Lowes Companies Inc (LOW) September 2026 Conference Transcript

Okay, good morning, everyone. Thank you for joining us for our second day here at the Goldman Sachs Consumer and Retail Conference. It's my pleasure to introduce Lowe's and have with us Marvin Ellison, Chairman and President and Chief Executive Officer. Thank you for joining us today. good morning we probably could spend most of the time speaking about the macro although I know there's a lot of other things to talk about but I wondered if we could we could start there I guess in the question that I have is in the state of the world we are right now with regards to the housing environment is there a scenario in which you could see better growth than kind of the flat to up low single digits that you've seen for the last year or so no case it's a good question I would say for us we really expect the second half of the year to look a lot like the

first half of the year and again that's not based on our view that things will get better or things will get worse we just believe that the year is going to look a lot similar both front and second has. Having said that, we still believe that we can grow in any macro environment. I'm really pleased by the fact that in spite of the fact that over 60%, 6-0% of our sales is driven by the DIY consumer, we've delivered five consecutive quarters of positive comps. In addition to that, you know, we've seen really strong growth in our digital channels. For two consecutive quarters, we've had growth over 15 percent so so even in what you could debate and argue is one of the toughest housing macros we've seen in a very long time we are finding ways to grow we're finding ways to take share but we think the broader macro is going to look similar front and second half but we think we could grow irrespective of that I think it's come up in a couple of articles I've read that you're seeing or the home improvement space is seeing maybe what maybe I would deem as piecemeal renovation.

So if you're not seeing necessarily the full kitchen renovation or the full bath renovation, you're seeing a vanity replaced or something like that. Is that something you're seeing? And what would a scenario like that kind of look like over time in terms of incremental dollars and growth?

Yeah, so specifically to that point, We are seeing homeowners take what we would call smaller, more deliberate projects versus these larger discretionary projects. But let me take a step back and provide some context to that. So if you take a look at our consumer, meaning the lowest consumer, it's a homeowner with an average household income north of $100,000 a year, average equity of roughly $400,000. of personal disposable income growth, wage growth, and someone who has a really good personal balance sheet. The caveat to that is that consumer is a bit cautious based on all the things you talked about, elevated interest rates and also some of the geopolitical uncertainty that they're seeing that's causing them to just be cautious relative to discretionary larger ticket spend. And one of the largest discretionary tickets you can spend is a kitchen renovation, to your point. And so because we've done a really nice job in our total home strategy of making capital investments in our physical infrastructure in our stores, meaning kitchen showrooms, bath showrooms, appliance showrooms, flooring showrooms, we're able to get that customer to come in to buy countertops and cabinets. But, you know, on certain occasions, we're also seeing the customers come in and do kitchen renovations, but not on the same degree that we had seen in past before this, you know, really difficult housing cycle. But we're really, really optimistic that our pro customers are incredibly resilient, and our core pro customer in the store is a small to medium pro. And because they're resilient, they're finding ways to keep their book of business open. And if they can't do a full kitchen, then they will do countertops. If they can't do a full kitchen, then they will do cabinets. So we're seeing a resilient consumer. We're seeing a resilient customer. And overall, we feel like that we can manage in any environment.

Great. I think you mentioned with regards to market share, I mean, I think overall the category or some of your competitors are down double digits. But you're not. And so can you maybe talk a little bit about the change you've seen in the competitive landscape with some of the smaller players? And just where do you think you're gaining some of this market share?

Yeah, I'll go back again to our total home strategy, which for us is not only a business strategy, but an investment thesis on how we run our business. We're investing in the small to medium pro. We're investing in our digital channels. We're investing in loyalty. We're investing, you know, in key categories like appliances. And so as we look at the broader total adjustable market for home improvement, there is a large belief that we operate in a duopoly. But as you know, this is a really large total adjustable market. And if you look at our view of it, it's roughly $1 trillion. And if you combine loads at our largest competitor, we're roughly a quarter of the total adjustable market. So when we think about competitors, it's more than just one company. It's a broader spectrum. And many of those competitors are small regional players. And so as we think about where we've been able to take share, we've been able to take share in categories like appliances. I mean, we remain the only retailer in the U.S. that can deliver and install a major appliance same day and next day in virtually every zip code in the U.S. I mean, no one else can do that, and that is the result of a very deliberate action to build a big and bulky fulfillment network that doesn't exist anywhere in the marketplace. And so because of that, we have the ability to really grow, share in a really, really important category for us. And specifically, if you think about appliances, the number one area of appliances that's growing is what we call the duress category. In other words, if your refrigerator breaks, it needs to be replaced. And so we are in a position that when a customer has an emergency need, our fulfillment network gives us a great opportunity to take share because we can deliver same day and next day. And when you are a smaller player in the space, you just don't have the capital, you don't have the ability to invest capital in a network like we did. And so we're incredibly blessed to have a strong balance sheet. We're incredibly blessed to have a disciplined approach to how we're thinking about the business, not just quarter by quarter, but we're thinking about what we will look like when the housing recovery happens, because it will have to recover. I mean, we're right now, you know, in many estimations, we're 1 million homes short of current demand. There's credible data that shows by the next decade, you're going to need as many as 14 million new homes. And so we know that this market is going to recover. It may recover gradually, but we have built a strategy that we can compete aggressively real-time, but we also believe we've built a strategy that when the market recovers, we're going to be in a great position to grow disproportionately.

The pricing environment, I think, has been harder to navigate lately. You've had this multi-year inflationary backdrop, which was accentuated by tariffs last year, and then companies began to see tariff-free funds. And especially in Q2, we heard a lot across all of retail about promotions, price investments, flash sales. So could we maybe take a step back and walk through how you've approached the pricing environment as a whole and how you think about the role of tariff-free funds and its impact on pricing in the short term and home improvement?

Yeah, well, obviously pricing is really the foundation of any retail strategy, and we've invested significant capital in just back-end systems and processes. And so I remember going back in time when I arrived here in 2018 at Lowe's, we had literally no pricing system architecture at all. It was all done manual spreadsheets. And for a company our size, it's hard to believe that's where we were. Fast forward to today, I would argue we have some of the most sophisticated pricing systems of any retailer in the world. And that's been a very methodical, very deliberate, you know, investment strategy to do that. And so for us, Kate, number one, we're always focused on value. That's the foundation. And we're very pleased that we're the only home improvement retailer that has two distinct loyalty programs, one for our DIY customers and one for our pro customers because those customers shop very different and they have different value propositions. And so because we have these two distinctly different loyalty platforms, we can offer member-only value promotions events without making it a broad promotional strategy. So it gives us a distinct advantage, and it gives us differentiation because that data and what we learn from the customer's shopping behaviors is incredibly valuable. But as we think about the tariff environment, tariff refund environment, what you saw in the second quarter was probably more price reductions and promotional activity in this space than I've seen in my 25 years in the home improvement business. But we believe it's transitory. We believe it's simply the result of companies receiving tariff refunds and trying to find ways to drive business value and give some of those refunds back to the consumers. So we don't see that as a new normal in home improvement. But for us, we're going to remain disciplined. We're going to remain focused on providing value. we're going to remain focused on ensuring that whatever we do is going to be first based on serving our customers well, but also based on having fiscal discipline around how we drive profitability and understanding that whatever we do today, we have to comp against that next year. And so making good short and long-term decisions. But again, we think this second quarter pricing environment was more transitory. We think we'll get back to more of a normal set for the balance of the year, but we're going to be focused always on taking care of the customers from a value perspective.

And I think, you know, that's obviously a very core tenant that you've been very focused on is value. I know job lock quantities and being in stock has been a core tenant as well. But one thing I wanted to ask you about today was the emerging need of speed in the business with just same-day delivery and everything that the consumer is now expecting from all of retail. Could you talk a little bit about the supply chain, where you are in the supply chain in terms of, again, how you feel about the speed of delivery, and just if there's any room that needs to be made for investments to continue to pursue that?

No, absolutely. So for us in the home improvement space, we're fortunate because of our 1,750-some-odd stores in the U.S., those stores are not only destinations for the conventional, traditional customer that comes in and shops, but they're also fulfillment notes for us for our online and digital platforms. So specifically, if you look at our online business, roughly anywhere between 60% to 80% of our fulfillment comes out of the stores. And that just depends on the category and depends on the time of the year. So our stores are essential to our ability to provide speed. And a lot of that is by online pickup and store, whether you do it at our pickup desk, with our lockers, or whether we do it from a same-day standpoint. So speed is essential. And what I will tell you is there is no retail CEO in the world satisfied with their current delivery speed. So we're working every day to get faster to make sure that we are, you know, having a market competitive advantage by giving the customers what they want and being able to get the customers what they need within the time they need it. But I'll go back to what I said earlier. We have a distinct advantage in big and bulky because the fulfillment network that we built out primarily for appliances that gives us the ability to do same day and next day in every zip code, we can use the same network, and we are using it for other big and bulky categories. I mean, think riding lawnmowers, think grills, think patio furniture. And so what we envision is let's build this for appliances because it's our largest merchandising category, but we also understood that those same rails that we built for appliances could also work for other big and bulky categories. And so we're doing some really innovative things. We'll speak more specifically about some of the innovative ideas we have coming at our December, you know, investor conference, because we have some initiatives that I'm really excited about that we've yet to talk about publicly that we will share in December. But to answer your question, big and bulky speak, we're best in class, and we'll continue to build on that best in class perspective. From an investment standpoint, we're investing significant capital, not only in the physical infrastructure of our supply chain, but also, you know, in warehouse management systems, leveraging AI, you know, from a product assortment allocation standpoint. And so we're pleased with where we are, but we have a long roadmap to continue to get better and to continue to get better. And that's something that's going to be a commitment from us.

I think one area that's changed over the last couple of years is just your focus on increasing the TAM. And with your recent acquisitions of ADG and FBM, you've significantly expanded the addressable market for Lowe's. So maybe could you walk through just where you see that going longer term? I know the business itself is under a little bit of pressure right now due to residential construction demand. But maybe we could start with just your longer-term vision and how we should think about that.

No, and really, Kate, if you're looking at this to your point from just a real-time perspective, it's hard to understand the value of those two acquisitions. But as I said earlier, we're thinking about this from a medium- to long-term perspective for the company and for our shareholders. If you, again, come to the realization that we're a million homes short of demand today, We're estimating 14 million homes needed within the next decade. New home construction is going to have to come back in some shape, form, or fashion. And historically, Lowe's generated virtually no revenue from single-family, multi-family construction. And we felt with the demand that we knew was going to be in the near term that this was a unique opportunity for us to invest in two really good assets. ADG primarily focused on flooring, countertops, cabinets, you know, in a very simplistic way. And FBM primary focus is drywall, ceiling systems, insulation. And so two different businesses. But our vision in the acquisition and our vision today is if you could take FBM's competencies, ADG's competencies, and combine it with Lowe's' competencies, you create what we call an interior solutions platform. So that is a fancy way of saying we can give a builder virtually everything they need on the interior of the structure. We can give them flooring, cabinets, countertops, draw walls, ceiling insulation, and then on the load side we can give them appliances. We can give them faucets and fixtures. And so we're already in the process of running pilots where we're being able to go to a builder and we can take all three of the competencies of Lowe's, ADG, and FBM and provide this for a builder. For a builder, the key metric that you want is can I build a structure faster, can I get to closing sooner? Because the sooner you get to closing, it's the sooner you get paid. And so if we can create a value proposition that we can help you reduce your closing time, your construction time, then that's something that is really, really interesting to a lot of builders. And so we're building that competency. And we think that's going to give us pure differentiation. It's going to give us a way to participate in this market recovery that, again, the only way it doesn't happen is that the way of life in America will change because we will have to increase the ability to build new homes because the need is simply there. And so we feel great about the future possibilities. To your point, short term, we're feeling pressure because with elevated mortgage rates, you're seeing tons of macro pressure on single home and multifamily construction. Having said that, FBM is in a really unique position because roughly 55% of their revenue comes from the commercial construction side. And so what's being built on the commercial side? Data centers, sports venues, hotels, a lot of universities are doing lots of capital investments. FBM is getting pieces of all those businesses. As a matter of fact, One of their largest segments for them right now is the build-out of data centers. And so we're participating in a lot of the commercial side, and that's really good for them because it's kind of helping to balance out the pressure they're feeling on the residential side. But still, they're not immune to the pressure. We're managing it really well. We're adapting to them some of the disciplines we have around perpetual productivity improvement, being very fiscally focused on driving costs. So we're managing that in this really challenging environment, but we feel great about the acquisitions. We feel great about what it's going to do for Lowe's in the future, and we think our shareholders are going to greatly benefit from it.

Do you think there are any other acquisitions you need to make to complement what you have so far? I mean, you said you pretty much have the interior of the home. Is there anything maybe on your wish list that would be additive to what you're offering?

The short answer is we're going to remain opportunistic. I mean, we're going to focus on tuck-in acquisitions, to your point, that supplements this current strategy. We're trying to be disciplined because when you have a great balance sheet, when you have access to capital, yeah, you can reach and you can expand too much and you can create a network of businesses that becomes virtually impossible to manage and impossible to integrate. So we're being very disciplined, focusing on the interior structure. When we look outside of that, sure, if the right opportunity presents itself, but for now, we're being opportunistic. And as we think about our capital allocation strategy, we're going to focus first on bringing value to the business and looking for growth, both organically and inorganically. As we think about growth, we're going to continue to focus on paying down debt as we've committed to that 2.75 times leverage ratio. And we think we'll be there at the midpoint next year. And we're going to always take care of our investors with dividend payments. And we're very pleased that we're one of the few retailers that has the distinction of being a dividend aristocrat. And we're committed to that. And we're hoping as we get back to our leverage ratio next year that we will revisit share repurchases and get back into that market as well. But that is our capital allocation philosophy. And that includes, again, growing the business and investing in the business, which will allow us to look opportunistically at tuck-ins.

And maybe just to close the loop on this part of your business, when it comes to competition and market share opportunity, how do you feel about the setup for that?

We feel great. We feel great about it both on the complex commercial pro side with FBM and ADG, and we feel great about it just on the omni-channel home improvement retail side with our core stores. And as you mentioned earlier, this total addressable market that FBM and ADG gives us is roughly $250 billion of market opportunity that we had no ability to participate in before these acquisitions. And so we think that we can compete really well in both spaces. We're being very, very disciplined and deliberate on building out the infrastructures, getting the operating systems in these companies correct. In fact, we believe that when you're in a tough microenvironment, leveraging your balance sheet is a great competitive advantage because we can make investments in these businesses in spite of the fact that they're feeling some economic pressure, knowing that when this market recovers, we want to be in a great position. And we believe that Lowe's will be in one of the most advantageous positions of any retailer in this space when the market recovers because we've invested, you know, significant capital in our DIY customers, in our loyalty platform, in the, just in the interior of our store. If you walk in our store versus any competitor and you look at some of these big ticket discretionary areas, you know, flooring, kitchens and countertops, bath, appliances, our environment is significantly better than any environment out there. That's not by accident because we know at some point when this market recovers that customer's coming back and we want to be top of mind not only have we invested in the physical environment we've invested significant capital in the IT infrastructure just the back-end processes where we've created a more seamless frictionless you know process for our customers and in addition to that we've invested a lot of technology you know to help our associates with product knowledge service and so we're We're positioning ourselves to perform well in the current state, and we've done that with five consecutive cause of positive growth, but we're also positioning ourselves for the future because when this market recovers, we want to be at the forefront of being able to get a disproportionate share of that market when it comes back. Great.

Thank you. Maybe if we could just jump back. Digital was an area that you highlighted as being a strength just over the last few quarters, but certainly in Q2, where it grew about 16%. Can you maybe talk about some of the initiatives with regards to digital, why you think you're seeing outsized growth there, and what we should expect maybe for the back half of the year?

Yeah, Kate, we're pleased. For two consecutive quarters, we've grown over 15%, and so we're really pleased with that. And we're pleased because we know that we can even get better because we're just now in the early stages of investing in our marketplace. And we're the only U.S. home improvement retailer with a true digital marketplace. And it's early days, but everything we're seeing we're really excited by because it's allowing us to serve customers in a much more broad way. The marketplace gives us the ability to serve a value-oriented customer that's looking for lower price items, but it also gives us the ability to serve a luxury customer, a customer that will spend, you know, significant amounts of money for a chandelier or luxury appliances or something that's more on the high end that we don't carry in our core assortment. So for us, online gives us the most unique opportunity to service this whole K economy, and we can serve customers for value, we can serve customers with luxury, and we're seeing both occur. And Marketplace, again, is the best way to do it because we don't have to own that inventory. We just have to find the sellers that represent customers in these different categories. So we're really pleased by that. Our mobile app has been voted and reviewed as one of the best in retail, And so we're pleased with that, and we're going to continue to invest in that. Our fulfillment capabilities are much improved. Our ability to deliver same day, unlock lots of growth for us online, and then our member-only benefits relative to what you gain from a fulfillment and delivery standpoint is also something that's unique in our space. So overall, we feel great about the fact that we've grown online as aggressively as we have. We feel great about the connection in the store and our ability to fulfill from the store, and it's something that we're going to continue to invest in. And I'd be remiss if I didn't mention, you know, our AI agent, Milo, online, where we received over 25 million questions from customers and associates. And for customers that use this AI assistant online, their conversion is three X greater than customers that don't. So that's informing us that when you develop a true eugenic connection with customers, then you can see tangible benefits, not theoretical benefits. Anytime conversion is 3x better, that's a tangible benefit that we can connect directly to the fact that this AI assistant is giving customers some information that they need. And when you go to the store, our associates have the same access to that for product knowledge, and we're seeing 200 basis points improvement in customer satisfaction when our associates use the tool. And so AI, both online and in the store, is really helping us, and we think that's going to be a foundational piece of how we continue to grow our online business.

Great. I want to make sure we ask a question around margins and PPI. You know, on the good guy side, you have your PPI, which is always, I know, a company discipline. You have the marketplace. You have the media. And one day you'll have more leverage to grow those margins. On the other hand, I do believe, you know, ADG and FBM are slightly dilutive from a margin standpoint. So can you maybe set the stage, shorter term and longer term, how we should be thinking about all those items with regards to where you see operating margins?

Well, I would say I'd start out by saying that we will always be a very disciplined company relative to managing expense and profitability. It's one of the hallmarks of what we've been able to accomplish, irrespective of the macro environment, irrespective of the top-line pressure that we've received over past quarters and years. We've always been focused and disciplined on managing the business with a sharp pencil on expenses and driving profitability. So having said that, we're not immune to some of the pressures that's occurring in the macro, specifically transportation costs. You know, Lowe's, just like any other major retailer, is dealing with those increased costs that we're going to see in the second half of the year. And we're working to do all we can to blunt that with really, really intense focus on our perpetual productivity improvement initiatives, or PPI, as well as other initiatives to try to make sure that we are being really focused on profitability and expenses. But the commitment that we have is that we're going to continue to operate effectively in trying to deliver profitability for our consumers. We're going to talk more specifically in December about how we view our profit algorithm relative to top-line growth based on kind of the dynamics in the marketplace. But as it stands right now, as we demonstrated in the first and the second quarter of this year, we're going to always be focused on being committed to operational discipline and profitability, and we're going to do all we can to blunt some of the headwinds we're facing in this macro environment.

Okay, great. Just in our last few minutes, we do ask four questions of every company that we talk to on stage here. We've addressed most of them. The health of the consumer, I think we pretty much talked about, so I think we can skip that one. Pricing, though. Do you expect prices to be higher, lower, or the same in the second half of this year versus what you saw in the first half?

Look, we anticipate them to be virtually the same. Speaking specifically to Lowe's, again, as I stated earlier, we're going to always be disciplined around pricing. We're going to be focused on value, but we're not going to put ourselves in a position where we're going to be overly promotional. So I think what you'll see in the second half will be very consistent with what you've seen in the first half and what you've seen in previous years.

Margins we just talked about, so we can skip that one, too. But maybe if we could spend a few minutes. You mentioned Milo before, and so we do have an AI question. This is more on the efficiency side, though, than the revenue side. But do you expect a significant increase in efficiency as a result of AI in 27 versus 26? And what part of your business will change the most?

I don't know if significant is the adjective I would use. I would say we expect productivity improvement for sure. Because as we continue to have maturity around some of the AI-related initiatives, we believe that we'll continue to see benefits from our information technology team. We'll continue to see benefits in planning and allocation. We'll continue to see benefits in our payroll management and payroll allocation. And we'll continue to see benefits in how we leverage these eugenic tools to help take friction out for customers, give our associates product knowledge. One of the largest expenses we have as a retailer is associate training because, as you know, we have a very technical business. It's one thing to work for a traditional mass merchandiser. It's another thing working for a home improvement retailer where a customer comes in and they may have a very specific question about something in electrical, something in plumbing, something in flooring. And these eugenic tools give our associates real-time information that they can ask any question of any technical specificity, and they get an immediate response. So we think as we continue to leverage this, it's going to bring our training costs down, and that's going to be meaningful. But, again, we will see that as a gradual productivity gain, but we're committed to making that happen.

Well, that's all I have. Thank you so much for joining us.

Kate, good to be here.

Thank you.