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Lowe's Companies (LOW)

Q4 2011 Earnings Call

February 27, 2012 9:00 am ET


Robert A. Niblock - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Robert J. Gfeller - Executive Vice President of Merchandising

Robert F. Hull - Chief Financial Officer and Executive Vice President

Gregory M. Bridgeford - Executive Vice President of Business Development


David A. Schick - Stifel, Nicolaus & Co., Inc., Research Division

David Gober - Morgan Stanley, Research Division

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

John Zolidis - Buckingham Research Group Incorporated

Alan M. Rifkin - Barclays Capital, Research Division

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Good morning, everyone, and welcome to Lowe's Companies Fourth Quarter and Fiscal Year 2011 Earnings Conference Call. This call is being recorded. [Operator Instructions]

Statements made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Management's expectations and opinions reflected in those statements are subject to risks, and the company can give no assurance that they will prove to be correct. Those risks are described in the company's earnings release and in its filings with the Securities and Exchange Commission.

Also during this call, management will be using certain non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP financial measures and other information about them posted on Lowe's Investor Relations website under Corporate Information and Investor Documents.

Hosting today's conference will be Mr. Robert Niblock, Chairman, President and CEO; Mr. Robert Gfeller, Executive Vice President of Merchandising; and Mr. Bob Hull, Executive Vice President and CFO. I will now turn the program over to Mr. Niblock for opening remarks. Please go ahead, sir.

Robert A. Niblock

Good morning, and thanks for your interest in Lowe's. Following my remarks, Bob Gfeller will review our operational performance, and Bob Hull will review our financial results in detail. But first, let me share a summary of our fourth quarter performance and tell you how we're thinking about 2012.

Sales for the fourth quarter increased 11%, including the 53rd week, while comparable store sales were positive 3.4%. Comps were positive in all regions of the U.S., as well as in 13 of 16 product categories. Comp transactions increased 3.8% in the fourth quarter and comp average ticket decreased 0.4%. While gross margin contracted largely in line with our expectation, we had good operating expense control and delivered earnings per share of $0.26, exceeding our guidance for the quarter.

Delivering on our commitment to return excess cash to shareholders, in the fourth quarter, we repurchased $500 million or 20.7 million shares and paid $177 million in dividends. Overall, I'm encouraged by the progress we made in 2011 toward delivering better customer experiences and transforming our business to drive long-term sales growth and increased profitability and shareholder value. I would like to thank our hardworking employees for their ongoing dedication and customer focus.

At our Analyst and Investor Conference in December, we outlined how we intend to build upon our core strengths and strategically invest in ways that will better position Lowe's for success. Among our top strategic priorities, we accelerated our investment in technology and store infrastructure in 2011 and increased our efforts to improve the customer experience. I'll share some specifics momentarily. We also refined our pricing and merchandising strategies and processes, actions that Bob Gfeller will review in a few minutes. With these enhancements in place, we are well positioned to drive stronger comparable store sales growth and expanded operation -- operating margins in 2012.

So first, let me address our commitment to delivering better experiences that will differentiate Lowe's. As we've previously discussed, we strive to be more than a provider of home improvement products. Our vision is to be relevant at each step of the home improvement process and to deliver an experience that is simple and seamless across all selling channels.

In 2011, we undertook took the largest single-year investment in IT in-store systems infrastructure in Lowe's' history. We accelerated investments necessary to begin addressing the issues with slow response times and outdated systems. In each of these investments, we focused on the critical infrastructure needed to support the strategic changes we're rolling out over the next 36 months. This meant bandwidth upgrades of 4 to 8x prior speeds and upgrading our in-store wireless network to handle video downloads for employee selling tools and customer Wi-Fi usage. And it meant rolling out iPhones to replace existing functionality and to enable the ability to tender a sale at any place in the store. These upgrades paved the way for a simple and seamless customer experience with Lowe's.

Recognizing that customers are increasingly shopping across channels, we are focused on providing a seamless multi-channel experience, making it convenient for them wherever and whenever they choose to engage with Lowe's. We equipped our contact center associates with better tools and greater access to information, as well as the ability to close a sale when interacting with customers. We evolved our on-site selling model, providing specialists with the appropriate tools to help customers visualize a project, provide a realtime quote and close a sale on-site. We also made incremental improvements to our e-commerce platform, fueling a 22% increase in traffic and a 35% increase in conversion rates, resulting in a 70% increase in e-commerce sales year-over-year and an 1,100 basis point increase in online unit share. At the end of the fourth quarter, we had over 250,000 items available online and our mobile app, which launched this past August, is one of the highest-rated retail apps in the Apple Store.

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