Lowe's Companies, Inc. (LOW) Q4 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary highlights strong fundamentals in the home improvement sector, strategic investments in AI, and the acquisition of FBM, which are expected to drive growth. The company's optimism about spring demand and strategic initiatives for cost-conscious customers further supports a positive outlook. Despite some uncertainties, the overall sentiment is positive, with expectations of outperforming the macro environment and taking market share. The Q&A section reinforces this with a focus on strategic priorities and AI leverage, without significant negative concerns.
Key Financial Performance
Fourth Quarter Sales $20.6 billion, with comparable sales increased by 1.3%. Growth driven by Pro, online, and home services, as well as winter storm activity.
Fiscal Year 2025 Sales $86.3 billion, with positive comparable sales of 0.2%. Adjusted operating margin was 12.1%. Adjusted earnings per share increased by 2% to $12.28. Growth attributed to expense management and excluding impacts of recent acquisitions.
Online Sales Growth 10.5% growth in the quarter. Set new sales records during Black Friday and Cyber Monday. Growth driven by enhanced user experience and fulfillment options.
Home Services Growth High single-digit growth. Growth attributed to overhauled customer experience, digital tools, and enhanced service for installation solutions.
Adjusted Gross Margin (Q4) 32.7%, down 18 basis points year-over-year. Decline due to the dilutive impact of acquisitions, offset by higher credit revenue and favorable product mix.
Adjusted SG&A (Q4) 21.4% of sales, deleveraging 37 basis points year-over-year. Increase due to higher frontline discretionary bonuses and annual incentive payouts, partly offset by acquisitions.
Adjusted Operating Margin Rate (Q4) 9%, down 41 basis points year-over-year. Decline attributed to acquisitions' impact.
Inventory (Q4) $17.3 billion, in line with prior year. Includes $500 million from acquisitions and higher tariffs. Improved inventory productivity through AI-enabled solutions and SKU rationalization.
Free Cash Flow (2025) $7.7 billion. Returned $2.6 billion to shareholders through dividends. Invested $3 billion in acquisitions and repaid $2.5 billion in bond maturities.
Return on Invested Capital (2025) 26.1% for the year. Reflects strong operational performance and strategic investments.
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Operating Highlights
Pro brand offering: Expanded assortment of DEWALT power tools and accessories, now carrying the largest selection in stores and online.
Online sales: Achieved 10.5% growth this quarter, with record sales during Black Friday and Cyber Monday.
Home services: Delivered high single-digit growth by improving customer experience with digital tools and enhanced service for installation solutions.
New product offerings: Introduced TOTO innovative toilets, exclusive to Lowe's in the Home Center channel, and Sherwin-Williams ProBlock Quick Dry Primers.
Pro customer engagement: Gained traction with Pro customers through tailored digital experiences, job site delivery, and enhanced service levels.
Online shopping: Increased engagement with a seamless omnichannel shopping experience, including the Lowe's app being the #1 free app in the shopping category on Apple's App Store during Black Friday.
Strategic partnerships: Became the exclusive national home improvement partner to the National Association of Home Builders, connecting with over 140,000 Pros.
Perpetual productivity improvement (PPI): Implemented initiatives like workforce reduction of 600 roles, front-end transformation, and AI-enabled tools for inventory and stocking.
Inventory productivity: Completed SKU rationalization and leveraged AI-enabled solutions for better inventory management.
Freight flow enhancements: Redesigned processes to improve labor productivity and inventory accuracy.
Acquisitions: Integrated Foundation Building Materials (FBM) and Artisan Design Group (ADG), focusing on cost synergies and cross-selling opportunities.
Market outlook: Positioned to outperform the market despite macroeconomic challenges, leveraging Total Home strategy and operational excellence.
AI integration: Introduced AI tools for merchandising and Pro sales to enhance efficiency and customer interactions.
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Risk or Challenges
Housing Market Volatility: Persistent volatility in the housing macro environment is pressuring big-ticket discretionary DIY projects as consumers are reluctant to make significant investments in their homes.
Workforce Reduction: The decision to eliminate approximately 600 corporate and support roles, while aimed at financial agility, poses challenges in maintaining morale and operational efficiency.
Economic Uncertainty: Subdued consumer confidence due to inflationary pressures and overall economic uncertainty is impacting discretionary spending.
Elevated Mortgage Rates: High mortgage rates are causing a lock-in effect, reducing housing turnover and new home starts, which negatively impacts the home improvement market.
Integration of Acquisitions: The integration of Foundation Building Materials (FBM) and Artisan Design Group (ADG) into operations presents challenges, especially in navigating a challenging residential construction market.
Supply Chain and Inventory Management: Efforts to improve inventory productivity and manage tariffs require ongoing operational discipline and efficiency.
Seasonal and Weather-Related Demand: Winter storms and seasonal demand fluctuations create unpredictability in sales and operational planning.
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Guidance & Outlook
2026 Sales Forecast: Expected sales ranging from $92 billion to $94 billion, with comparable sales in a range of flat to up 2%. ADG and FBM acquisitions are anticipated to contribute approximately $8 billion to sales.
Operating Margin: Expected operating margin in a range of 11.2% to 11.4% and adjusted operating margin in a range of 11.6% to 11.8%. Includes 30 basis points of dilution related to the wrap of FBM and ADG in 2026.
Gross Margin: Expected to decline approximately 75 basis points compared to the prior year due to the dilution related to the acquisitions.
Productivity Initiatives: Targeting roughly $1 billion of productivity gains in 2026 through perpetual productivity improvement (PPI) initiatives, including workforce reductions.
Net Interest Expense: Expected to be approximately $1.6 billion, absorbing incremental expense related to the FBM acquisition, partly offset by planned repayment of $2.3 billion of bond maturities in Q1.
Diluted Earnings Per Share: Expected full-year diluted EPS of $11.75 to $12.25. Adjusted diluted EPS expected to be approximately $12.25 to $12.75, including accretive impact from FBM and ADG acquisitions.
Capital Expenditures: Expected to be approximately $2.5 billion for the year, heavily concentrated in the retail business.
Q1 2026 Guidance: Q1 comp sales expected to be below the midpoint of the full-year guide due to severe winter storm activity in February. Adjusted operating margin rate expected to be approximately 20 basis points below the bottom end of the full-year guide.
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Shareholder Return Plan
Dividend Payments: In 2025, Lowe's returned $2.6 billion to shareholders through dividends, including a dividend of $1.20 per share in the fourth quarter, totaling $673 million.
Share Repurchase: No specific share repurchase program was mentioned in the transcript.
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Key Q&A
Q:What is the status of the Pro Extended Aisle efforts?
A:The Pro Extended Aisle efforts are part of a multiyear build-out for 2026 and are exceeding expectations. New suppliers and markets are being added weekly, and the initiative is helping to create more traction with planned Pro spend. Specific financial results are not yet provided, but the initiative is expected to drive the Pro business for the balance of the year.
Q:What are the expectations for incremental margins after integrating acquisitions?
A:Incremental margins are influenced by factors such as cost pressures, investments in sales-driving initiatives, and productivity gains. For 2026, FBM/ADG is creating a 30 basis points dilution related to the RAP and 50 basis points on an annualized basis. The company is generating $1 billion in productivity for 2026, and the team is focused on disciplined execution to achieve the operating margin target.
Q:How is demand in the category evolving, considering weather impacts and other factors?
A:Demand trends are consistent across Pro, DIY, and DIFM areas, with some disruptions from weather events like Fern, Gianna, and Hernando. Strength is observed in categories like millwork, lumber, building materials, electrical, paint, garden, hardware, and flooring. The company is optimistic about spring demand and expects to deliver at the midpoint of the guide for the first half of the year.
Q:What is the outlook for sales recovery in lawn and landscape after a tough winter?
A:The company is optimistic but cautious due to uncertainties like tariffs, high interest rates, and consumer demand. They have the best in-stock levels and garden strategy in recent years, along with 30 million members in the MyLowe's Rewards loyalty program. The company expects to outperform the macro environment and take market share.
Q:What are the sales-driving initiatives for cost-conscious customers in 2026?
A:There are no major changes to the strategy relative to price or promotion. The focus is on tier-one promotional events like spring launches, Labor Day, Memorial Day, and Fourth of July. The company aims to offer value to cost-conscious homeowners while also providing premium items. Investments continue in Pro Extended Aisle, home services, and the Total Home strategy.
Q:What is the expected cadence of transaction versus ticket throughout 2026?
A:Growth is expected to be more weighted towards ticket in the first half of 2026 due to tariff price increases. Transaction trends are expected to improve in the second half as the company starts cycling over the second half of the year, moving more in line with neutral.
Q:What are the strategic priorities for the wholesale distribution business and the integration of FBM and ADG?
A:The strategic vision is to provide home builders with everything needed for the interior space of the home, including doors, windows, ceiling systems, insulation, appliances, cabinets, and countertops. Revenue for FBM and ADG is guided at $8 billion for 2026, with low single-digit positive growth. Integration teams are working on synergies, vendor cost improvements, SG&A, logistics, and cross-selling opportunities.
Q:What is the guidance for core EBIT margin in 2026, excluding the mix impact of acquisitions?
A:Excluding the 30 basis points step back, the high end reflects a 2% comp if sales-driving initiatives and tax refunds gain traction. The low end reflects a flat comp for the core business, influenced by investments in sales-driving initiatives and top-line performance.
Q:What are the key performance indicators (KPIs) for assessing 2026 guidance accuracy?
A:Key KPIs include big-ticket discretionary purchases from DIY customers, elasticity pressures, consumer sentiment, and HELOC activity. The guidance range reflects potential macroeconomic scenarios, with the low end indicating pressured elasticity and deferred big-ticket spend, and the high end indicating improved discretionary projects and tax refund benefits.
Q:How is Lowe's leveraging artificial intelligence (AI) in its operations?
A:Lowe's uses AI to improve selling, shopping, and working. Examples include the Mylow Companion virtual assistant for associates and customers, which improves product knowledge and customer service. AI is also used in Pro Companion tools, merchant team productivity, and tech team development. AI has led to significant improvements in customer service, online conversion rates, and productivity gains.
Q:Are there commonalities in markets with underperforming or outperforming comp sales?
A:No material differences are observed in financial performance across geographies when weather impacts are excluded.
Q:What is the update on Lowe's Media Network and its financial impact?
A:The Media Network leverages customer insights and expands channels like creator networks and connected TV. It contributes to the $1 billion productivity target for 2026, with benefits reflected in gross margin and expense improvements.
Q:Is there any observed impact of lower interest rates on demand?
A:It is too early to determine a definitive correlation between lower interest rates and demand changes. Sub-6% rates are expected to have a psychological impact, but the timing and effect on consumer spending remain uncertain.
Q:What is the impact of recent tariff changes on Lowe's business?
A:The tariff policy is fluid, and Lowe's is reviewing new rules. The company remains confident in its full-year guidance and will continue to execute its global sourcing playbook to manage changes.
Q:Review of Unclear Management Responses
A:Management avoided providing specific financial results for the Pro Extended Aisle efforts, citing that it is exceeding expectations but not yet ready to disclose details. Additionally, they did not provide a definitive point of view on the impact of lower interest rates or recent tariff changes, stating that it is too early to assess these factors.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Black Friday
Center channel
Cyber Monday
FBM
Fern
Friday Cyber
Home Center
Lowe Home
Lowe Media
Lowe Rewards
Media Network
Monday weekend
area
associate day
associate store
bath
bonus
bucket
customer experience
customer service
distribution center
fulfillment option
gas
giveaway
holiday season
home service
installation solution
investment home
living lawn
merchandising
paint
pipe
power
product assortment
role
spring
store manager
LOW Transcript
Lowe's Companies, Inc. (LOW) Q4 2026 Earnings Call Transcript
Positive2-25
The earnings call summary highlights strong fundamentals in the home improvement sector, strategic investments in AI, and the acquisition of FBM, which are expected to drive growth. The company's optimism about spring demand and strategic initiatives for cost-conscious customers further supports a positive outlook. Despite some uncertainties, the overall sentiment is positive, with expectations of outperforming the macro environment and taking market share. The Q&A section reinforces this with a focus on strategic priorities and AI leverage, without significant negative concerns.
Lowe's Companies, Inc. (LOW) Presents at Morgan Stanley Global Consumer & Retail Conference 2025 Transcript
Neutral12-2
Lowe's Companies, Inc. (LOW) Q3 2025 Earnings Call Transcript
Positive11-19
The earnings call summary shows strong financial performance, with improvements in gross margin and average ticket sales. Despite a decline in transactions, the inventory and cash flow management are sound. The Q&A reveals optimism for the future, especially with Pro customers and the housing market. The strategic acquisitions and marketplace platform add positive potential. However, management's reluctance to provide detailed guidance for 2026 is a slight concern. Overall, the positive outlook and strategic initiatives suggest a stock price increase of 2% to 8% over the next two weeks.
Lowe's Companies, Inc. (LOW) Q3 2026 Earnings Call Transcript
Positive11-19
The earnings call summary shows strong financial performance with improved gross margins, increased average ticket size, and effective inventory management. The Q&A section highlights optimism for future growth, particularly in Pro and home services segments, and strategic initiatives like marketplace expansion. Despite some management ambiguity, overall sentiment remains positive, supported by strong operating margins and strategic acquisitions. No major negative factors were identified, suggesting a positive stock price movement in the short term.
LOW Report
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