. And the merchants have done a nice job of bringing innovation. We've got a lot of innovation coming as we go into '25 across every category, new launches, new products, and that just keeps us at the forefront. Steve Zaccone -- Analyst Yes. And then, my other category question for just I think about 25, would you expect any material change in kind of category performance across the business? I ask you, too, in the sense of first quarter seems to have a little bit in ways of weather. But when you think about spring overall here in the first half of the year, are you expecting your typical spring categories to see growth relative to what you saw last year? Bill Boltz -- Executive Vice President, Merchandising Yes. We're actually -- where we've seen some weather early in the quarter, we've actually were really encouraged about how our spread business is starting. And the collaboration work that we've had with our store teams, our inventory team, the merchants, supply chain of getting product ready. The resets are underway, we'll lap those up in a couple of weeks in our northern markets. But we have a lot of ammunition in the gun for spring that we're excited about. A lot of new product, in addition to being just ready across both the do-it-yourself customer and the Pro customer. And just to give you a few examples, we've got new innovation really across every merchandising category, whether that's easy to install windows from Pella, the new drywall tools that we talked about, Valbart, which is the No. 1 tool for a drywall professional. We are the go-to destination for composite decking, when you think about Trex, TimberTech and decorators. We've got World Pool being launched in water softeners and rough plumbing. Then you go to the spring categories, you've got exclusive product from Webber that will only be found at Lowe's. We've got 14 new products at EGO that continues to heighten that innovation in the outdoor power category. New camp collections in patio. We've got new products from Valspar for metal application and garage floor paint. I mean, I can go on and on and on in regards to what we have going. So if mother nature gives us a little bit of a nudge, we're ready to rock and roll. Steve Zaccone -- Analyst OK. Thanks very much. Bill Boltz -- Executive Vice President, Merchandising Thanks Steven. Kate Pearlman -- Vice President of Investor Relations, Treasurer Thank you all for joining us today. We look forward to speaking with you on our first quarter earnings call in May. Operator [Operator signoff] Duration: 0 minutes Kate Pearlman -- Vice President of Investor Relations, Treasurer Marvin R. Ellison -- Chair, President, and Chief Executive Officer Bill Boltz -- Executive Vice President, Merchandising Joseph McFarland -- Executive Vice President, Stores Brandon Sink -- Executive Vice President, Chief Financial Officer Christopher Horvers -- Analyst Marvin Ellison -- Chair, President, and Chief Executive Officer Simeon Gutman -- Analyst Peter Benedict -- Analyst Kate McShane -- Analyst Greg Melich -- Analyst Michael Lasser -- Analyst Zachary Fadem -- Analyst Zach Fadem -- Analyst Brian Nagel -- Analyst Joe McFarland -- Executive Vice President, Stores Steve Zaccone -- Analyst Steven Zaccone -- Analyst More LOW analysis All earnings call transcripts This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy. Lowe's Companies (LOW) Q4 2024 Earnings Call Transcript was originally published by The Motley Fool Sign in to access your portfolio
