LOW
#Thanks, Robert, and good morning everyone
In the first quarter, we achieved positive comps in 12 of 14 regions and posted positive comps in 8 of 11 product categories while one category was flat
We delivered a comp of 1.9% on top of 7.3% last year despite softer performance in outdoor categories which gave rise to a modest decline in transactions
As you know Lowe's built a very strong seasonal business over the years with approximately 35% of Q1 and 40% of Q2 sales historically driven by outdoor categories
Given the top comparison to Q1 last year, we designed a spring strategy intended the balance indoor and outdoor projects
However, as the quarter unfolded, we found we waited our messaging too heavily towards indoor categories
We made the appropriate adjustments to our messaging mid-quarter and saw corresponding improvement in April
As we look to capitalize on strong demand for indoor projects and customers continue desire to invest in their homes with our projects inspiration and expertise and targeted promotions, we drove above average comps in interior categories such as appliances, kitchens and flooring
Once again, we achieved strong comps in appliances, leveraging our investments in customer experience, both in-store and online
In-store, our appliance suits allow customers to visualize how their appliance purchase will look in their refreshed or remodeled kitchen
Online, we've enhanced the customer experience and presentation and make it easy for customers to select their products
Our omni-channel customer experience together with leading brands, breadth of assortment, competitive pricing, knowledgeable sales specialist as well as delivery and wholly service continues to drive our performance in appliances
Kitchens also benefited from our omni-channel customer experience, in order to provide a holistic project solution to a simply kitchen refresh or a fully remodel, we display our kitchen solutions including cabinets and countertops immediately adjacent to our clients offering
So customers can both envision and design their dream kitchens
Following the trend from the last quarter, we again drown above average comps in kitchens through a combination of project X inspiration and expertise, our investment in project specialist and targeted events
We also drove above average comps in floor, leveraging our strong assortment as well as targeted promotions to capture indoor projects
We continue to advance our Pro customer sales, driving comps well above the Company average
By further optimizing our product and service offering to better serve the Pro
We achieve strong comps in lumber and building materials driven by strong Pro demand, continued recovery efforts from Hurricane <UNK> and Louisiana flooding and inflation
Pro activity also drove solid comps in rough plumbing and electrical and tools and hardware
We captured Pro sales by improving our brand assortments with exclusive like Hitachi and Bostitch, the number one and number two brands in pneumatics and the extension of brands like Von, Owens Corning and GAF
We continue to be excited about the effectiveness of destination brands and attracting Pro customers
This strength is evidenced with the addition of Marshalltown, a trusted program and a leading supplier of masonry tools which drove double digit comps in the category
In addition to our outstanding portfolio of brands, we're also deepening and broadening our relationship with the Pro customer with our strong value proposition as well as advancing our capabilities to connect with Pro seamlessly across channels, through lowesforpros
com and our growing Pro services team
The addition of central wholesalers along with our pending acquisition of Maintenance Supply Headquarters further expands our capabilities to serve multifamily property management customers throughout the country with enhanced product and service offering, while strengthening our platform for future growth with this important customer
We continue to drive Pro awareness with targeted marketing including expanded digital capability as well as Pro exclusive offers to grow our share of wallet with existing Pros, while also generating new business
We've also enhanced our Buy in Bulk program with new signage in-store, messaging on lowesforpros
com and marketing campaigns designed to drive awareness of the great values we provide for the Pro
Our focus on further strengthening our portfolio of brands, continuing to build upon our omni-channel offering through our growing Pro services team and lowesforpros
com are all part of a broader commitment to build our strong foundation to anticipate and serve the needs of the Pro customer
We also continue to focus on our strategic priorities leveraging our omni-channel capabilities to help customers achieve great project results
Customers can engage with our associates’ in-store for expert advice on lowes
com for content and inspiration with our contact center for ongoing support or with our project specialist to bring their solutions to life
As customers engage in both indoor and outdoor projects, we leveraged our omni-channel capabilities to help them throughout their project journey driving 27% comp growth on lowes
com and above average cost for in home sales
Our interior and exterior project specialists represent another important element of our omni-channel strategy as they serve that do it for me customer who needs a bit more help navigating their projects
Meeting them in their homes to design, plan pull together products across multiple categories and manage their project through to completion
We're also advancing our omni-channel experience making it even easier for customers to engage with our in home project specialists
On lowes
com we've added online scheduling capabilities to our in home selling all, and we've seen a very strong response to these enhancements with increased lead and appointment request
For the quarter, gross margin contracted 64 basis points, hit 35 basis points of impact from product mix in RONA
The remainder of the decline was primarily the result of promotional activity, inflation predominantly in lumber and pricing investments in key product categories
Looking ahead, we're working to refine our promotional strategy by improving the balance between big ticket and smaller ticket projects, eliminating less effective promotions and reducing the overall margin impact for the business
We continue to make progress in driving productivity throughout the enterprise while investing in the areas that matter most to customers
This quarter we drove 40 basis points of payroll leverage as we realized the benefits of our new stores staffing model
We took decisive action to design and implement a new structure to provide better leadership and accountability, allowing us to grow sales with more efficient staffing
We're working to drive productivity in our supply chain by introducing new international carriers into our system and realizing our network to balance our volumes against three new shipping alliances in South East Asia
As these improvements are implemented they are expected to benefit gross margin in the back half of the year
As we look forward to the reminder of 2017, we’re proud to welcome to new additions to our outstanding portfolio of brands that appeal specifically to Pro customers
SharkBite, the industry leader in plumbing fittings; and AO Smith, the leading brand of residential water heaters; and for DIY customers, we're leveraging our MyLowe's platform to drive additional brand loyalty
We're proud to announce that we've simplified our military discount program by allowing active duty in veterans to register through MyLowe's
We're also offering free parcel shipping exclusively for MyLowe's members
And as we move to Q2, we look forward to our compelling Memorial Day, Father Day and July 4th events as well as our outdoor entertaining event featuring unique omni-channel experiences such as online tools to build the ideal backyard retreat
We're well positioned to capitalize on a favorable macroeconomic backdrop for home improvement as we continue to execute on our strategic priorities and make progress on our initiatives to drive top line growth, while improving operating discipline, productivity and profitability
We look forward to sharing for the progress with you over the course of the year
Thank you for your interest in Lowe
And I'll now turn the call over to Marshall
<UNK>, throughout the quarter, this is Mike <UNK>
Throughout the quarter, we saw an opportunity to improve our DIY value perception
We feel good about our competitiveness our assortments our brand portfolio and the innovation we're bringing to market
We had to adjust our marketing more frequently include lower price point values that are already in place throughout our product offering to drive increased traffic
I think you're seeing significant opportunity in both DIY and Pro, as home improvement continues to do very well
As it relates to the competitors there are many as you know, many competitors in the marketplace and we've got to face them all
Yes, I'll tell you we continue <UNK> to optimize our media and improve our flexibility in responsiveness to the market opportunity and the weather, ultimately driving improved productivity as we stand on the spend and as we continue to drive traffic
We tried this toggle in and out of weather opportunities throughout the quarter and found that we sub-optimized
Our objective obviously is better connect with our customers through more personalize messaging, care of their specific needs and we continue to build capabilities to do that
We will continue to look for the most attractive and efficient way to drive traffic and build our brand across all of our assets
So that continues to be something that we fine-tuned overtime
I'll just say that our credit card penetration for private label brand is roughly is 28%, so we’ve seen that steadily grow overtime
So, we look at their overall portfolio just keep in mind that we're coming off of historically low delinquency rates and Lowe’s rates, so we’re beginning to see a little bit of inflection there
I believe that our portfolio is performing relatively well versus others in the market place
But something we will keep an eye on, have to be sensitive to what are you just these terms for your customers, as you do see this is a sales driver and a tool that they will want and use of revolving credit that we see as a strength to the consumer as they spend in 2017.
<UNK>, the big thing that we look at and we’re looking at from a store standpoint is a holistic measures of success from efficiency of process through our customer service metrics
So, we're measuring there close rate performances, we're measuring our customer satisfaction scores
I would say are the two dominant drivers of our overall measurement of success, and they will continue to measure against the anticipated benefits that we have around
So, we're pleased with what we saw our cost both those attributes in the quarter
As a matter of fact, we saw increases in our overall customer satisfaction stores compared to Q1 2016. So, really proud of by the teams in the field are probably aware of this, we responded and continue work to meet the needs of our customers in there out every day
We did see the most significant pressure in our lawn garden and seasonal and outdoor living business
From a lawn garden prospective, we saw some inconsistent performance throughout the quarter really aligned with that weather that Robert just talked about, leading to a slightly negative comp
We weren’t able to offset the underperformance in live goods with some of the positive performance in other areas in that division
But certainly as weather has improved, we have seen improvement there as well as our seasonal and outdoor living categories particularly in patio
So, as time moves on weather stabilizes, we are seeing improvement in those categories
Matt, this is Mike, I would tell you that from the select pricing investments that we made were really tied to seasonal products, and we executed mid-quarter and certainly saw some improvement as I just mentioned
The other area of focus has been an investment in special order products really across our digital assortment, supporting our omni-channel to engage customers both pro and DIY as they built out their projects and leverage our extended line design through our digital properties
So, they are the areas of most significant focus in regard of those investments
It was really designed with the market adjustments we made to try and capitalize on seasonal traffic, recognizing they're both in the first and second quarter seasonal traffic is a significant driver of the traffic that engages with the portfolio so that's why we did it to really complement the marketing adjustment and revert on the traffic
For the remainder of the year Matt, we expect to partially offset the impact of some of those promotions in pricing investments
We have cost improvements from our line review process as well refining that promotional strategy and eliminating the less effective promotions as the year unfolds as well as fine tuning our pricing actions based on the result that we're seeing
As you know we constantly adjust our approach to optimize gross margin, making sure we deliver value to our customers while balancing the traffic and ticket equation
That process is managed daily and we do think we'll see improvement
I can talk for the categories of negative comp
They were at the lawn and garden category and seasonal and out to a living category
