Specialist
Former director at Lowe's Companies Inc
Agenda
- Lowe’s (NYSE: LOW) speciality product portfolio and DIY and professional services segment positioning amid housing market headwinds
- Product mix and pricing strategy amid declining spends trends for outdoor appliances and patio categories
- Competitive landscape and positioning vs Home Depot (NYSE: HD) and regional players, highlighting implications of a potential recession
- Medium-to-long-term outlook – promotional dynamics and top-line performance expectations
Questions
1.
What are your thoughts on Lowe’s growth trajectory heading into H2 2023, following the company’s Q1 2023 earnings report and speculation around the deceleration of DIY?
2.
Lowe’s ability to package as a suite of products when thinking about higher-ticket items is seen as a strong competitive moat factor. Can you discuss general promotional strategies? In the event of a DIY slowdown, what flexibility does the company have in terms of its promotional and merchandising abilities?
3.
How much incremental revenue is typical for services if we’re thinking about add-ons to big-ticket items?
4.
How do you see promotional activity and SG&A trending through the next 12-18 months, considering consumer trade-down coming off peak demand for home improvement retailers in general?
5.
How much of the consumer trade-down and margin pressures are fully attributable to a post-pandemic normalisation coming off of peak demand vs material cost inflation, steel and other factors over the last 12-18 months, thinking about supply-side issues?
6.
How should we think about the split across ticket sizes? In Lowe’s most recent earnings report, it was categorised as USD 500 or greater, USD 100-500 and less than USD 100. The big-ticket item categories, so greater than USD 500, saw a 7.7% decrease QoQ. What is a normal revenue split for these ticket size ranges?
7.
Another attributable factor is the volatility in weather patterns. Home Depot called out California as a particularly difficult region in the US southwest. How should home improvement retailers consider this, and what fundamental changes will need to be made in terms of product mix shifting to specific locations and long-term planning?
8.
It took some time for inflationary impacts to be reflected in the P&Ls and earnings reports of companies such as Home Depot and Lowe’s. With this now seeming to relax and with the economic outlook perhaps looking a bit more like a soft landing, do you see a relaxation point in Q4 2023 or early 2024? For how long do you see these retailers becoming more and more pressured?
9.
Could you talk about channel dynamics and how online has trended? Lowe’s posted online sales growth of just over 6%. Could you discuss the company’s strategies and unique differentiation vs Home Depot when it comes to online?
10.
How does the transition to e-commerce look long term, thinking about the split across in-store, physical and online purchases? What is the ideal benchmark for home improvement? How normalised is it for a consumer to purchase larger, bulkier items or other things that may have more affinity with viewing in-store?
11.
How do you see tool rentals as an opportunity unique to a constrained or under-pressure consumer? With the deceleration of DIY, does the value proposition of tool rentals and the flexibility it gives both the consumer and Lowe’s show any sort of material demand tailwind? Could you talk about the untapped opportunity here?
12.
It’s useful to talk about Lowe’s professional services segment and the company’s headways in penetrating this market vs Home Depot. You mentioned its general leadership view of mirroring Home Depot or reaching industry standard. How does Lowe’s view the pro services business long term, and what do you think is ideal for the company? In which areas or markets would it be winning market share from Home Depot? Why would a prospective pro consumer pick Lowe’s over Home Depot?
13.
How do you view the demand for single- and multi-family home construction if we assume the macro environment outlook is rosier than initially anticipated, especially when thinking about homebuilders’ confidence? Considering that Lowe’s smaller pros business will inherently have a much more attractive growth rate vs Home Depot’s, do you see any very strong demand momentum coming towards the back end of 2023 if homebuilders’ confidence continues to improve and we see a recovery in the housing space?
14.
Another factor related to the pros business is the volatility on the commercial side of builds. What is Home Depot’s exposure to office REITs [real estate investment trusts] vs Lowe’s? How insulated is Lowe’s due to its smaller scale vs Home Depot?
15.
Do you think Lowe’s is in a comparatively advantaged position vs Home Depot over the next 12-18 months? In the company’s most recent earnings, it was noted that its comps were favourable for the first time in two years vs Home Depot. Do you see this continuing, thinking about it from an investor’s point of view?
16.
How do you see YoY comps performing for Lowe’s through the back end of H2 2023? Where do you see the company lining up vs Home Depot in terms of top-line sales and margin performance?
17.
What do you see as the ideal or possible split between pro and DIY for Lowe’s in 12-18 months?
