LOW Transcript

FINAL TRANSCRIPT
LOW - Lowes Companies Inc at Sanford C. Bernstein & Co. Strategic

Decisions Conference
Event Date/Time: Jun. 03. 2011 / 2:00PM GMT
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Jun. 03. 2011 / 2:00PM, LOW - Lowes Companies Inc at Sanford C. Bernstein & Co. Strategic Decisions Conference
CORPORATE PARTICIPANTS
Robert Niblock
Lowe's Companies, Inc. - Chairman & CEO
Bob Hull
Lowe's Companies, Inc. - EVP & CFO
CONFERENCE CALL PARTICIPANTS

Colin McGranahan
Sanford Bernstein - Analyst
PRESENTATION
Colin McGranahan - Sanford Bernstein - Analyst
Good morning. I'm Colin McGranahan, the retail analyst here at Bernstein. We're getting toward the very end of the SDC, so I
appreciate you all coming in. We're thrilled to have Lowe's back here again with us this year. They were here last year, but it
was Larry Stone who -- I believe Larry retired this week, right?
Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Yes.

Yesterday after 137 years with the Company. But it's great to have Lowe's back with us this year. It's my pleasure to introduce
Robert Niblock who is the CEO and Chairman of Lowe's. He joined Lowe's in 1993 and in 18 years he's served as the Treasurer,
the CFO and the President before being named the CEO and Chairman in January of 2005.
I think Robert had all of about one year of bright sunshine and favorable winds at the helm before the clouds and gale force
winds of the housing and home improvement crash started really buffeting the Company. But he's been a very steady hand at
the tiller through some pretty tough times. And hopefully the Sun is starting to creep back out, at least in the home-improvement
sector.
We also have with us, Bob Hull, Lowe's CFO. And Bob joined Lowe's in 1999 and was named the CFO I believe in 2003. So with
that I will turn it over to Robert.

Well, thanks, Colin, and thanks to everyone for joining us today at the conference and presentation. In my time this morning
I'm going to talk a little bit about what we're focused on today as well as where Lowe's is headed in the future. And I'll start with
a little bit up about the macroeconomic outlook and what that means for our business today and the impact it's having on
consumers. Then I'll transition into some specific items that we are focused on in the future.
So first of all, our forward-looking statement. As you know, we always have to cover this before we can get to the other comments.
But please note that during this conference you'll hear comments that constitute forward-looking statements. Although the
Company believes these statements are reasonable it can give no assurance that such statements will prove to be correct. The
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possible risks and uncertainties affecting the forward-looking statements are set forth in the Company's Form 10-K and other
periodic filings with the SEC.
So now that we've got that out of the way, let's talk a little bit about the current macro situation. I know the jobs data came out
today and was not quite as favorable as the consensus -- still positive, but not near as favorable as the consensus expectations
of the jobs that would be growing. The good news is we're growing jobs, but we're not growing them as fast as we really need.
I think unemployment ticked up slightly because jobs data was not as strong as expected.
When you think about our business and the drivers of home-improvement spending, employment and disposable income have
generally been increasing. Okay, not at the level that any of us would like to see, but generally been improving. The challenges
continue to be on home prices and housing turnover. Case-Shiller was out earlier this week, dropped I think it's like 4.2%. So
home prices still being depressed. Housing turnover is still negative on a year-over-year basis. So those are challenges for us to
see substantial recovery in the industry.
So what does that mean for the implication for consumers? If you think about it, consumers may generally feel better about
the fact that we are growing jobs, not at the rate any of us would like. But they're uneasy about a lot of the other things that
they're facing. Be it higher fuel, clothing and food costs, obviously it eats into their discretionary, their disposable income that
they can spend on other items.
They're also concerned about the geopolitical situation around the world. I think they're concerned about coming up against
the pending debt ceiling and the conversations that are going on at Congress and with the administration as to how we're
going to deal with the deficit situation in the US.
In addition, as I mentioned, decreasing home prices and stagnant to declining housing turnover means that consumers remain
cautious as it relates to their bigger ticket discretionary spending, okay. If home prices still -- if home values are still dropping
how much do I want to spend on this home from a discretionary big-ticket standpoint not knowing what it's going to be worth
in the future. Those are the types of things that are impacting consumers' confidence and willingness to spend around the
home on a discretionary basis.
We also think that those drops, the decline in home prices through the prior economic cycle has caused a de-coupling of the
traditional relationship we've seen between housing turnover and our comp sales. If you think about it, prior to the most recent
cycle that we've gone through, whether housing turnover was up or down through prior cycles generally the home maintained
its value. It maintained its value to continue to increase during prior cycles.
During this cycle home prices have dropped and dropped dramatically. So that's caused a little bit of a de-coupling of the
traditional correlation between housing turnover and our comp sales on a lag basis. However, once we finally get to the
bottoming of the home price cycle and start seeing home prices move up in the future, we do believe that you will start to see
that traditional correlation start to come back together. Yet to be determined when that will take place, but we do think that
correlation will come back together in the future.
Talk a little bit about the impact that the current economic environment has had on consumers' willingness to spend on a
discretionary basis. If you think about consumers either spending on ongoing repair and maintenance or spending on a
discretionary basis around the home, where we've seen the change -- the biggest change through the cycle is on that discretionary
spend.
Prior to that downturn in housing that we've seen over the past several years, typically when we surveyed consumers they
would tell us that about 60% of their funds were being spent on ongoing repair and maintenance around the home and about
40% was discretionary. Today when we ask them they say a little over 70% is ongoing repair and maintenance and the remainder,
a little less than 30%, is on that discretionary spend.
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The real reason for that change is because of the reduction in the discretionary big-ticket spending. So it's been a remixing of
their spend where they've pulled back on the discretionary to buy -- so obviously then maintenance is now a bigger portion of
their total spend because they've pulled back on the discretionary side. And so really we saw during the worst of the economic
downturn, and to some extent still today, consumers really delaying on that discretionary spend.
As the economy slowly starts to recover we're seeing consumers -- more consumers start to take on smaller projects, smaller
discretionary projects around the home whether that's changing out light fixtures, repainting, sprucing up the home with new
shrubs outside the home, outside maintenance, those type of things. But they're still somewhat reserved on those larger ticket
non-discretionary spending. And they're continuing their ongoing repair and maintenance projects around the home.
In addition, one thing we have seen is consumers continue to spend, if they're incentivized, on energy efficient purchases. So
to the extent that from energy-efficient appliances, particularly if there's stimulus out there, federal or state level, you generally
will see consumers willing to invest in energy-efficient products to reduce their future energy costs as well as doing the right
thing for the environment. They're much more willing to do that though when they are incentivized.
We do think as the economy slowly continues to improve and we do get to the bottoming in the home price cycle that we will
see consumers start to engage more in those bigger discretionary projects. We do think that some of those have been delayed
going through the cycle. The key is when will home prices finally bottom.
I think the consensus estimate heading into this year was the second half of this year. Well some of the weaker economic data
has come out; some of the economists are starting to talk about that bottoming potentially not taking place until the end of
2012. So that's something I think that certainly bears watching.
In the interim we know that we've got to continue to provide great service and great value to customers and that we've got to
continue to improve the experience that they have in the home improvement channel to continue to grow our share. So those
are the things we're focused on as we try and differentiate Lowe's in the future versus the competition. So let me talk a little bit
about that.
When you think about home improvement projects our research tells us that there are about seven stages that a consumer
goes through when they're thinking about home improvement projects. We obviously take this data as we do our other research,
review it and look at it in trying to assess the marketplace and assess where opportunities are available for us to try and improve
our business and to gain share.
Each of the stages, depending on the type of project, can vary in length based on the customer that is undertaking that project.
And the bars on this chart are really designed to represent the level of emotional engagement that a consumer goes through
in each stage of their project.
And as you can imagine, in the early stages inspiration, planning -- those type of things, emotional engagement is very high as
consumers get excited about the things that they can do to improve their home. It bottoms out in the getting supplies, starting
the project, making progress, where they all of a sudden get challenged with the complexity of the project, their skills, the
length of time in order to complete the project and then emotional engagement rises again towards the end of the project as
they're finishing and enjoying the project in the future.
So if you think about our industry, our industry has typically played very heavily or over indexed in the getting supplies area of
the project. Going forward what we really want to do is engage the customer throughout the entire process, helping them all
the way from inspiration and planning, minimizing some of the headaches and heartburn that they have in going through the
actual getting started and doing the work on the project and then taking them all the way through to completing and enjoying.
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So that's what our focus is going forward as we move from home improvement retailer to home improvement company is really
helping them in a better way over all seven stages of the project and how we'll try and differentiate our experience. So I talked
about the way we're going to be changing from a home improvement retailer to a home improvement company.
This slide really is designed to depict that over the lifecycle of our Company we've changed many times before to meet the
changing needs of consumers and what they're expecting from us as they interact with us. If you think about back in the '40s
when we were really going after the commercial customer, we changed the distribution model in the way that they received
products.
We went direct to the manufacturer, cut out the middle man and sold at that time to the end consumer who was in many cases
the commercial customer. And it was a more efficient, lower cost model of getting those goods to them. So kind of changed
the way that the products were distributed and done in a more efficient manner.
As we moved into the 1980s, transforming the Company to focus on the DIY home improvement customer with the big-box
format and we successfully transitioned the Company then. And now transitioning the Company once again today to meet the
evolving needs of what we're seeing out there for customers.
And the reason we're making the change now, we think we've got to be more than just a home improvement retailer is that
we believe consumers are truly demanding -- when you think about the changes in technology -- that we evolve to an
anywhere/anytime business and stretch beyond the just getting supplies that I talked about in the project lifecycle and being
there both before, during and after the project to help facilitate that entire process for the consumer.
So really focused on growing more as an experience focused company to meet the home-improvement consumer's needs and
we're putting the necessary investments behind this to make this happen and to differentiate ourselves in the marketplace.
And we choose -- we're not choosing to make this change because it's going to be easy, but because we think it really will allow
us to win in the marketplace and ultimately become the first choice in home improvement for consumers as they're pursuing
those projects. And these projects can be small projects or they can be significant upgrades around the home. We want to be
there to meet the consumer's needs.
So, what is it going to take to deliver on this? Our commitment is really to deliver better experiences by pulling together the
best combination of the possibility, support and value for consumers. So that's our promise to them. Possibility means giving
them easier ways to maintain and repair their home with innovative solutions; support means being a trusted partner and
resource whenever and wherever they choose to engage in a home-improvement experience; and value means obviously
offering them competitive prices, but also helping them successfully complete their project.
So that's what we're trying to do from the promise side. What is it going to take to execute against that promise? We think it's
going to take retail excellence, seamless customer experience and simplicity not only for our customers but also for our employees.
If you think about the systems and the technology that we use, it needs to be simple for both. We really think that's what
customers are demanding today.
From a retail excellence standpoint it's continuing to operate in a cost efficient and cost effective manner. Everything that we've
done today in the store environment consumers tell us they love that, they want us to continue to be able to bring that experience
into them. So we've got to maintain that retail excellence as we're also focused on other channels in which the consumer will
be interacting with us.
Seamless means being there whenever and wherever the customer chooses to engage in home improvement and allowing
them to seamlessly move across those channels in the experience that they'll have because, depending on what they're doing
that day, they may choose different channels to interact with us and they want a seamless experience.
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And simple means making it easy to either plan a project or get the supplies that they need. And as I said, not only making it
simple for the consumer, but also making it simple for our employees with the technology that we'll be employing in the stores,
improving and upgrading that technology to meet customer's needs and allow us to serve their needs in a more effective and
more efficient manner.
So some key initiatives that we're working on to be able to accomplish this. As I said, we're putting a lot of our time and energy
and capital investments in the future. Several things are go local; we've got our integrated planning and execution project
which will allow us to better tailor our assortments on a store-by-store basis based on geography and demographics. So really
taking it to the next level by going local in the way we tailor our assortments.
On our CRM services platform project, it will allow us to provide better project management tools to our employees, it will allow
us to have appliance and outdoor power equipment repair services. Appliances repair services rolled out last fall, outdoor power
equipment repair services, so this after the sale service capabilities in OP will be rolling out here in the next 60 days. And also
allowing ordering to take place from any store device by the consumer and then we'll ship it or fulfill it from the most efficient
means, that could be a store or DC.
So better customer service by getting it to them quicker and also lower cost by using the most efficient means to get the product
to them. It should also reduce our overall inventory investment versus what it would have otherwise been based on that level
of sales.
Integrated workforce is a business portal that allows our employees to share knowledge and make it simple for them to share
best practices, ask questions amongst each other to better serve the needs of our customers.
Lowes.com and MyLowes portal that will be rolling out will better enable customers to be able to be inspired, plan and purchase
anything that they need and obtain anytime anywhere throughout the Lowe's system and allow them to help us better manage
their project and better manage their home and really take the whole experience to the next level and more personalize it to
a one-to-one relationship with each customer that chooses to engage with us.
If you take all of these, they roll up and they're integrated to what we through what we're calling Transformational Customer
Experiences which will really pull together that overall seamless experience across all of our applications and channels and will
be supported by improved technology which we're making a significant investment in over the next several years. And then
ultimately we'll have measures of success to measure and monitor how we're proceeding along this journey.
Speaking of measures of success, I think this is the slide that we showed you at our analyst conference last year to show you
where we're planning on taking the Company between now and 2015. That included growing 1% to 2% faster than the market
by that point in time, getting EBIT to approximately 10% of sales, growing our sales per square foot to approximately $304 and
improving inventory turnover to approximately 4.5 times.
If we do all of that it rolls up to a return on invested capital of approximately 18%. Once again that being driven by both
improvements in operating profitability and asset productivity.
And then ensure that we accomplish our mission of moving from a home improvement retailer to a home improvement
company, we're also identifying additional metrics including customer, employee and brand metrics that we'll be monitoring
in the future in order to be able to respond to the changing needs of consumers.
So with that -- that's all of my prepared remarks I had this morning. And, Colin, I think we'll be -- Bob and I will be happy to
address any questions.
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QUESTIONS AND ANSWERS

Okay, great, we've already got a few here and we'll jump straight into the one that seems to be coming up multiple times. Why
has Lowe's same-store sales lagged Home Depot's for the past few quarters? Are you losing market share? And similarly, what
accounts for the current performance difference between you and Home Depot? Is it that Home Depot started from a weaker
base, i.e. easy comparisons? And we have several along those --.

First of all, the market share question, if you look at [Track Line] out there which really only measures the retail side, it doesn't
measure the commercial side. But if you look at it over the past several quarters, we've not lost market share, we're still maintaining
our market share. The gains aren't to the degree that they were a couple years ago, but we're certainly continuing to maintain
our market share.
If you look at -- I think it was implied in the question, prior to the most recent couple years I think we had out comped them 27
out of 28 years. So that speaks to the base that they were operating off of. I certainly think in the past couple years that they
have refocused on the core, gotten rid of some of the ancillary businesses that they had gotten into. They've invested back into
service within the store, invested back into their core operations.
So certainly in a lot of markets where we don't have a store that's convenient for the consumer they've improved their execution.
So I think that's helped. I think if you look at -- we're still opening stores so we're cannibalizing our existing stores. That's some
of the difference. And then if you look at last year more particularly, we had good performance in cash for appliances, we're
starting to cycle that this year.
And you could probably talk about there's probably some impact from geographical differences in how we've gone through
the housing cycle, those areas that went in early versus those that went into the downturn late and those that are starting to
recover.
Beyond that, does that mean that we're happy with the difference? No. Are we focused on the difference? Yes. And as Colin
mentioned, we've had some change in the leadership at Lowe's with our President retiring this week. I now have all the operating
team reporting directly to me. And this is exactly what they're focused on.
They're focused on our marketing message, our price promotion offering out there to the consumer, the things that we need
to do to resonate better so that we can drive better performance. How do we showcase innovation better in the products that
we've put in place? So believe me, the team is actively engaged and focused on that. I'm very pleased with how well they're
working together, some of the ideas that they're bringing forward to me and some of the plans they're putting in place. So I
think we will address that issue.

Okay, a quick follow up on that. Structurally, and I think some of the research that you've historically done when you've asked
your customers to compare and contrast yourself to Home Depot, that Lowe's tends to score higher on just about every attribute
that you ask about except for convenience. Home Depot does have a convenience advantage in real estate. What specifically
are you doing to try to address that to get someone to drive past maybe a more convenient Home Depot to come to Lowe's?
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Well, longer-term it's what I had in my presentation, really moving to a better experience through the entire project planning
process from inspiration all the way through to getting supplies and finalizing the project. But in the interim it's things like
improving our website and the amount of -- we had a dramatic redo of our platform, it relaunched a year ago.
We've seen a substantial increase in our sales now that we've got the new platform out there, the new functionality. We've got
about [170 or 75,000] products available on line, it will be going to 250,000 by the end of the year, order online. pickup in-store.
We are looking and that is part of the reason too that we continue to be expanding and adding stores in a lot of these metro
markets, because we know that convenience and location still plays a part. So those areas where we're under serving, we're
focused on those. Beyond that we've pulled back on the store expansion.
And quite frankly where also things like we launched here a few weeks ago our 5% off value proposition on the private label
credit card, thinking that that not only will provide incremental sales, it also provides a loyalty program, a reason for someone
to shop -- to drive past the competition for a better value proposition at Lowe's.
There are some other things that the team is working on with regard to how do we better showcase our innovation. There are
some things we can do to refresh the stores. Looking at our price promotion mix. So I think there are some things that we're
doing that will help improve some of those price images with the customer.

So based on those strategies underway and in progress, when would you expect that comp gap to close and turn back in the
Lowe's favor?

I think the team is working on some things that they'll have in place by the second half of the year. So going into the latter part
of this year, early part of next year I think we should be able to close it.

Okay. Taking a step back and just thinking about the environment that we're in. Generally the data over the past month I would
say have been a little less optimistic, a little bit more concerning. Now how does that impact your thinking about the business,
home improvement, that discretionary piece of spending that has really been lagging?

Certainly, as you said, over the past several days and several weeks the data has been weaker than anyone had anticipated. I
think it really plays into a lot of the things we're working on, whether it's go local, whether it's things that we're working on with
regard to price, perception, promotions, continuing to try and move back to everyday competitive pricing. Because I think that's
going to resonate well with the consumer.
If you think about making it more convenient for them to shop with our Internet offering, all of those types of things I think
play into where we're going longer-term. It's certainly -- short term on the business as you continue to manage the business
very tightly every day.
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When you look at your single biggest cost is payroll and how do we continue to do things like the weekend team that we put
out this year. Well, we basically took out a layer of management, the operations manager in the store, reinvested that into hours
on the floor of the store, particularly on weekends when consumers shop most, to improve our customer facing hours, improve
our service on weekends, but doing it at a lower cost.
Because we were able to more than pay for the weekend teams by the changes we made in the management structure of the
Company. And it was really going back to the management structure that we had when we were running these levels of volumes
back in the 2002/2003 timeframe before we saw the dramatic run-up in average volumes per store.
So it's continuing to focus on the core, the execution of the business, reminding -- it also allows you -- or you focus on how do
you promote smaller projects around the home, how do you make sure that you're there to meet the consumer's repair and
maintenance needs versus trying to promote a big-ticket item to them let's say or a major project to them.

Okay. And you talked about that consensus on home prices that had kind been the second half 2011, maybe now shifting into
2012. I know as an organization you do a lot of research and talk to a lot of housing experts and economists focused on housing
and home improvement. What's the Lowe's perspective in where we are in the home price cycle, where the bottom is and what
it looks like beyond that?

Yes, I think the largest majority or the biggest part of the magnitude of the decline in home prices is behind us. But for many
homeowners, you still don't have the psychological comfort of knowing it's over. In other words, how much further does it go
and when does it end?
So whether we're down another 5% or so between now and where it bottoms, I think a lot of homeowners, particularly those
who are sitting there trying to figure out how do they stand on the value of their home versus let's say their mortgage, whether
or not they're underwater, those type of things. They're sitting there saying, I don't know how -- when it's going to end and how
much further it's going to go.
So I think there is that psychological inflection point that we may only have another 5% to go with it. Based on the current
economic data I would say that we're probably not going to bottom in the second half of this year; it probably starts to move
into 2012. So I think that delays the willingness for many consumers to take on larger discretionary projects around the home.
So how do we continue to market to them in a manner that we do get the dollars that they are spending today. But I do think
once we get through that bottoming process there is more news coverage about home prices moving in the right direction, I
do think that there's some pent-up up demand out there that consumers will be focused on. And we've got an opportunity to
get some outsized comps on the back end of this when they start pursuing those projects.
But, yes, I think that it's a psychological impact that you're going to need to get a lot of homeowners past before they're willing
to invest in a bigger way.

And from a merchandising perspective can you talk about as the environment has kind of evolved, less discretionary, less
big-ticket and how have you been changing your merchandising strategy to keep up with that?
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Certainly you want to make sure that you offer all the price points within the continuum. In many cases you may have had
consumers wanting to do something around the home but doing it on a more economical basis, so potentially trading down.
A great example would be if they want to upgrade their kitchen they may be trading down to stock cabinets versus special
order cabinets which is at a lower price point. They may be trying to go for something other than a granite countertop. So you're
making sure that you have -- that you're priced right and you have the right offering within the store. And the way that you're
marketing to the consumer, you are marketing short, smaller, less costly projects for them that they can do to upgrade the
home.
But also for those consumers that are willing, that you still have that available there to offer and to be able to meet their need
and trying to do all of this so that the experience is more convenient. So whether that's on the website, whether that is allowing
project specialists to come to their home for stuff like the Project Specialist Exteriors initiative that we rolled out a year ago.
So if you think about someone that needs to replace a roof, replace windows in their homes, siding, those types of things, we
have a project specialist that will actually come to your home and work with you in trying to show you the options that are
available and close the sale there within the home to make it more efficient for the consumer in that process. So those are the
ways that we're trying to attack some of those challenges.

What we've seen broadly in retail is the upper end consumer is doing a whole lot better. I think [Sax] reported a positive 20%
comp this week and some of the low end retailers are struggling. I note your big-ticket business has struggled a little bit. But
are you seeing any of that within your own store where you still have a healthy real nice upper end consumer business but your
low-end consumer is pressured with gas prices and lack of income growth?

Yes, I think it's -- if you look at the demographic in which we play in, obviously homeowners, but on the upper end, yes, those
that have money are still spending. So that really kind of dovetails to my prior response that there are still people that are putting
in new kitchens, there are still people that are upgrading their home.
Those on the upper end from an income standpoint that have money, that they're comfortable about their financial well-being,
those types of things, yes, they're still spending to invest in and upgrade the home. It's those that are more challenged from a
financial standpoint that are sitting here, that gas prices, those type of things, hit hardest and they are sitting here saying they'll
delay those projects.
So yes, we are seeing on the upper end that consumers are still out spending, but that's for us a smaller percentage of the overall
demographic that we serve and so that's where the challenge comes in is how do you continue to meet their needs but yet
market and cater to those individuals that aren't feeling as comfortable financially.

Okay. Can you talk about the 5% discount program you've launched? What was the motivation behind it? How did you test it?
What kind of an increase in sales do you expect to get from it to help it pay for itself and would you expect a competitive
response?
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With regard to the 5% off, you may be aware that we've had a private label credit card for the retail consumer for a number of
years. A lot of the value proposition, if you want to call it that on that card was the fact that in many cases you could come in
and make a purchase if it was over $299 and we had deferred payments associated with that card. So it could be six months, it
could be 12 months no pay, those types of things.
In February of last year the law changed where you're allowed to offer deferred interest but not deferred payments any longer.
So now if a consumer buys a new refrigerator let's say on that card and we're running a 12-month promotion, they have to
make payments every month, but there's no interest if they pay it off within 12 months.
So the fact that you went to having to make a payment versus no payment dramatically impacted the value proposition on
that card and we were seeing declining penetration on the card. When we look across all forms of tender in the store, that retail
private label credit card is our cheapest form of tender, okay. So we wanted to improve the penetration on our retail credit card.
We last year tested 18 months, we still use it some. That works for a short burst for someone that's buying a bigger ticket, over
$299. It is more costly obviously than 12 month free refinancing. So we continue to evaluate what are other ways to look at the
value -- to improve the value proposition.
So we tested several things in market, be it 5% off, be it 3% off, be it 5% plus free financing. And what we saw, one, the response
from the consumer, and two, the affordability was with the offer that we came out with a few months ago which is to provide
the consumer and really kind of get to a loyalty type program by having them come back, generate traffic, generate footsteps,
generate adding more to the ticket was 5% off every day if you put it on the Lowe's credit card, no minimum purchase required.
Or if you're over $299 then you can choose between taking 5% off your purchase or deferred interest on that purchase. So
depending on whether they run six months, 12 months, 18 months, at the time you make your purchase you can choose do I
want 5% off or do I want deferred financing on that purchase. That resonated very well with the consumer. We have seen an
increase in penetration in the card and sales on the card, we're seeing consumers add onto the ticket.
We hope it incentives them. If they're in the middle of a project and they buy some of what they need, that they come back to
Lowe's because they've got that 5% off to come back and complete their project even with no minimum purchase required.
We've seen an increase in the apps -- new apps for the card and a better quality credit score for those new apps which tells us
that you have consumers that had other forms of credit available to them, bankcard or whatever that they may have been
buying on in the past, that they're switching to the Lowe's credit card which is our preferred method for them to purchase on.
And so you're seeing a higher quality credit score on that.
So we're very pleased about it. It will have a slight negative impact to gross margin, but it will have more than offsetting favorable
impact to SG&A because, one, the deferred financing that we had in the past that a consumer may not be choosing today was
a hit to SG&A so you're not having that. And then also the tendership cost that we'll be saving was also a benefit to SG&A.
So I'm very pleased with what we saw. It more than offset the 5% cost in the test. We just started rolling it out in April, we've
still got new card re-issues going out, but it's available to all retail consumers today in the store. And we think it will be a great
win for both the consumer and for us and will help improve our traffic and drive ticket improvement as well.

And I know you had mentioned before that part of the motivation was it's a tool in the toolset to get that customer to drive
past maybe a more convenient competitor. But in the context of that, it is a promotion. And in the context of having a negative
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FINAL TRANSCRIPT
comp gap to your primary competitor in a relatively sluggish overall environment, what are your expectations for promotional
intensity of more broadly?
Because it feels like maybe you've fired a small opening salvo in this in a sector that has been I think admired for a fairly benign
competitive intensity overall. So what would you expect from kind of a competitive response to this program, special buys in
general, intensification of the competitive environment?

Well, the real reason for doing it, as I said, was because the law changed in the value proposition for the card and really trying
to come up with an enhanced value proposition for the consumer to utilize that card. Obviously drive incremental sales and
loyalty. And based on the way that our credit card program is structured, it was a very affordable means for us to be able to
provide that enhanced benefit and offering to the consumer.
Overall if you think about it, during the cycle that we've been through the promotional cadence in the industry has increased.
It makes perfect sense as both -- as you're out there chasing a smaller amount of discretionary dollars as we've gone through
the depth of the cycle, even vendors out there who obviously were trying to sell their product because they needed the volume
to support their fixed cost.
Promotional activity did increase during the cycle. As we're now coming out of that cycle hopefully get to the bottoming in
home prices we would really -- and what Bob Gfeller, our Head of Merchandising, is focused on is how do we kind of start
migrating back to everyday competitive prices and reduce some of that promotional environment, clean it up for the consumer
and have a better every day offering out there for the consumer.
So that's what he's focused on and some of the things that he and his team are working on. And so I don't look at it as a step
up in the promotional activity out there, I really look at it as kind of a first move towards cleaning up an everyday value proposition
for the consumer versus these more limited, deeper promotions that we've had from time to time as we've gone through the
cycle. And as far as competitive response, I can't speak as to what they would do along that, Colin.

Can you talk a little bit more about the transition to a home improvement company from a home improvement retailer?
Specifically what percentage of sales Internet is today, where you think that might be in the future? And it seems like there are
a lot of categories in your sector that aren't really that appropriate. I can't imagine QUIKRETE really being a great product to sell
online. But is it a different competitive set as well? And if you can comment specifically on Amazon and how you view them?

Today online is less than 1% of our overall sales. But it's the fastest-growing channel. Part of it -- the reason it hasn't been a
bigger percentage of that is we haven't had a platform out there that allowed it to grow any faster than that. We've now fixed
that. We continue to add the breadth of products out there.
And to your point, yes, you may not buy and have delivered to your home QUIKRETE, but you may go online and order it and
have it ready to pick up in the store to be more effective or more efficient, do your price shopping online. Because in the future,
or today and going into the future, if you think about it, for many consumers their first impression of Lowe's is going to be their
online experience, that's where they're going to start.
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FINAL TRANSCRIPT
So having a website out there that meets all their needs, is easy to navigate, we're priced right out there, we offer the product
to be sent to you, can be delivered from a local Lowe's store, can be ordered for pick up in the Lowe's store so it's assembled
and efficient and ready for you to go. That's what we want to be able to bring to the consumer.
So as you think about it in the future, with where technology is going, however that consumer chooses to reach out and touch
us, whether it's in-store experience, whether it's the online experience, whether it is having someone come to your home to
design a project, interior of your home, exterior of your home, whether it's through a contact at our contact center.
We want to be able to meet the consumer's needs and be able to do that on a seamless basis, as well as helping them how do
they better manage all the complexities of their home, be that the ongoing repair and maintenance, be it keeping up with their
paint colors, their dimensions in their home, the dimensions in their yard, their extended warranties that they've bought, who
to contact if they needed something.
All those types of services we want to be able to provide to the consumer in the future so that we're there to help minimize the
complexity of maintaining their home and how do we pull all that together and really then move from kind of a one-to-many
to a one-to-one relationship with these consumers -- with consumers on a multi-channel basis.
So the way I think about it is the consumer may wake up in the fall of the year, decide that they're going to plant -- do lawn
restoration, seed and fertilize their lawn. They may just show up at Lowe's, they know we've got the product, they know we're
priced competitively; they know we can meet their needs.
A few weeks later they may wake up and their water heater is out and they want hot water by that evening. They may go on
line, they may call our contact center, arrange for someone to come and install a water heater that day.
Once we get into the future and they feel better about where home prices are moving they may decide to upgrade their kitchen
and want someone to come into the home and help them -- design a new kitchen for them and us be able to seamlessly do
that, be able to go on line and schedule the appointment, those type things. Much greater flexibility on being able to meet
their needs on their terms than what we do today.
Maybe they start a project, in the middle of it -- a do-it-yourself project; in the middle of it they have questions. How can they
go online or contact our contact center and get advice to work them through the rest of that project. So really being there to
meet their needs, to answer their questions anywhere anytime the consumer chooses to engage.
Consumers know that those option should all be available today with the way technology works and that's what we're focused
on trying to deliver in the future to be able to meet their needs. That's why you're going to see a heavy investment in technology
over the next few years to make sure that we've got the customer facing applications to be able to deliver that.

Okay. A question here on how did the vendor community respond to the management changes made over the last several
months? And maybe I'll broaden that question, because I get it a bit. It's a company that has had a lot of tenure and a lot of
senior management that have been in positions.
And I joke that Larry Stone had been a part of the Company since he started in the stores in 1827. But you do have some new
faces and new positions and maybe just broadly talk about that and how you look at your management team today.
12
FINAL TRANSCRIPT

Yes, obviously earlier in the year Nick Canter retired, about 37 years with the Company; Larry retired this week after 42 years
with the Company. A lot of experience, a lot of things that they obviously brought to and delivered to the Company and saw
us through a lot of very challenging times. So we owe a lot to their dedication -- a lot of our success to their dedication and
what they delivered to the Company.
The individuals that we put in place all have great Lowe's experience and non-Lowe's experience as well. If you think about Rick
Damron who's running store operations, he's a 30-year veteran within Lowe's. So he grew up in store operations, went over to
logistics for a period of time to run it and is now back running operations.
If you look at Bob Gfeller, Bob's been with the Company I think about 12 years -- 12 years and then prior to that extensive into
the package goods and other industries. He spent a lot of time in marketing within the Company, now has moved over to run
merchandising. Some very exciting things he's bringing to -- really looking at from the consumer's perspective, what do we
need to change to freshen up the stores, to show a different look and feel to the consumer that will resonate well with them in
the current environment.
I think the team is working together incredibly well. Mike Brown who has now moved over to run IT for us as the Chief Investment
-- our Chief Technology Officer. He has 27 years with the Company, really understands from all his time in store operations
where we need to go from a technology standpoint to make the store employees more effective and more efficient. Where we
were lacking in the past.
And he also brought over instant credibility within the field environment because they know Mike, they know his history of
being able to deliver on our initiatives and they know that Mike will be there and have a voice for the stores as he's looking to
figure out where are we going to invest our capital in order to provide the best benefit to employees, to customers in the future.
So I'm very excited about the management team that I've put in place. I'm very excited about how well they're working together,
how they're attacking some of our challenges on a cross functional basis to deliver a better experience for consumers and also
a better environment and a more efficient environment for our employees.

A financial question here. You own 90% of your stores and your stock is cheap. Would you ever consider borrowing money
secured by real estate to buy back more stock?

Do you want to take that one, Bob?
Bob Hull - Lowe's Companies, Inc. - EVP & CFO

Sure. We do own 89% of the stores and roughly 70% of the land. Generally speaking, selling and leasing back stores actually is
more costly than just issuing straight debt. So by way of example, last November we issued $1 billion of debt in five-year and
10-year maturities at a weighted average interest rate of 2.93%. Actually given where the stock was trading and the dividend
yield we bought back $1 billion worth of stock in that quarter and it was actually cash flow accretive.
So from a lease adjusted debt to EBITDAR standpoint, straight dead is much more affordable than lease adjusted -- than
sale-leaseback and we feel like that's the more prudent way to go. While also affording us the flexibility to maintain our primary
asset which is our stores as we run a retail business.
13
FINAL TRANSCRIPT

Okay. We've got about 2 minutes left and I always end the strategic decisions conference with a strategic question. So on the
theme of long-term outlooks and important decisions, a three-part question, Robert, you'll enjoy this one.

Okay.

First, how will Lowe's be different in five in 10 years? Second, what's a reasonable sustainable growth rate for the Company over
the long run? And third, are there any important strategic decisions that you can see on the horizon over the next five or 10
years? So, one, how are you going to be different? Two, what's a sustainable growth rate and what kind important decisions
could you envision?

I think that how we'll be different in five years is if you think about when we transformed ourselves to a home improvement
company, certainly the in-store experience was something we heavily focused on. How do we differentiate ourselves on that
in-store experience? Because if you think about it, in the past that was the one-stop shopping for a project. The customer would
go to the store to get everything they needed for that project, okay.
Today your one-stop shopping is sitting at home in front of your computer. You can get anything you need available or the
information you need available, you still have to combine it with the in-store experience, you've still got to fulfill it somewhere,
but you can get knowledge, advice, understand what the pricing is and those types of things. That's the whole reason for
transforming the Company.
So I would hope that five years from now you'll still have that great experience of being able to do a project, but you may be
dealing across two or three different channels all with Lowe's in order to be able to get that. You'll look at Lowe's as being the
person that really helps you maintain your home into the future.
So that's something where I think we're trying to take the Company. That's why we want to become a home improvement
company, not giving up on that in-store execution because that will always be important, I believe, in our channel as consumers
are wanting to go and buy product, look at it, kick the tires if you want to call it that, so focus on that.
Looking at sustainable growth rate. I think where we're at from a square footage growth rate; we're about 1.3% or so. So 1% or
so for at least the next several years I think is sustainable, really because we're trying to fill in those key markets where we don't
have a store because that's part of the overall offering that we're trying to bring to market is that in-store experience with
everything else.
And then the final strategic -- long-term strategic decision would be what is there beyond North America? Is there anything
out there beyond North America that makes sense for us? We're not there today, we've looked and know that there are many,
many markets out there where there may be opportunity, but the big box is not the way to go to market today because you
can't get a return on the capital investment that you've got to put into those markets the way that organized retail has to
compete against unorganized retail.
14
FINAL TRANSCRIPT
So is there opportunity out there? What's the format to be able to go after it, what would the timeframe be for that, those types
of things. So those are some of the decisions that in the next five years we'll have to face. It may not be -- in the next five years
we're primarily focused on getting better return of the investments we have in the ground, in the US market and going -- and
continuing to expand in Mexico and Canada where we've already invested the overhead to deploy stores in those markets.
But over the next five years as we think about the US economy improving, are there other opportunities to be able to get a
great return for shareholders with an appropriate investment in other markets, that's what we'll be trying to determine if that
opportunity is out there. We haven't found it today but we're still looking.

Great. With that, Robert, Bob, thank you very much for your time here.

Great, thanks for having us.
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FINAL TRANSCRIPT

LOW - Lowes Companies Inc at Sanford C. Bernstein & Co. Strategic

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CONFERENCE CALL PARTICIPANTS

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

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QUESTIONS AND ANSWERS

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

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Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

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Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

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Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

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Colin McGranahan - Sanford Bernstein - Analyst

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Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Bob Hull - Lowe's Companies, Inc. - EVP & CFO

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Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

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Colin McGranahan - Sanford Bernstein - Analyst

Robert Niblock - Lowe's Companies, Inc. - Chairman & CEO

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