Operator: Good morning, everyone, and welcome to the Lowe's Companies' Fourth 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 they 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 be using 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 Chief Executive Officer; Mr. Greg Bridgeford, Chief Customer Officer; and Mr. 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, I'll provide some highlights of the quarter as well as our view on the economic landscape in 2013.
We delivered solid results in the fourth quarter. Comparable store sales were positive 1.9%, driven by an increase in comp average ticket. We delivered these results despite tough prior year comparisons from both unseasonably warm weather, and a more promotional holiday season.
In fact, 10 of 14 product categories had positive comps for the quarter. We had strength in core categories like, Plumbing and Hardware, as well as holiday items like tool gift sets and holiday decor. We had consistent performance across the U.S. operating divisions and continue to see strength in our products and services business, which outperformed the Company average.
Gross margin expanded five basis points in the fourth quarter, driven by a number of factors that Bob will discuss, including continued benefits from our value improvement program. We continue to effectively control operating expenses in the quarter and deliver earnings per share of $0.26 for the quarter and $1.69 for the year.
Delivering on our commitment to return excess cash to shareholders, in the fourth quarter we repurchased $750 million or 21.3 million shares of stock and paid $180 million in dividends. For the year, we repurchased $4.35 billion or 146 million shares of stock and paid $704 million in dividends.
Our solid fourth quarter results are a testament to several factors; first, team success in driving more balanced performance across the quarter; second, the team responded well to the demand created in the Northeast as a result of recovery efforts in the wake of Superstorm Sandy; and finally, the momentum we're with value improvement through better line designs, better in-stock positions and simplified deal structures, as well as the momentum from our product differentiation program. As we've discussed, think of value improvement as the inner circle enhancing the core and product differentiation as the outer circle driving excitement and flexibility in our stores.
Incorporating this quarter's solid results 92% of our U.S. stores qualified for a service and sales employee incentive or SSEI payment during 2012, making this a record payout year. As a reminder SSEI is our profit sharing program for hourly associates.
I'd like to thank our more than 257,000 employees in the field and our corporate office for their perseverance in a year significant change and for their continued dedication to serving customers.
As we head into fiscal 2013, the team continues to focus on improving our core business through cross functional collaboration and consistent execution. We will complete the initial round of value improvement resets in 2013 and will add labor hours to our stores as well as incremental inventory all with a focus on improving our close rate.
From an economic perspective, lower GDP growth is forecasted for 2013. And while lower home improvement industry growth is also forecasted, it is expected to keep pace with GDP.
Rebuilding in the wake of Superstorm Sandy will contribute to 2013 home improvement industry growth, although the impact will fade during the year. Still, the fundamentals underlying drivers of industry growth, mainly job gains and stable to growing housing, should support a strengthening growth trajectory for the industry. Yet credit conditions remain tight for borrowers and mortgage delinquencies remain elevated which will restrain the speed at which housing and therefore the home improvement industry can grow.
Those macroeconomic data points are reading through to our fourth quarter consumer sentiment survey. According to the survey, home value perception ratings are the strongest they have been in four years and we're continuing to see positive trends emerging in other home improvement affinity metrics. However, there are still concerns. Survey participants that are delaying home improvement projects cited lack of income growth and a reluctance to use financing as the primary drivers influencing their decision.
The macroeconomic transition from recovery to sustainable expansion together with our initiatives and improving operational collaboration give us confidence in our business outlook for 2013. Bob will share those details in a few minutes.
Thanks again for your interest. I'll now turn it over to Greg.
Gregory M. Bridgeford - Chief Customer Officer: Thanks Robert. Good morning, everyone. I'd like to dive a little deeper into our quarterly results, update you on the progress of the value improvement focus area, and discuss our priorities for 2013.
In previous quarters I emphasized our focus on driving improved results over the short and mid-term. So I am pleased that we delivered solid, more balanced comp sales performance across the quarter despite a difficult comparison to prior year.
This quarter's results were driven by enhanced promotional planning and execution, our response to increased demand from Superstorm Sandy, continued benefit from product differentiation, and further benefit from value improvement.
We started with a disciplined promotional strategy as we offer targeted values on specific items to drive sales and profitability throughout the quarter rather than blanket promotions across entire categories. Targeted promotions drove above average performances in Cabinets & countertops and in core home improvement categories such as Tools & Outdoor Power Equipment.
Sandy also benefited the quarter. As we discussed on our third quarter call, most major storms have four distinct phases; first, preparation; second, impact; third, clean-up; and fourth, recovery. The cleanup from Sandy began soon after impacted the end of the third quarter and continued well into the fourth quarter. Recovery began in the fourth quarter and will extend into 2013. While the storm initially impacted the operating hours of over 140 stores, approximately 27 stores have seen a prolonged surge in demand as they meet the recovery needs of the most severely impacted communities.
We estimate that sales associated with Sandy recovery efforts aided fourth quarter comps by approximately 70 basis points. While rebuilding from Sandy benefited comps, our comp performance for the quarter was well balanced across the country. Performance was particularly strong in the Gulf regions from Texas to Florida and in the Northwest as we responded well to increasing demand in those recovering markets.
We also benefited from our product differentiation resets which were rolled to approximately 1,250 of our stores last year. Through product differentiation, we have revised our end-cap locations to highlight innovative new products and significant values, and to showcase particular private and national brands. We've also revamped promotional spaces to better promote seasonally relevant high-value items to drive sales. These endcap and promotional spaces continue to outperform the other areas of the store and these stores outperform the remaining U.S. stores.
For example, we used the promotional spaces to showcase storage products after the holidays, and to display cleaning products, driving strong comps in those lines. We'll be rolling this concept to proximally 160 more stores in 2013.
While product differentiation is being operationalized, the value improvement program remains our most immediate priority. Through this initiative, we are improving our line designs, making them more relevant to each of the markets we serve, easier for consumers to shop and more efficient for our associates to maintain. This includes reducing duplication of features and functions within price points and reinvesting inventory in key high velocity items customers expect us to have in stock, including job lot quantities needed to complete large projects.
We are also working to lower unit costs by negotiating lower first cost and reducing funds set aside by vendors for promotional and marketing support. We use line reviews in resets to achieve these goals.
During line reviews, we use consumer insights to determine what products to carry and which vendors to buy from. Then, we bring the new assortments and presentations to life in our stores through the reset process. We've not scheduled our line reviews to frontload their benefit, instead, we consider a number of factors in determining the sequence of line reviews, including the seasonality of the product. The time elapsed since a given product line was last reviewed, whether the associated merchant teams and vendors are already involved in other line reviews and the interdependencies between the lines.
For instance, we need to determine what faucet finishes we will sell, prior to determining our fashion hardware finishes. We are making progress. At the end of the fiscal year, we had completed line reviews representing approximately 80% of our business and resets representing over 30% of our business. We expect to have finished the initial round of resets in 2013. We continue to adjust the pace of these resets to ensure that customers' experience is not negatively impacted that we continue to offer sufficient inventory by store and by set and that we minimize the margin impact of clearance and the friction experienced by store operators.
The benefits we are seeing from these resets give us confidence that this is the right approach. As I mentioned last quarter, the financial benefit of value improvement is greatest once we are past clearance and have begun selling only new assortments. For product lines in that stage, we recorded average mid-single-digit comps and over 100 basis points improvement in gross margin rate and customer surveys indicate that the perception of our product availability has improved over the fourth quarter of last year.
In fact, in the fourth quarter, we recorded strong Seasonal Living performance which was driven by holiday to core sales as we used our clustering tools to better tailor assortments to individual stores. Likewise, a number of the product lines within the Plumbing category from air filters to toilets have completed their value improvement resets and we are seeing strong comp performance in this category.
Value improvement will remain the primary focus of the organization in 2013. Even as we are working through our first round of product line reviews and resets, the value improvement process changes are being operationalized. We believe we will continue to find ways to improve product lines and likewise close rate by making them more relevant for each store location and offering better features, quality and style relative to price, by putting more inventory behind the highest volume SKUs and ultimately increasing in-store service level targets across entire product lines, as they are reset.
We've also had the opportunity to improve close rate through additional labor hours. In 2013, we will add approximately 150 hours per week to the staffing model for nearly two-thirds of our stores. Previously, weekday labor hours were heavily skewed towards tasking, and we've identified an opportunity to better serve customers and close more sales during the peak weekday hours by increasing the assistance available in the aisles. We've already started hiring these permanent part-time employees. We believe the increased labor hours and higher in stock service levels will help us capitalize on the traffic that we have in our stores today, resulting in close rate improvement.
Finally, I'm pleased to welcome Mike Jones to Lowe's. Mike has joined the team as our Chief Merchandising Officer. We took our time and recruited a very talented executive to our organization. Mike has extensive consumer products experience with both Husqvarna and GE, where he managed categories that are relevant to the home improvement business, including appliances, outdoor power equipment and lighting. He brings a proven ability to uncover value at all points in the supply chain, from raw materials to finished product, additional value that can enhance profitability for both Lowe's and our vendors.
His experience in leading businesses, as well as identifying and pursuing market opportunities make him an outstanding fit for this position. Mike will be responsible for the merchandising and offering all of Lowe's U.S. selling channels, as well as all global sourcing activities. He will work closely with leaders of customer experience design, marketing, operations and logistics to develop and deliver differentiating and seamless customer experiences. Bob Gfeller's experienced design organization will use consumer insights to identify opportunities, and Mike's team will develop specific merchandising programs to meet those opportunities with a particular focus on the breadth and depth of our assortments needed to support customer experiences. While Mike will no doubt put his stamp on our merchandising organization and processes, he is committed to the goals of our value improvement initiative and to fully operationalize it as we complete the first round of resets in 2013. He will work to optimize our merchandising processes, apply more rigor and process management and improve effectiveness. I'm personally excited about Mike's arrival and I look forward to the progress our merchandising organization will make under his leadership.
Thank you for interest in Lowe's and I'll now turn it over to Bob.
Robert F. Hull, Jr. - CFO: Thanks Greg. Good morning, everyone. Sales for the fourth quarter were $11 billion which represents a 5% decrease from last year's fourth quarter. In Q4, total transaction count decreased by 6.9% while total average ticket increased 2.1% to $62.37. The sales and customer account declines were driven by comparisons to 2011's 53rd week, partially offset by comp sales and new stores.
As mentioned on the third quarter call, 2011's 53rd week year impacts the fourth quarter in two with; first, the extra week in 2011's fourth quarter contributed $766 million in sales. This negatively impacted sales growth by 6.7%. Second, last year's extra week caused a calendar week shift this year. We estimate that this negative impact to Q4 2012 was $119 million or 1.1%. On a comparable 13-week basis, sales would be up 2.8% for the quarter.
Comp sales were 1.9% for the quarter, which is driven by continued progress (in furnishes), Lumber inflation and the net impact of weather.
We estimate that our value improvement and product differentiation initiatives drove approximately 100 basis points of comp for the quarter. Also, our proprietary credit value proposition, which offers customers a choice of 5% off every day or promotional financing positively impacted Q4 comps by 40 basis points. Lumber inflation aided comps by approximately 50 basis points.
Now to weather, in estimating the impact of weather, we looked at two items. First, we reviewed actual temperature and precipitation versus historical averages. Second, we attempted to isolate the impact of storm activity. As you might suspect, this is not an exact science. Last year, we noted that the favorable weather aided Q4 2011 comps by 150 basis points, and providing our outlook for this year's fourth quarter, we had assumed normal weather. However, weather this year, was slightly warmer than normal alleviating some of the headwind from last year, resulting in an estimated 40 basis point comp drag.
Moving onto storm impacts, as Greg mentioned, we estimate that sales related to rebuilding and markets impacted by Sandy positively impacted Q4 comps by approximately 70 basis points. We also continued to see modest positive impact from Isaac. These were offset slightly by Hurricane Irene comparisons in the last year's numbers, for net, estimated favorable storm impact of 45 basis points.
In total, the net impact of weather had a modest positive impact on Q4 comps. For the quarter, comp average ticket increased 2.1%, while comp transactions decreased one-tenth of a percent. The growth in average ticket was driven by both Lumber inflation and strength in Cabinets & Countertops.
Looking at monthly trends, comps were flat in November and 3% for December and January.
With regard to product categories, the categories that performed above average in the fourth quarter included; Lumber, Cabinets & Countertops, Seasonal Living, Plumbing, Tools & Outdoor Power Equipment, and Home Fashions, Storage & Cleaning. Lawn & Garden and Fashion Electrical performed at approximately the overall corporate average. For the year, total sales were $50.5 billion, an increase of 0.6%. On a comparable 52-week basis, sales were up 2.2%. Comps were 1.4% for the year. The balance of the sales increase came from new stores. For 2012, comp average ticket increased 0.9% and comp transactions increased 0.5%.
For the year, the categories that performed above average included Lumber, Tools & Outdoor Equipment, Paint, Seasonal Living, Cabinets & Countertops, and Home Fashions, Storage & Cleaning. Fashion Electrical, Hardware, Flooring and Plumbing performed at approximately the overall corporate average.
Gross margin for the fourth quarter was 34.27% of sales, an increase of 5 basis points over last year's fourth quarter. Value improvement helped gross margin by approximately 30 basis points in the quarter. As we begin to sell through new product lines post reset, we will continue to see benefit in gross margin. However, the value improvement benefit was almost completely offset by the following items. Our proprietary credit value proposition negatively impacted gross margin by 15 basis points as the penetration of proprietary credit increased roughly 160 basis points over last year's fourth quarter to 24.9% of sales. In addition, we had modest negative impacts from mxi of products sold and inventory shrink. For the year, gross margin of 34.3% represents the decrease of 26 basis points from fiscal 2011.
SG&A for Q4 was 25.43% of sales which leveraged 45 basis points. The SG&A leverage was driven by comparisons to last year's charges for impairment and discontinued projects as well as proprietary credit and risk insurance. In the last year's fourth quarter, we incurred $53 million in expenses for store closings, asset impairment, and discontinued projects. This compares to $8 million for asset impairment and discontinued project this year resulting in 39 basis points of expense leverage for the quarter.
We experienced 34 basis points of leverage associated with our proprietary credit program. This leverage was driven by portfolio income; the result of continued growth in the program.
Risk insurance leveraged 28 basis points due to lower than expected expenses for general liability and workers' compensation programs. These items were slightly offset by deleverage in incentive compensation and advertising expenses, as well as comparisons to last year's 14-week fiscal fourth quarter.
Incentive compensation deleveraged 33 basis points related to two store programs, our sales and earnings performance was better than expected resulting in improved attainment levels for the store management bonus and service and sales employee incentive programs.
Advertising deleveraged 13 basis points due to the timing and the Lowes.ca in Canada. Also, we experienced approximately 20 basis points of SG&A deleverage as a result of Q4 2011's extra week.
For the year, SG&A was 24.24% of sales and leveraged 84 basis points versus 2011.
Depreciation expense was $412 million for the quarter, which was 3.73% of sales and deleveraged 44 basis points. The majority of this leverage was driven by comparisons to last year's 14-week fiscal fourth quarter and the week shift impact this year.
In addition, we continued to invest in information technology which has a shorter depreciable life relative to our average asset base.
Earnings before interest and taxes for the quarter increased 6 basis points to 5.11% of sales. For the year EBIT of 7.05% represents an increase of 52 basis points over 2011. Interest expense at $109 billion for the quarter deleveraged 11 basis points as a percentage of sales. The increase in interest was attributable to an almost $1.4 billion increase in total debt relative to last year. For the quarter, total expenses were 30.15% of sales and deleveraged 10 basis points.
Pre-tax earnings for the quarter were 4.12% of sales. The effective tax rate for the quarter was 36.7% versus 33.6% for Q4 last year. For the year, the effective tax rate was 37.6% compared to 36.7% for 2011. Last year's lower tax rate was a result of federal and state tax credits.
Q4 net earnings of $288 million decreased 11% versus last year. Earnings per share of $0.26 for the fourth quarter were flat to last year. We estimate that last year's extra week and the lower tax rate aided Q4 2011 by approximately $0.05 and $0.01 per share respectively. These items were offset somewhat by a net $0.02 per share impact associated with charges for asset impairments and discontinued projects. Also, we estimate that the week shift negatively impacted 2012's fourth quarter by approximately $0.02 per share. For fiscal 2012, earnings per share were $1.69, up 18% versus 2011.
Now, to a few items in the balance sheet, starting with assets. Cash and cash equivalents balance at the end of the quarter was $541 million. Our ending inventory balance of $8.6 billion was up $245 million or 2.9% over last year. The increase was driven primarily by the timing of receipt of spring orders. Inventory turnover calculated by taking a trailing four quarters cost of sales divided by average inventory for the last five quarters was 3.74, an increase of 2 basis points over Q4 2011. Return on assets, determined using a trailing four quarters earnings divided by average assets for the last five quarters increased 31 basis points to 5.68%.
Moving now to liability section of the balance sheet. We ended the quarter with accounts payable of $4.7 billion, which is up 7% to last year. The increase in accounts payable relates to the timing of purchases. At the end of the fourth quarter, our lease adjusted debt-to-EBITDA was 2.17 times. Return on invested capital measured using a trailing four quarters earnings plus tax adjusted interest, divided by average debt and equity for last five quarters, increased 62 basis points for the quarter to 9.29%.
Now looking at the statement of cash flows, for the year, cash flow from operations was almost $3.8 billion. Cash used in property acquired was, $1.2 billion, resulting in a free cash flow of almost $2.6 billion. For the quarter, we've repurchased 21.3 million shares at an average price of $35.19 for a total repurchase amount of $750 million. For the year, we repurchased almost 146 million shares, at an average price of $29.86 for a total of $4.35 billion. I'm pleased to announce that our Board has approved a new $5 billion share repurchase authorization, while simultaneously terminating the prior program. The new authorization has no expiration date.
Looking ahead, I'd like to address several of the items detailed in Lowe's business outlook. In 2013, we expected the total sales increase of approximately 4% driven by a comp sales increase of 3.5% and the opening of approximately 10 stores. For the fiscal year, we are anticipating an EBIT increase of approximately 60 basis points.
Let me share three cost pressures in our 2013 plan, which together cause approximately 30 basis points of SG&A deleverage, roughly 10 basis points each. First, as you heard from Greg, we're investing additional payroll hours in the majority of our stores which causes payroll expense deleverage. Second, the volume of reset activity associated with value improvement is higher in 2013 relative to 2012 driving higher reset expense. Lastly, we experienced some variability in 2012 related to our self-insurance liability for risk insurance. We haven't planned for similar favorability in 2013. As a result, we expect that the majority of the improvement in EBIT will come from gross margin.
The effective tax rate is expected to 38.1% which is roughly 0.5% higher than 2012, resulting in an earnings per share drag of approximately $0.01. For the year, we expect earnings per share of $2.05, which represents an increase of 21% over 2012. We are forecasting cash flows from operations to approximately $4.2 billion. Our capital plan for 2013 is approximately $1.2 billion. This results in estimated free cash flows of $3 billion for 2013 which represents an 18% increase over 2012.
Our guidance assumes approximately $4 billion in share repurchases for 2013, spread evenly across the four quarters. Before taking your questions, I wanted to cover one administrative item. We recently reviewed the timing of our earnings releases which included benchmarking with the retail peer group, the time between period and release date as well as the day of the week. As a result of this review, we've made a decision to move our release date from Monday, to Wednesday of the same week. Therefore, our first quarter results will be released on Wednesday, May 22 and the rest of the year will follow suit.
Regina, we're now ready for questions.
Operator: Eric Bosshard, Cleveland Research.
Eric Bosshard - Cleveland Research: On gross margin, can you talk a little bit about – it seems like you've got a pretty bullish expectation for gross margin progress since '13. Curious in terms of what's driving that and then also gross margin was, I think, a bit of source of upside in 3Q that didn't continue in 4Q. Can you give us a little bit more color within that please?
Robert F. Hull, Jr. - CFO: Sure. Eric, I'll start and let Greg chime in. So, we did experience good progress in Q4 in gross margin relative to value improvement. As I said in my comments, it helped by 30 basis points. As we talked about the progress in the resets, Greg mentioned just over 30% done through end of 2012, which means we've got the other 70% or so to take place in 2013. That really gives us some confidence in gross margin expansion in 2013, is the benefit associated with the remaining resets in the value improvement program.
Gregory M. Bridgeford - Chief Customer Officer: Eric, I'll add to Bob's comments. As he mentioned the – we expect the impact of VIP to increase sequentially as the quarters roll out to 2013. Also, we are – and we've seen results in the fourth quarter, we're seeing a much better balance in our promotional activities. So, as we discussed in the first half of last year, we had some weakness in our attachment rate, particularly in the Lawn & Garden part of the season, and we're addressing that this year and we have solid plans in place. And then when you think about the impact of this – what I call the center of the store and being able to get a really good traction with some of the categories that carry high margin such as rough plumbing, rough electrical, hardware, we're increasing – as I discussed, we're increasing both the devotion of hours to those categories in the first quarter and we're also increasing the investment of inventory to increase service levels of all these categories. So, expect that to be a positive impact. On the fourth quarter performance, as Bob mentioned, we experienced a 14 basis point impact from the – impact of val prop. We also saw a high single-digit impact from the mix shift because you did see strong performance in categories like Lumber and Cabinets & Countertops which are below corporate average. So, when you look at that and you recognize we were 5 basis points over the last year, I think that's the bulk of the impacts in the fourth quarter.
Eric Bosshard - Cleveland Research: And if I could just follow-up on the balance of the resets, what have you learned in the first 30% that as you get to the next 70% that is evolving within the reset effort?
Gregory M. Bridgeford - Chief Customer Officer: I think, Eric, what we've learned is to be able to manage the inbound inventory much, much more tighter on a per store basis. So, weekly our general merchandising managers sit down with Rick Damron, SVPs of Operations and they literally make the call on every reset that is triggered to rollout per store, looking at all the indicators of whether the on hand inventory – how many weeks of on hand inventory we have. What are the sales rate for this category per store? What's the readiness of the signage package? What's the readiness of the inventory backup flows? What's the readiness of the display factors that we have going into this reset. What's the readiness of the labor that's necessary to address this reset? All indicators go, we go green. It's been really, really critical that we do that in order to maintain a reasonable cadence of clearance, and especially, and I can't emphasize this enough, especially to be able to execute on a strong customer experience, so there's not holes, because we waited too long to flow in the inventory or because there's not a glut in the aisles of clearance inventory because we flushed in too much too soon. So this cadence issue is really critical to us and that's what you see – that's what we've learnt from the resets we've done so far.
Operator: Alan Rifkin, Barclays Capital.
Alan Rifkin - Barclays Capital: Just a follow-up on the line review in reset. So, for the group of stores and for the merchandise categories that have undergone both the reviews and the resets, would you maybe be able to comment on the comp performance in that category relative to the 100 basis points overall comp that you saw from the implementation of the value impairment program?
Gregory M. Bridgeford - Chief Customer Officer: So Alan, I indicated that we had mid-single-digit comp performance in those categories that have been reset to-date, and that is what we're experiencing on the sales side. Then the margin basis point impact was approximately 100 basis points.
Alan Rifkin - Barclays Capital: And a follow-up, if I may, for Robert. Since obviously the macro backdrop is going to be so important in 2013 as the housing environment hopefully continues to improve. When you're looking at your store portfolio and you're looking at some of the markets that entered the housing crisis first and have subsequently come out and rebounded earlier than other parts of the country, what type of performance on a regional basis are you seeing for those specific markets that have come out of the crisis earlier than others?
Robert A. Niblock - Chairman, President and CEO: As we've talked, Alan, certainly in Florida some of the Gulf Coast areas, the coastal areas that were so hot and got hit before the downturn. We're seeing good performance on the West Coast, some of the areas out there that we're seeing obviously good performance. If you look at areas that have really been overheated prior to the downturn, some of the areas in Arizona, Las Vegas, in the Nevada market, those areas, you're starting to see them come back and then performing at the average and as we've said, I think it was in comments, good performance out of Florida and continued progress into California markets.
Operator: Dennis McGill, Zelman & Associates.
Dennis McGill - Zelman & Associates: I was just curious if you could maybe walk through as you set the plan for '13, how you built up to the 3.5% comp and then maybe talk about where you see upside downside both macro as well as Company-specific?
Robert F. Hull, Jr. - CFO: So, a couple perspectives on the 3.5% comp. First, ticket and traffic, we think it's going to be relatively balanced ticket and traffic growth. We think the items that Greg described relating to investments in inventory and payroll will help with closed rates which will help drive transactions. Also, as it relates to ticket growth, as you mentioned, housing is improving, so that you stimulate more demand, hopefully more discretionary spending, as well as some continued benefit from Lumber inflation should drive ticket. The other perspective I'll give you is regarding our initiatives. So, they helped Q4 comps by 100 basis points. As we described, more resets occurring in 2013 relative to 2012. As Greg said, another 160 stores get their product differentiation treatment. We're seeing sequential progress in sales from those End Cap programs. So we think we've got strength and continued progress with internal initiatives, plus whatever benefit we get from macro and housing.
Dennis McGill - Zelman & Associates: If you had to bucket those pieces between internal and macro of the 200 basis point improvement, is there a way to think about the split?
Robert F. Hull, Jr. - CFO: So, if we think about the 3.5% comp, I would say that a healthy 3% or so that's coming from internal.
Dennis McGill - Zelman & Associates: And then a separate question, can you just update us on where the Australian joint venture investment sits today both from a cash outflow perspective as well as how you think the P&L will be impacted as you move into '13 and beyond?
Robert A. Niblock - Chairman, President and CEO: Yeah, I'll just make a few overview comments, Dennis, and I'll let Bob get into some of the numbers. The 25 stores open in Australia, we're pleased with the performance of those store openings. Their year-end is June. I think add about another six stores that'll open between now and the end of June, so, in less than two years 31 stores opened in the joint venture. We feel really good about the way that the joint venture is ramping, the quality of the people that they're able to get in, in hiring the stores that experience that they're delivering, and then they're continuing to learn and make necessary adjustments along the way, and that is one thing I'm really impressed with is how quickly as they're adjusting to the market and making the necessary changes. So, I feel good about it. It's another couple of years before they'll get into profitable stage, but I'll let Bob take you through some of the detail numbers on that.
Robert F. Hull, Jr. - CFO: Sure. We've got through the end of 2012 just over $0.5 billion invested in the joint venture. 2012, it was a modest earnings drag. We expect, as Robert said, migrate to a breakeven in 2015, 2016, so it'll be a modest earnings drag in 2013 as well.
Operator: Brian Nagel, Oppenheimer.
Brian Nagel - Oppenheimer & Co.: First, a question on the buybacks. So, the new $5 billion buyback you articulated in today's press release, you indicated that – so, there's no – I guess, no end date, but you expect to do (like) two years, so how should we think about – I don't want to sound too nitpicky here, but you're doing $5 billion over two years, that would suggest a slowdown from how – the pace at which you've been buying back stock lately. I mean, how should we think about that?
Gregory M. Bridgeford - Chief Customer Officer: So, in the outlook section of our comments, Brian, I said, we expect about $4 billion for the year, with roughly $1 billion per quarter, which is in line with what we signaled at the Analyst Conference in December. The two-year commentary in the press release really just suggests it's not only going to be done in 2013.
Brian Nagel - Oppenheimer & Co.: And then the second question, again, not sounding nitpicky here, but when we look into the remerchandising and the resets, I mean, it sounds to me, given most of the commentary you made at the Analyst Day, it seems like the progress has slowed down a bit. I think initially planned to have all the line reviews completed by the end of '12 and now you said, 80%. So, first, the question is, is that right and then if so, is there a reason behind that and how should we think about the progress, the timing of the progress through 2013?
Gregory M. Bridgeford - Chief Customer Officer: Brian, this is Greg Bridgeford. I would say that it has slowed down, but purposefully. It's a conscious decision we made and here are the priorities and you can fault me for not forecasting accurately enough the probabilities that this might happen. But here's our priorities. First is the customer experience in the aisles and as I've described, the cadence will really determine what that feels that when the customer encounters a newly reset category or a category in reset in each of our stores. Second is the employee labor cost and distraction. If we don't execute a reset thoroughly and we call it, one touch resets, and believe me, we weren't at first, then we cause a lot of rework and then probability is that in the crunch of the spring season at Lowe's that rework won't get done. So, you'll have an incomplete reset and we don't want to cause that kind of additional potential from the labor standpoint or the distraction that it causes in the story. And then third is the financial impact. If we don't manage the cadence properly, believe me, we'll be generating much more clearance which will show up obviously in margin degradation across the quarters. So, those are our three priorities and that's what drives the cadencing of these resets. As we've made progress, obviously, we're being I think more realistic by saying, the majority of the remaining resets will obviously be done in the earlier part of 2013, but they will flow into the second half of 2013. But again, we're making management decisions, as I mentioned, with Eric's questions weekly to make sure that we create that good experience with the customer. We don't incur additional costs and that we manage the financial impact the financial impact of the clearance items in the categories.
Operator: David Strasser, Janney Capital Markets.
David Strasser - Janney Montgomery Scott: You guys talked about some the strengths, things that drove the benefits of the business in the fourth quarter. We were just kind of going back and looking over the last couple of quarters and it seems in the fourth quarter in each of the last – go back to 2010, you saw an acceleration of sales on a two-year basis and on a one-year basis, it was the strongest sales quarter also at the expense of generally the most gross margin degradation. It seems to be a trend for the last couple of years. I am just trying to get a sense seasonally if anything is changing in your business that's the better sales productivity potentially at the expense of the margin side?
Robert A. Niblock - Chairman, President and CEO: Dave, this is Robert. I'll start and then let the others jump in. I think what you've highlighted once you go back over the prior couple of years, yeah, we saw a good performance that you saw with margin degradation because actually we got into particularly last year very heavy promotional cadence with deep promotions that didn't pan out the way that we had hoped, not enough add on sales that drove some top line but it gave away too much margin. And that's what I've in my comments that we're going up against that heavier promotional activity from the prior year and also, if you remember, it was really favorable at the end of the quarter last year on seasonably mild weather going up against that. Both of things being able to expand the margin including the other offsets that Bob took you through and deliver a nice comp on top of last year's strong comp. That's what gives us confident. So, we accomplish those comps in a more balanced way, more balanced across the quarter, more balanced across the product categories, and more balanced across the country than what we've seen in the past.
Gregory M. Bridgeford - Chief Customer Officer: David, I'll add to Robert's remarks and set a little color. In fiscal '11, we drove a lot of transactions at Black Friday and this past fourth quarter, we consciously said, we want a more balanced approach and while we gave up some sales on Black Friday, we drove a better customer experience, we drove a much more balanced mix and we drove attachment rates in the fourth quarter, which was our goal.
David Strasser - Janney Montgomery Scott: Just on a side note to – I think you mentioned at some point during the call, I think Robert, you did that – the Pro business was better than the consumer business. I just want to make sure I heard that right, and if so, is there a distinction between big pro, versus like the smaller pro? So, just trying to hear…
Robert A. Niblock - Chairman, President and CEO: I did mention that Dave and we have for quite a while seen our Pro business doing well and running ahead of the overall Company average. Rick Damron is in the room. So, I'll let him talk a little bit about what he's seeing as far as trends in the large versus smaller Pro business.
Rick D. Damron - COO: Yes, David. This is Rick. As you know, we relaunched our ProServices initiative mid-year really with the focus on continuing to build relationship across all of our relevant commercial categories and customers. What we saw in Q4 was we saw solid growth in ticket and transaction. We had positive increases in both. As it relates to all transaction buckets, we saw increases across all transaction buckets, 50 transactions entered $50, all the way up to transactions over $10,000, also positive increases throughout the quarter. So, we feel good that we're accomplishing a balance between managing the small maintenance and repair customer, the small local repair business, as well as the larger commercial accounts across the country, so we feel good about the balanced approach we're seeing across our ProServices.
David Strasser - Janney Montgomery Scott: I'll just follow-up with this question; then I'll let somebody else. But of all of those improvements, was one of them a much bigger delta than any of the others so that we're thinking into 2013 of those different (indiscernible) buckets?
Rick D. Damron - COO: Yeah, David, I would say, what we're seeing is the actions we've taken over the last several quarters really beginning to pay off. The commercial val prop is really helping us drive increased visits, increased transactions on an ongoing basis by providing great loyalty to the customer. And then as part of Northlake, I think what we're also seeing is Northlake is providing us the ability to showcase commercial product differently than we've done in the past. On our End Caps, you'll see value messaging to the commercial customer in the Pro business. You'll see us bring contract to pack quantities which are discounts on certain quantities of products out to the front of the customer and display those better and message those better throughout the stores. So, I think you're seeing a lot of that really come back. The good thing we're also seeing that makes me feel good about 2013 is we're seeing that across the country. It's not being driven by one geographical area or one set of stores, whether that be (rural) metro, we're seeing a good balance across all of the store base.
Operator: Peter Benedict, Robert Baird.
Peter Benedict - Robert W. Baird & Co.: Couple of questions. First just, Bob, on the operating margin leverage sensitivity to comps, you laid out which got to this year? The three-year view that you laid out in December assumes a little bit more than that, not a lot, but just trying to understand as we look out past '13, what are the levers in '14 and '15 that basically will create better flow-through in terms of profitability per point at comp. I mean you talked about some of the insurance stuff, but just wondering if there's any other buckets there we should be thinking about.
Robert F. Hull, Jr. - CFO: Sure. So, generally, we talk in terms of each point of comp drives 20 basis points of EBIT. That largely plays out in 2013 (asking) some of those cost pressures. The reset is temporary. We'll be pass-through resets in 2013. As we think beyond 2013, continue to make progress on the top line, which you'll allow us to leverage all of our operating costs, more so in '14 and '15 than we'll see in 2013. We'll make continued progress against gross margin. As Greg described, the cadence of the line reviews is really is about quality versus quantity. So we're trying to make sure the experience is right, which is going to help us drive both sales and margin productivity. And then obviously, as sales grow, we'll get depreciation leverage as well. So really it's across all three of those lines that'll help drive operating margin expansion beyond 2015.
Peter Benedict - Robert W. Baird & Co.: Then just secondly, on the Affordable Care Act, can you talk about how it's impacting your hiring decisions this year if at all? I mean, I know you guys are hiring more people, but is it part-time, full-time decision? And then, maybe any thoughts on what the impact could be as we get out into '14 and '15?
Robert F. Hull, Jr. - CFO: Yes. So, at this point, it really hasn't impacted our hiring decisions. As we think about our businesses that complement our full time employees, that complete part time, as we announced recently a complement of seasonal workforce as we enter our peak selling season, which is spring. So, no real impact on thoughts of hiring. We continue to evaluate the rules as they are written and implications to our business. But ultimately, as we think about the individual mandate, it's the perceived value of the state and federal exchanges that are going to drive some level of participation rates in our own program and that's going to determine the cost. So, that is yet to be determined because those exchanges have yet to be set up. So, we're continuing to monitor both the development of exchanges as well as additional rules that are written.
Operator: Laura Champine, Canaccord.
Laura Champine - Canaccord Genuity: My question is really about what Mike Jones is focusing on, a few initiatives with the store resets accelerating in the middle of the line reviews. What are his primary focuses and what does he bring to the table on the merchandising front?
Gregory M. Bridgeford - Chief Customer Officer: Laura, this is Greg Bridgeford. Mike has been here all two weeks, but he actually has stepped right in and is helping to define and to fine tune the value improvement plan. Mike brings with him years of experience in process management from companies that do it the best. What he is doing is, is stepping in and taking a hard look at all the processes associated with the value improvement program and pretty more rigor and more disciplined to those programs. I expect – he would love to accelerate it if at all possible and it will be done with all the priorities addressed that I mentioned earlier. It will be a quality experience for our customer. It will create leverage on the operating cost line and certainly the financial impact to clearance will be well managed. But that's his, I suppose, first focus area and Mike's making progress as we speak. He brings the consumer products background from years at Husqvarna and at General Electric and he has both appliances and lighting experience at GE and outer power experience Husqvarna. Mike brings with him a fascination with how value is created all the way from supplier to the customers' hands, and a deep knowledge of that. When I said that look forward to him creating a more value for both Lowe's and for our vendor partners, I mean that. And I think that having been through the line review process with Husqvarna, I think Mike knows it very well from an interesting perspective, and I think that as this critical part of our business moves ahead, I think that he will bring a very balanced and a very disciplined perspective to driving value for the entire supply chain.
Operator: Mike Baker, Deutsche Bank.
Michael Baker - Deutsche Bank: First, just wanted a quick clarification. When you talk about line review areas going through the – flowing through the reset, does that include getting through all the clearance product? In other words, is the clean number 30% of your product that has gone fully through this process including the clearance?
Robert A. Niblock - Chairman, President and CEO: Michael, on the whole, the 30% of product, it still has – there will be clearance inventory in the system as the product is reset. When we say 30%, we mean 30% with inventory stabilized. In other words, there is not a – the percentage of product is being sold at market is much less than – is less than or in some cases much less than 50% of the product being sold. So, we're looking to eliminate the friction or noise out of this system so we understand that these are – this is sales of new inventory. So, we're looking for the tail of the clearance, but I want to tell you there is not clearance inventory in some of these 30 reset categories.
Michael Baker - Deutsche Bank: Sure, fair enough. So, is that 30% that seeing that mid-single-digit left?
Gregory M. Bridgeford - Chief Customer Officer: Yeah, and that's what – and we're seeing it's on a balanced inventory level.
Michael Baker - Deutsche Bank: Couple other questions; just thinking about the cadence of comps through the year, you said gross margins should getter better through the year as you go through this (line of) view. Should we expect that within your 3.5% guidance, the same type of cadence for the comps?
Gregory M. Bridgeford - Chief Customer Officer: I think, Mike, if you take a look at the two-year comp, 1.4% in 2012 and a 3.5% gives you roughly 5% to your comp. I think about that as you model out the four quarters. Roughly speaking, that will be close.
Michael Baker - Deutsche Bank: Fair enough. One last one, I understand the SG&A impact of adding more labor, but I guess theoretically my view is if you're adding this labor you expect it to drive a sales benefit such that you leverage the incremental cost. So, I'm just trying to understand how that math works, I guess?
Gregory M. Bridgeford - Chief Customer Officer: Mike, it's a good question. It's a matter of timing. So, as you think about hiring people and training and getting them knowledgeable about the products we sell and the services we offer, they're not productive day one, so it's a timing issue relative to the SG&A spend coming in advance of sales associated with those hires.
Michael Baker - Deutsche Bank: So, in general, though the idea is that that program will leverage itself?
Robert F. Hull, Jr. - CFO: Yeah, as Rick talked to you in our Analyst Conference, by 2015 we expect to continue to make improvements in sales per hour.
Operator: Kate McShane, Citi Research.
Kate McShane - Citi Research: Wondered if I could go back to the subject of the increase in labor hours, and wondered if you could just walk us through quickly how you came to decision that this was needed especially in light of you being through the line reviews and the value improvement now for a while. And do you expect since you're hiring new employees, do you expect any lag time from seeing a benefit from these employees being on the floor?
Rick D. Damron - COO: Kate, this is Rick. I'll take the first part of that and let anyone jump in on second piece. Two years ago, we launched our weekend teams, which was initiative that we saw as we began to review our transactions on the weekend versus our sales performance. And we felt we had an opportunity from a labor perspective to add more labor over that weekend period and really impact our close rate. What we saw was that performance really take hold. We did see our initial hypothesis proved out. And as we continue to look across the week, what we began to see was from a traffic perspective, a balance through the week and the weekend. But what we began to notice was that the close rate on the weekends improved much greater than the close rates through the week. So, with that identification we looked and we saw that opportunity. As we continue to look at the stores, the next component of that was – and the reason we're going to roughly two-thirds of our stores is where do we see that opportunity. This was not a one-size-fits-all exercise, we want to make sure that we invested that labor where we saw the opportunity based upon transactions or based on traffic to really be able to leverage that to the top lie sales benefit. So, that's the reason, you're seeing us be very selective in the stores in the markets we're putting those hours in, where we have that opportunity. As Bob said just a few minutes ago, the labor we expect that with any new employee for there to be an acclamation process as they learn Lowe's, as they learn the products, as we get them trained and onboarded and we expect as we go throughout the year for those hours to become much more productive and not be a degradation to our sales per hour that we've had outlaid in December.
Robert A. Niblock - Chairman, President and CEO: Thanks for your continued interest in Lowe's. We look forward to speaking with you again when we report our first quarter 2013 results on Wednesday, May 22. Have a great day.
Operator: Ladies and gentlemen, this does conclude today's call. Thank you all for joining and you may now disconnect.