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Lowe's Companies Inc LOW
Q2 2012 Earnings Call Transcript

Transcript Call Date 08/20/2012

Operator: Good morning, everyone, and welcome to the Lowe's Companies' Second Quarter 2012 Earnings Conference Call. This call is being recorded. Statements made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Management's expectations and opinions reflected in those statements are subject to risks and the Company can give no assurance that it will prove to be correct. Those risks are described in the Company's earnings release and in its filings with the Securities and Exchange Commission.

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

Hosting today's conference will be Mr. Robert Niblock, Chairman, President and CEO; Mr. Greg Bridgeford, Chief Customer Officer; and Bob Hull, Chief Financial Officer.

I will now turn the program over to Mr. Niblock for opening remarks. Please go ahead, Sir.

Robert A. Niblock - Chairman, President and CEO: Good morning, and thanks for your interest in Lowe's. Following my remarks, Greg Bridgeford will review our operational performance and Bob Hull will review our financial results in detail. But first, let me provide a summary of our second quarter performance.

Comparable store sales for the second quarter were negative 0.4% with an 0.8% decline in comp transactions and a 0.4% increase in comp average ticket. The comparable for our U.S. business was negative 0.2%. Ahead of the quarter, we expected comps to be within the 1% to 3% range, and while we fell short, our performance improved sequentially each month of the quarter and 9 of 14 product categories ended the quarter with a positive comp. In fact, certain of those product categories generated comps above 1%. The most significant comp pressure came from building materials, lawn and garden and millwork, and Greg will discuss those categories in a few minutes.

We also continue to see strength in our commercial business, which outperformed the Company average in the second quarter. As a reminder, our commercial business is roughly 25% of our sales. While second quarter gross margin contracted 56 basis points, we continue to improve sequentially while working to strike the right balance relative to promotions. We effectively controlled operating expenses in the quarter, delivering earnings per share of $0.64, which included approximately $0.01 of severance and other costs associated with our voluntary separation program.

Delivering on our commitment to return excess cash to shareholders, in the second quarter we repurchased $1 billion or 36.8 million shares of stock and paid $166 million in dividends.

Before I turn the call over to Greg, I'd like to address two additional topics.

First, my level of satisfaction with the progress on our strategic initiatives and second, our nonbinding proposal to acquire RONA. In the U.S., we were focused on two large bodies of work this year, value improvement and product differentiation. Together, they will enable us to compete more effectively in the current macroeconomic environment. These focus areas is built on Lowe's core strengths and are expected to deliver comp transaction growth and better gross margins by localizing market assortments, driving excitement in our stores to better display techniques and managing an appropriate balance of product cost and retail pricing.

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