Lowes strategy overview


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Lowes strategy overview

  1. 1. Forward Looking Statement Comments made by management within this presentation may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, about our financial condition, results of operations, cash flows, plans, objectives and future performance. Statements containing words such as "expects," "plans," "strategy," "projects," "believes," "opportunity," "anticipates," "desires," and similar expressions are intended to highlight or indicate "forward-looking statements." Although management believes that the expectations, opinions, projections, and comments reflected in our forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. Any statements that are made during the conference speak only as of the date on which they are made, and the Company expressly disclaims any obligation to update them. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results expressed or implied by our forward-looking statements including, but not limited to changes in general economic conditions such as continued high rates of unemployment interest rate and currencyto, changes in general economic conditions, such as continued high rates of unemployment, interest rate and currency fluctuations, higher fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability and increasing regulation of consumer credit and mortgage financing, inflation or deflation of commodity prices, and other factors which can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, such as the psychological effect of falling home prices, and in the level of repairs, remodeling, and additions to existing homes, as well as a general reduction inp , p , g, g , g commercial building activity; (ii) secure, develop, and implement new technologies and processes designed to enhance our efficiency and competitiveness; (iii) attract, train, and retain highly-qualified associates; (iv) locate, secure, and successfully develop new sites for store development particularly in major metropolitan markets; (v) respond to fluctuations in the prices and availability of services, supplies, and products; (vi) respond to the growth and impact of competition; (vii) address legislative and regulatory developments; and (viii) respond to unanticipated weather conditions that could adversely affect sales. In addition, we could experience additional impairment losses if the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values. Additional information regarding the risks and uncertainties which may affect our business operations and financial performance can be found in our filings with the Securities and Exchange Commission (which are available through the Company's web site).
  2. 2. Key Takeaways We are creating a more differentiated brand experience over the long-term. We are keenly focused on improving our core business to compete more effectively in the near-term. We are developing deeper, more meaningful relationships with customers to earn greater customer loyalty. We continue to evaluate opportunities in new and existing international markets. W ll iti d t d li t li th i d fit bilitWe are well-positioned to deliver top-line growth, increased profitability and strong cash flows, enabling us to make necessary investments while returning significant cash to shareholders.
  3. 3. Seven Stages of Home Improvement entngagemeotionalEn Inspiration Planning Get Start Make Finish Enjoyment Emo Inspiration Planning Get Supplies Start Make Progress Finish Enjoyment We have an opportunity to engage customers across the seven stages of h i t ti diff ti t d b d ihome improvement, creating a more differentiated brand experience so we remain top of mind and garner a greater share of wallet.
  4. 4. PROMISE EXECUTION POSSIBILITIES RETAIL RELEVANCE BETTERBETTER EXPERIENCES SUPPORT SEAMLESS VALUE SIMPLE We have chosen to deliver better experiences by pulling together the bestWe have chosen to deliver better experiences by pulling together the best combination of possibilities, support and value.
  5. 5. Multi-year Transformation 2011 2012 2013 IT Infrastructure Retail Relevance Seamless & SimpleSeamless & Simple
  6. 6. Retail Relevance Product Differentiation Value Improvement Additional Selling Hours
  7. 7. Value ImprovementValue Improvement ConsumerConsumer InsightsInsights ResetReset LineLineVendorVendor LineLine DesignDesign VendorVendor NegotiationsNegotiations Value Improvement enhances the core by delivering improved line designs and an appropriate balance of product cost and retail pricing.
  8. 8. Additional Selling Hours 150~150hours per week We have an opportunity to improve close rates by adding ~150 hours per week to the staffing model for nearly two-thirds of our stores.
  9. 9. Seamless & Simple Flexible Fulfillment for Lowes.com MyLowe’s Enhanced Sales Culture MyLowe’s Central Production Office Central Dispatch Office
  10. 10. International Development Canada • ~US$40 billion home improvement market and ~70% home ownership • 34 stores at end of fiscal 2012 with opportunity for at least 100• 34 stores at end of fiscal 2012 with opportunity for at least 100 stores Mexico • ~US$25 billion home improvement market and over 70% homeUS$25 billion home improvement market and over 70% home ownership • 5 stores at end of fiscal 2012 with significant opportunity for expansion Australia • ~US$40 billion home improvement market and ~70% home ownership • One third stake in joint venture with Woolworth’s• One-third stake in joint venture with Woolworth s • 23 stores branded Masters with opportunity for total of ~150 stores We must take a prudent approach to entering new markets carefully studyingWe must take a prudent approach to entering new markets, carefully studying the regulatory risk, their cultures, and historical and forecasted home improvement opportunity.
  11. 11. Growth Drivers SALES & PROFITABILITY GROWTHGROWTH IMPROVING MACRO INITIATIVES IMPROVING MACRO Our initiatives together with modest growth in the home improvement marketOur initiatives together with modest growth in the home improvement market are expected to increase sales and improve profitability.
  12. 12. Return on Invested Capital ROIC  Sales growth of 4.9% annually Operating Profitability ~400 bps of ROIC growth Asset Productivity ~200 bps of ROIC growth  Sales per sq ft grows to $292  EBIT reaches 9.7% of sales  Earnings growth of 18.0% annually  Inventory turnover grows to 4.4x  Asset turnover improves to 1.8x We are focused on driving ROIC to nearly 17% by 2015 through a disciplined capital allocation strategy and operational excellence allowing us to growcapital allocation strategy and operational excellence, allowing us to grow profits faster than sales and sales faster than assets.
  13. 13. Investment Thesis
  14. 14. NAICS 444 Total M k tMarket Lowe’s is roughly 17% of NAICS 444, the Census Bureau’s measurement of sales from retailers classified as Building Materials, Garden Equipment andg , q p Supplies. The Total Market for our products and services is roughly twice as large as NAICS 444.
  15. 15. Sales  per Square Foot Sales  per Square Foot  ProfitabilityProfitability 35.0% 40.0%$300 $350 2015 Target: ~$300 10.0% 15.0% 20.0% 25.0% 30.0% $100 $150 $200 $250 0.0% 5.0% GM % SG&A % EBIT % $0 $50 2015 EBIT Target: 9.7% EPSEPS ROICROIC $2.50 18.0%2015 Target: $3.44 2015 Target: ~17% $1.00 $1.50 $2.00 8.0% 10.0% 12.0% 14.0% 16.0% $0.00 $0.50 0.0% 2.0% 4.0% 6.0%
  16. 16. Inventory TurnsInventory Turns LeaseLease‐‐Adjusted Debt to EBITDARAdjusted Debt to EBITDAR 2.00 2.25 Current Target: 2.25x 4.60 4.80 2015 Target: 4.4x 0.75 1.00 1.25 1.50 1.75 3.60 3.80 4.00 4.20 4.40 0.00 0.25 0.50 3.00 3.20 3.40 4,500 3,000 Capital Expenditures ($ millions)Capital Expenditures ($ millions) Free Cash Flow ($ millions)Free Cash Flow ($ millions) Current Annual Average Target: $1 2B 2015 Target $4 2B 2 000 2,500 3,000 3,500 4,000 1,500 2,000 2,500 Current Annual Average Target: $1.2B 2015 Target: $4.2B 0 500 1,000 1,500 2,000 0 500 1,000
  17. 17. We define EBIT Margin as earnings before interest and taxes as a percentage of sales. EBIT Margin (Operating Margin) Lowe’s believes that EBIT Margin is a useful measure to describe the Company’s operating profit. EBITDAR We define EBITDAR as earnings before interest, taxes, depreciation, amortization, share-based payments and rent. EBITDAR Lease Adjusted Debt We define Lease Adjusted Debt as long-term debt, current maturities of long-term debt, short-term debt and eight times the last four quarter’s rent. We believe eight times rent is a reasonable industry standard estimate of the economic value of our leased assets. Lease Adjusted Debt Lowe’s believes the ratio of Lease Adjusted Debt to EBITDAR is a useful supplemental measure as it provides an indication of the results generated by the Company and its level of indebtedness in relation to its capital structure by reflecting cash flow that could be used to repay debtbe used to repay debt.
  18. 18. ROIC (Return on Invested Capital)ROIC (Return on Invested Capital) We define ROIC as trailing four quarters’ Net Operating Profit after Tax (NOPAT) divided by the average of ending debt and equity for the last five quarters. L ’ b li ROIC i f l f h ff ti l th C We define Free Cash Flo as net cash pro ided b operating acti ities less propert Free Cash Flow Lowe’s believes ROIC is a useful measure of how effectively the Company uses capital to generate profits. We define Free Cash Flow as net cash provided by operating activities less property acquired. Lowe’s believes Free Cash Flow is a useful measure to describe the Company’s financial performance and measures our ability to generate additional cash from ourfinancial performance and measures our ability to generate additional cash from our business operations. Non-GAAP financial measures should be considered in addition to, not as a substitute for total debt net income or other measures of financial performance prepared infor, total debt, net income or other measures of financial performance prepared in accordance with GAAP. Lowe’s method of determining the foregoing non-GAAP financial measures may differ from other companies and accordingly such non GAAP financial measures may not befrom other companies and accordingly such non-GAAP financial measures may not be comparable to measures used by other companies.
  19. 19. • Tiffany Mason Vice President Finance & Treas rerVice President Finance & Treasurer 704.758.2033 tiffany.l.mason@lowes.com Ji Sh• Jim Shaw Director, Investor Relations 704.758.3579 jim.b.shaw@lowes.com • Investor Relations Website• Investor Relations Website www.lowes.com/investor