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Text: Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings.
Additionally, we'll be discussing certain non-GAAP financial measures.
A reconciliation of these items to U.S. GAAP can be found in the quarterly earnings section of our investor relations website.
Our results once again beat expectations this quarter, with comparable sales up 5% for the total company and 5.1% for the U.S. on top of over 28% growth last year.
on a two-year basis.
These results capped of outstanding financial results for fiscal 2021 with sales of $96.3 billion, up 6.9% on a comparable basis and earnings per share of $12.04, up 36% on an adjusted basis.
With these outstanding results, 100% of our stores earned a quarterly Winning Together profit-sharing bonus.
This $94 million payout is $24 million above the target payment level.
And in recognition for their hard work throughout the pandemic in 2021, we are awarding an incremental discretionary bonus of $265 million to our frontline associates.
Altogether, we rewarded our frontline associates with bonuses of over $350 million in the fourth quarter.
As Joe will discuss later in the call, financial support of our frontline associates is consistent with our commitment to being an employer of choice in the retail industry.
Our Total Home strategy continues to gain momentum, as we grow our share of wallet with both Pro and DIY as they increasingly rely on Lowe's as a one-stop solution for all their project needs.
In looking at our results this quarter, I'm particularly encouraged that our growth was broad based and balanced across product categories, across both DIY and Pro, both online and in-store.
In Pro, we delivered growth of 23% and 54% on a two-year basis.
And we are building on our momentum with the Pro with the launch of our new Pro loyalty program, MVPs Pro Rewards and Partnership Program.
We redesigned our loyalty program based on feedback from our Pro customers who expressed a desire for a business partnership rather than a series of stand-alone transactions.
Our data shows that Pros who leverage our loyalty and credit offering spend 300% more than Pros not engaged in these programs.
Our Pro business is off to a strong start this year, and we're excited about the national launch of our MVPs Pro loyalty program.
I look forward to providing updates on this critical initiative throughout the year.
Now turning to our DIY customer, where we delivered growth on top of exceptionally strong demand last year.
Later in the call, Bill will discuss how we continue to grow our DIY market share by elevating our private brands product assortments in our home decor category.
On Lowes.com, sales grew 11.5% on top of 121% growth in the fourth quarter of 2020, which represents a two-year comp of 147% and nearly 11% sales penetration.
Our intuitive online shopping experience and expanded on-trend assortments are resonating with our customers.
And while we're pleased that our online sales have more than doubled over the past two years, we still have tremendous growth opportunity in front of us.
And as part of our efforts to enhance our omnichannel experience, we are expanding our same-day and next-day fulfillment capabilities.
With that in mind, we're actively piloting several gig network solutions, including partnering with Instacart in several markets with same-day DIY home delivery.
And building on the success we gained in the Florida and Ohio Valley regions with our market delivery strategy, we completed the conversion of our third geographic area, the Carolina region, during the fourth quarter.
By way of reminder, in the market-based delivery model, big and bulky products flow from our supply chain directly to customers' homes.
This replaces the highly inefficient store delivery model where each store acts as its own distribution and transportation center for these products.
As we continue to expand our market-based delivery model, we're freeing up space in our 10,000 square foot store back rooms, which on average are considerably larger than our competition.
And we are testing out different options to drive both greater in-store fulfillment and expanded delivery alternatives for both Pro and DIY customers.
In a few minutes, Bill will discuss our continued investments in online as we create a best-in-class integrated omnichannel shopping experience.
During the quarter, operating margin expanded approximately 115 basis points, leading to diluted earnings per share of $1.78, which is a 34% increase as compared to adjusted diluted earnings per share in the prior year.
These results reflect our disciplined focus on driving operating leverage through our perpetual productivity improvement initiatives or PPI, as well as the ongoing benefits of our new pricing strategies.
Joe and Dave will discuss these initiatives in further detail later in the call.
The Canadian leadership team continues to drive productivity through proven technology and processes that have delivered great results in the U.S. Before I close, I'd like to share my perspective on the home improvement market, as well as our opportunity to continue to win share.
Our outlook for the home improvement industry remains strong, supported by a very healthy consumer balance sheet, especially for homeowners and continuing home price appreciation.
Persistent solid demand for homes despite an uptick in interest rates is also expected to support residential investment.
In fact, we're encouraged by the strengthening millennial household formation trends that will support home buying in the coming years.
Other trends remain favorable, including baby boomers' increasing preference to-age-in-place.
And with the extension of remote work for some employees, we're expecting a permanent step-up in repair and maintenance cycle.
are over 40 years old and will continue to require investments for upkeep and approximately two-thirds of Lowe's annual sales are generated from repair and maintenance activity.
Therefore, we're encouraged that the macro environment for home improvement remains very supportive.
As we close the year, we continue to give back to the communities where we operate, with total donations of $100 million in 2021 well over our pre-pandemic levels.
And we're pleased that our efforts to enhance our brand reputation while supporting our associates and driving long-term value for our shareholders and was recently recognized by Fortune Magazine as they named Lowe's the No.
1 most admired specialty retailer for the second year in a row.
This is the first time in our history that we received this recognition in back-to-back years.
In closing, I'd like to extend my heartfelt appreciation to our frontline associates.
As I travel the country every week visiting stores, I continue to be struck by their commitment to supporting our communities while providing excellent customer service.
In the fourth quarter, U.S. comparable sales increased 5.1% and 35.2% on a two-year basis.
We delivered positive comps in all three merchandising divisions in the quarter with growth across Pro and DIY customers.
Growth was well balanced with 12 of 15 merchandising departments comping positive and was broad-based on a two-year basis with all 15 departments up more than 18% in that time frame.
Beginning with our Home Decor merchandising division, flooring and appliances delivered the strongest comps in the quarter.
In flooring, vinyl flooring once again led the way as we continue to see consumer preference shifting toward this affordable and stylish solution.
Lowe's already offers a wide selection of vinyl flooring products, including several Pergo WetProtect options.
And this year, we look forward to extending our own trusted STAINMASTER brand with its high performance characteristics and lifetime stain-resistant warranty across a full range of flooring products, including laminate, tile and vinyl.
Within appliances, sales of ranges, cooktops, along with dishwashers were the strongest in the quarter.
As we continue to extend our private brand offering, we recently launched Origin 21 across several product categories in home decor.
This is our new modern brand designed for the trend-setting millennial consumer, while our ever popular Allen + Roth brand is tailored to the more traditional style.
Now, turning to our performance in hardlines.
The team delivered an exceptional holiday season.
Customers were active early and shopped often in our trim and tree category, which drove excellent sell-through in this holiday category.
Seasonal, outdoor living and lawn and garden delivered standout performances, as customers continue to enhance their outdoor living spaces with new grills, patio heaters, fire pits, as well as live goods for the yards and garden.
With the home serving as a center for entertainment, our customers are making the most of their homes, inside and out.
We continue to build on our No.
1 position in outdoor power equipment with further share gains in battery outdoor power equipment, as we drove over 37% growth in this area for the quarter and over 118% on a two-year basis.
Both DIY and Pro customers enjoy the convenience, reliability and the power of our innovative battery-powered products available in the EGO, Kobalt, CRAFTSMAN and Skill brands.
In this spring, we are thrilled to expand our exclusive lineup of EGO battery products with their new 52-inch zero-turn riding mower with features that include a fabricated deck and power to mow up to four acres on a single charge.
Also new for EGO is the industry's most powerful handheld battery-powered blower with power that will outperform the leading gas blower with 765 cubic feet per minute of blowing capacity.
These new products will complement our existing lineup and assortments from powerful brands, such as John Deere, Honda, Husqvarna, Aaron's and CRAFTSMAN.
This spring, we will launch our new Origin 21 patio collections, as well as our new style selection replacement cushions.
These cushions are made with 100% recycled plastic bottles and they are fade-resistant, UV-protected as well as easy to clean.
Now turning to the building products division.
Our comps were very strong driven by broad-based balanced growth across lumber, electrical, rough plumbing, millwork and building materials.
We are pleased with the continued momentum we are building with the Pro as we work to expand our brand and product offerings to meet their project needs.
New this year will be a full range of CertainTeed roofing, insulation and gypsum products.
As a leading manufacturer of building products for both residential and commercial construction, CertainTeed is an important strategic partner that we are proud to add to Lowe's as we continue to enhance our Pro offering in the building materials category.
We also continue to build out our Pro power tool program with the introduction of the new DEWALT power stack battery technology, which is the smallest and most energy-densed battery pack on the market.
These new products and new brands are strong additions to our Pro brand arsenal, which already includes other great brands like Bosch, Eaton, Estwing, FastenMaster, FLEX, GRK, ITW, LESCO, Little Giant, Lufkin, Mansfield, Marshalltown, Metabo, SharkBite, Simpson Strong-Tie, SPAX, Spyder and Werner.
As Marvin mentioned, we delivered sales growth of 11.5% in the quarter and 147% on a two-year basis in the fourth quarter.
We are focused on further enhancing our omnichannel capabilities in 2022 across three key areas: expanding our online assortment, enhancing the user experience and improving fulfillment.
First, we are expanding our Lowes.com assortment to meet our customers' design and lifestyle needs.
For example, within Lowe's Livable Home products, we will offer a range of products to help our customers adapt to their changing mobility needs.
At the same time, we will continue to enhance the user experience with continued upgrades to the visualization and configuration tools, like kitchen visualizer and measure your space.
Finally, as we continue to improve our fulfillment capabilities, our customers can now track their appliance delivery in real time, and we will soon be leveraging enhanced technology to further streamline the buy online, pick-up in store experience for our customers through an improved store execution process.
As we look ahead to spring, we are well positioned to capitalize on what we expect to be another strong spring season.
Consistent with our approach over the past year, we have worked hard to land our spring product early.
Through an expansion of our network of coastal holding facilities, we are better able to manage the flow of imported product enabling us to quickly flow product where needed as spring arrives across the country.
As one of the largest importers in the U.S., we continue to leverage our scale and carrier relationships to secure capacity and work to mitigate and manage the impact of cost increases across our supply chain.
Before I close, I'd like to extend my appreciation to our merchants and inventory and supply chain teams, along with our vendors for their hard work and continued support.
In recognition of their outstanding efforts, we awarded the discretionary year-end bonus of $6,000 for assistant store managers, $1,000 for department supervisors, $800 for full-time hourly associates and $400 for part-time hourly associates.
As Marvin mentioned, the combination of Winning Together and this discretionary year-end bonus will result in a payout of over $350 million for our frontline associates this quarter.
As someone who started his career in home improvement as an hourly associate, I understand how meaningful this type of financial recognition is for our hourly associates.
At Lowe's, our people are truly our most valuable asset.
When it comes to recruiting and retaining top talent, we strive to be an employer of choice.
From the moment that a candidate applies for a position at Lowe's, we are committed to creating a positive impression.
We have invested in leading technology that accelerates the hiring process, so that we are processing applications in a matter of minutes rather than the weeks that the manual process required as recently as last year.
We also continue to improve our onboarding process so that our new hires can quickly come up to speed, leveraging the technology and product knowledge that is readily available to them on their handheld mobile devices via the Lowe's University application.
As I mentioned on our last call, we are also leveraging our new Lowe's University in-store training labs to provide the ongoing training that our associates need to build their skills and confidence so they can continue to progress in their career.
Over the last three years, we have created valuable career opportunities for our associates with the incremental 10,000 department supervisor roles and 1,600 ASM positions that we have added.
Since 2018, we have also invested well over $2 billion in incremental wage and equity programs for our frontline associates to ensure that we continue to offer a strong competitive wage and benefit package to our associates.
I'm really pleased to report that our investments to position Lowe's as an employer of choice are paying off.
Heading into spring, we anticipate being even better positioned than last year from a hiring perspective.
And we are also confident that we will continue to drive productivity in our operations through our perpetual productivity improvement or PPI initiatives.
As a reminder, this is not a single win.
It is a series of improvements that are scaling across our stores over time.
In fact, we are working on over 20 different PPI initiatives in our store operations this year.
To highlight just a few key PPI initiatives, we have just launched a new store inventory management system, or SIMs across all of our stores.
This platform gives store associates real-time visibility to inventory in their store.
This includes inventory in the home bay location as well as product in the top stock and cap, off-shelf and back stock room.
This new system will eliminate the countless nonproductive hours associates have been spending looking for product.
I'm also excited about our continuing efforts to eliminate the ancient green screen technology with the launch of our simplified user interface to other selling stations throughout the store.
First introduced at our front-end registers, we are beginning to implement this new technology across the sales floor.
With this new platform, we are accelerating the associate training process and facilitating cross-training in other departments.
This new technology will free up our associates to focus on providing excellent customer service while reducing customer wait time.
While these two initiatives are just a few of the PPI deliverables planned for this year, we expect that these two initiatives alone will drive $100 million in productivity this year.
Looking forward, we will continue to leverage technology to reduce manual tasking for our associates while also enabling them to deliver better service to our Pro and DIY customers.
As Marvin indicated, the consumer backdrop remains favorable, as we are confident that home improvement demand will remain strong despite an uptick in interest rates.
Historically, when interest rates have risen against a strong economic backdrop, the home improvement sector has delivered solid growth.
During these periods, housing affordability was supported by growth in jobs and personal income, which offset the impact of higher borrowing costs.
Today, housing affordability remains above the pre-pandemic average.
The market is expecting moderately higher interest rates in the coming quarters.
But keep in mind, rates are increasing off historic lows.
Home equity has increased due to rising home prices and consumer savings are about $2.5 trillion higher than pre-pandemic levels, positioning consumers for continued residential investments.
Given all these factors, we are expecting another strong year of demand in the home improvement market.
Now, let me turn to capital allocation.
We remain committed to be best-in-class when it comes to our ability to create value for our shareholders through our strong capital allocation program.
In 2021, we generated $8 billion in free cash flow driven by outstanding operating results, and we returned $15.1 billion to our shareholders through both share repurchases and dividends.
During the fourth quarter, we paid $551 million in dividends and repurchased approximately 16 million shares for $4 billion.
This brought the total to $13.1 billion in share repurchases for the year, ahead of our expectations of $12 billion.
This reflected better-than-expected financial performance and our commitment to return excess cash to shareholders.
Capital expenditures were $597 million in the quarter and nearly $1.9 billion for the full year as we continue to invest in strategic initiatives to both drive growth and enhance returns across the business.
Our balance sheet remains very healthy.
Adjusted debt-to-EBITDAR stands at 1.98 times, well below our long-term leverage target of 2.75 times.
As I mentioned at our December 15 investor update, we are planning to return to our leverage target over the next two years, driven by our shareholder-focused capital allocation strategy.
With that, I'd like to turn to the income statement.
In the fourth quarter, we reported diluted earnings per share of $1.78, an increase of 34% compared to adjusted diluted earnings per share last year.
This increase reflected better-than-expected sales growth, improved gross margin rate and favorable SG&A leverage, driven by our productivity initiatives.
In the quarter, sales were $21.3 billion, reflecting a comparable sales increase of 5%.
Comparable average ticket increased 9.4% and with higher ticket sales in appliances, flooring and seasonal and outdoor living and 90 basis points of commodity inflation in both lumber and copper.
In the quarter, comp transaction count decreased 4.4%, but on a two-year basis, comp transactions increased 8.9%.
We continue to gain traction with our Total Home strategy as reflected in Pro growth of 23% and positive DIY comps on top of extremely strong DIY growth last year.
On Lowes.com, sales increased 11.5% in the quarter.
U.S. comp sales increased 5.1% in the fourth quarter and 35.2% on a two-year basis.
We saw acceleration in both our Pro and our DIY comp sales trends from our third quarter performance.
By month, our U.S. comparable sales were up 8.1% in November, up 7.4% in December and down 1.3% in January.
Recall that we cycled over government stimulus in late December and early January of last year.
comp growth on a two-year basis from 2019 to 2021, November sales increased 33.8%, December increased 37.4% and January increased 33.9%.
Gross margin was 32.9% of sales in the fourth quarter, up 115 basis points from last year.
Product margin rate increased 65 basis points, driven by our disciplined pricing and cost management strategies.
Improvements in both shrink and credit revenue benefited gross margin by 50 basis points and 25 basis points, respectively.
These benefits were partially offset by roughly 30 basis points of pressure related to higher transportation and importation costs, as well as the expansion of our supply chain network.
I'd like to spend just a moment addressing the recent increase in lumber prices.
We are confident that we have an effective strategy to carefully manage our inventory and rapidly adjust pricing.
Although we are planning for our lumber margins to be compressed when prices decline, we are confident in our outlook for gross margin rate to be up slightly in 2022.
We levered 15 basis points versus LY, driven by higher sales and our relentless focus on productivity.
This quarter, we incurred $50 million of COVID-related expenses as compared to $165 million of COVID-related expenses last year.
This reduction in these expenses generated 60 basis points of SG&A leverage.
Additionally, we incurred $150 million of expenses related to the U.S. stores reset in the fourth quarter of last year.
As we did not incur any material expenses related to this project in '21, this generated approximately 75 basis points of SG&A leverage versus LY.
These benefits were pressured by 100 basis points related to the discretionary year-end bonus of $215 million for our store-based frontline associates.
Operating profit was over $1.8 billion in the quarter, an increase of 21% versus LY.
Operating margin of 8.7% for the quarter increased 115 basis points over last year, largely driven by higher gross margin rate, as well as favorable SG&A leverage.
The effective tax rate was 25.3% in the quarter, which is in line with prior year.
At year-end, inventory was $17.6 billion, up $920 million from Q3 and in line with seasonal trends and consistent with our effort to land spring products earlier.
Driven by both improved operating performance and a disciplined capital allocation strategy, we delivered return on invested capital of 35% for the year, up 760 basis points from 2020.
Now, turning to our 2022 financial outlook.
We closed out 2021 ahead of the expectations that we presented at our December 15 investor update.
comparable sales trends are in line with our fourth quarter performance on a two-year basis.
And based on the continued momentum that we are seeing in Pro sales, as well as higher expectations for commodity inflation, we are raising our sales outlook for 2022 to a range of between $97 billion to $99 billion for the year, representing comparable sales of down 1% to up 1%.
Now, please keep in mind that our outlook assumes that lumber pricing will return to a more normalized level in the second half of the year.
We continue to expect Pro to outpace DIY in 2022.
Keep in mind that we are cycling over an estimated 300 basis points of stimulus in the first quarter.
Also, as a reminder, our 2022 sales outlook includes a 53rd week, which equates to approximately $1 billion to $1.5 billion in sales.
We now expect gross margin rate in 2022 to be up slightly as compared to the prior year.
With higher projected sales, improving gross margin outlook and continued execution of our PPI initiatives, we are raising our outlook for operating margin to a range of 12.8% to 13% from a prior range of 12.5% to 12.8% for the full year.
We are also raising our outlook for diluted earnings per share to a range of $13.10 to $13.60 from a prior range of $12.25 to $13.
In 2022, we continue to expect capital expenditures of approximately $2 billion and share repurchases of approximately $12 billion.
Finally, we are raising our outlook for return on invested capital to above 36% from our original outlook of approximately 35%.
In closing, we are off to a great start in 2022.
We have significant runway ahead of us to both grow our market share, expand operating margins and deliver meaningful long-term shareholder value.

user
q4 sales $21.3 billion versus $20.3 billion.
q4 earnings per share $1.78 excluding items.
q4 earnings per share $1.78.
raises fiscal 2022 outlook.
sees fy total sales of $97 billion to $99 billion, including 53rd week.
sees fy comparable sales expected to range from a decline of 1% to an increase of 1%.
sees fy capital expenditures of approximately $2 billion.
sees fy diluted earnings per share of $13.10 to $13.60.

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