Lowe's Companies, Inc. (LOW) Earnings Call Transcript & Summary

Good afternoon. Thank you for attending the Credit Suisse-hosted fireside chat with Lowe's management conference call. [Operator Instructions] I would now like to pass the conference over to your host, Seth Sigman. Thank you. You may proceed, Mr. Sigman.

All right. Thank you. Good afternoon, everybody. This is Seth Sigman, the hardline/broadline analyst at Credit Suisse. I'd like to thank everybody for joining today. It's my pleasure to host this call with Lowe's senior management, and we obviously appreciate them joining during such a dynamic time in their business. With me is Marvin Ellison, President and CEO; Dave Denton, EVP, CFO; and Heather Hollander, Director -- Senior Director of Investor Relations. Just from our side, we've been constructive on the Lowe's story for some time. We've seen incredible opportunity here to improve productivity on the top line and within the cost structure over time, great signs of progress over the last 12 months. The company seems to be managing very well through this choppy period, but, of course, we're all trying to figure out what happens now and how the team is going to be planning for different scenarios. So in terms of format today, I'll guide the conversation, try to make this as efficient as possible. So if you do have questions, feel free to e-mail me directly. I am going to turn it over to Marvin for some opening remarks, and then we'll jump into the questions. Marvin?

Okay. And good afternoon, everyone. It's a pleasure to speak with you today. And of course, Seth, thank you for hosting us today. And secondly, I'd like to thank everyone on the line for your interest in Lowe's. Most importantly, I'd like to thank our associates for their tremendous actions to support our customers and communities across both the U.S. and Canada during these unprecedented times. I'm incredibly proud of our company and the role we're playing serving the community as an essential retailer. So I'd like to make a few opening comments regarding the steps that we're taking to respond to the COVID-19 crisis as well as our commitment to executing our retail fundamental strategy. So first regarding COVID-19. We're taking actions and making critical investments, including a $170 million support package to assist our associates, customers and communities as they deal with the impacts of this health care crisis. This includes a $10 million donation in essential protective products to do our part to protect the medical professionals on the frontline. We've also taken steps to donate all of our current stock of N95 medical masks to hospitals to protect frontline health care workers, along with other personal protective equipment for first responders in our communities. I receive wonderful stories on a daily basis on how Lowe's associates are delivering and donating personal protective equipment to hospitals and health care workers in the U.S. and Canada. In addition to supporting the health care community, we've also made specific investments to support and protect our associates and our customers. First, to provide additional support for our associates, we are increasing wages by $2 an hour for all hourly associates in the U.S. and Canada for the month of April. We also made an $80 million special payment to all hourly associates in the U.S. and Canada, which was received on March 31. In addition to that, we've taken steps to assist our associates in making good decisions to protect their health and the health of those around them. And to accomplish this, we've done a few things. First, we've offered 14 days of emergency paid leave to all associates who need it. We've also offered 4 weeks of emergency paid leave for all associates that fall in the high-risk category as defined by the CDC. And to provide medical care for all of our associates, we've extended our telemedicine benefits to all associates and their families, whether they are seasonal, temporary, part-time or full-time regardless if they are enrolled in Lowe's' medical plan. And in an effort to keep our stores as clean and safe as possible, we're closing all stores at 7:00 p.m. daily in addition to increasing our third-party and daily cleaning routines. And starting this week, we're making masks and gloves available to all associates in the workplace if they want to use them. We have enhanced our social distancing protocols by adding dedicated associates that we call social distancing ambassadors, who will monitor customer flow in our garden centers and front-end areas in our stores. And we've also installed customized Plexiglass shield at all point-of-sale registers to protect our cashiers and our customers. And finally, we've decided to close all stores and distribution centers on Easter, April 12. It's my hope that this decision will provide our associates with a much deserved day off to spend with their families and their loved ones, and we're also taking steps to ensure that no associate will experience a reduction in pay as a result of this 1-day closure. Although I just outlined a long list of actions, it simply reinforces the level of importance that we're placing on the safety of our associates and customers during this health care crisis. And as we operate in these unprecedented times, we'll continue to monitor the situation and make any necessary changes to support our associates, our customers and our communities. Now let me turn to our business performance. Lowe's is a terrific company with an outstanding brand and a powerful balance sheet. And to capture the opportunity ahead of us, we're focusing on what we call retail fundamentals. And these are foundational elements that all great retailers must be good at. We've also assembled a leadership team with deep home improvement and retail expertise. And to deliver on our commitment to retail fundamentals, we're focused on 4 strategic initiatives: merchandising excellence, operational efficiency, supply chain transformation and customer engagement focused primarily on the Pro. In addition to the retail fundamentals, we're committed to improving our IT infrastructure and our e-commerce technology. And this is evident in our commitment to open a global IT center in downtown Charlotte, which will employ over 2,000 IT professionals focused on modernizing every element of our company in developing a true omni-channel ecosystem for Lowe's. We believe the combination of retail fundamentals and enhanced technology will be a catalyst to drive our business forward. And while we're only 1 year into a multiyear transformation, we're confident that we're on the right path to capitalize on demand in the home improvement market and generate long-term profitable growth. Now turning to 2020. We're pleased to build on the strong foundation we established in 2019 and continue to position the business for long-term success. Even if COVID-19 introduces a certain element of uncertainty to the retail environment, we're fortunate that we operate in a retail sector where approximately 2/3 of what we sell is defined as nondiscretionary, repair and maintenance items for the home. We'll continue to support our associates and communities while providing our customers with the essential items they need to keep their homes safe and operational. Thank you for your time today. And now, Seth, David and I look forward to any questions.

Okay. Great. That's a great start here. We'll follow up on some of the strategic initiatives in a minute. Just on the point around staying open, you are deemed an essential retailer in most places. It seems like you have some unique drivers right now. And I think the team has recently discussed demand in the business being very healthy and very broad-based. So I would love just an update on that. Any changes to that commentary? And if you could also maybe parse out trends that you saw pre and then post COVID-19 and what changed, that would be a good start.

So Seth, I'll take the first part, and then I'll let Dave jump in if he has any additional comments. I would say, first, we continue to see a healthy demand across all of our locations in all 15 of our geographic regions. Customers are continuing to buy basically what we call COVID-19 essential items like cleaning supplies, paper products as well as appliances to store the additional food products that they're buying. But I think one unique dynamic is, as customers spend more time at home, we're seeing a lot more indoor project activity as they start to engage more in the maintenance and repair work around their homes. And in some cases, we're seeing this deferred list of projects that are now being addressed because customers simply have more time. And again, as I said in my prepared comments, 2/3 of what we sell are nondiscretionary products, and these are things that basically keep your home safe and operational. And as we now shift out of March in April, our business still is performing well for us across not only spring-related categories but those basic essential items within the home. So what I'll do is I'll let Dave talk a little bit more about any other trends that we're seeing in the business in addition to what I just talked about.

Yes. The only thing that I would add to this is, to Marvin's point, as spring continues to break both here in the South and is beginning to take hold a little bit in the North is we're seeing spring demand play out consistently -- consistent with our expectation, really strong demand in those categories as we see consumers want to be out into their gardens, out into the lawn outside their home, but spending a lot of time at home. Secondly, from a pro perspective, we continue to see the Pro business to do well. One thing that has happened, we are beginning to see Pro's pivot to positioning more of their projects to exterior projects versus interior projects, just given the current state of the situation here, particularly in the U.S., as there's shelter-in-place demands across the nation. So I think we're really pleased with our business. I can't give our associates enough credit as they've really maintained a really high level of customer service as well as a high level of just overall health safety in the environments in which we serve.

Okay. And just around that Pro point, I feel like that's been a pretty controversial point here around DIY versus Pro. So maybe just a little finer point there on the trends that you may be seeing in each of those channels. And then specifically on the Pro business doing well, to your point, I mean, I think there's a view that it may be slowing in some categories. So if you could just maybe elaborate on maybe categories that are more negative or slower right now, I think that would be helpful.

So Seth, I'll take the first part. Then I'll let Dave jump in. I think, overall, we're seeing strength in DIY and Pro. So I think that's the most important point to make. But as we look at both categories, we're seeing strength in different parts of each customer segment. As I mentioned, as customers spend more time at home, they're looking at the deferred kind of to-do list projects that they're now working on. And so these essential kind of nondiscretionary products that we sell, customers are now fixing leaking toilets and replacing supply lines for sinks, they're putting in LED light bulbs, they're upgrading their water heaters because of increased water usage, they're buying appliances. But we're also seeing customers, as spring starts to break, are finding reasons to kind of get out of the house and go out in the yard. It's a little bit of an escape for them, but it also allows them to maintain the social distancing requirements that are in most jurisdictions by just working in the yard or working in the garden. Relative to pro, as David said, the Pro business remains really strong for us and is consistent with what we had planned. The only difference is those pros are shifting from interior projects to exterior projects. Many customers are not very comfortable having someone new in their home unless they are fixing something that is broken or repairing something that is malfunctioning. So a lot of the pro activity is shifting outside, but that has not diminished the overall Pro business. The only caveat to that is we are seeing a little bit of slowdown in our installation businesses where you typically would see more discretionary items like carpet or countertops. That business may be shifting, but the offset of that is that the Pro business still is performing at the level that we anticipate. So I don't know if Dave has anything else to say.

No, the only other thing I would say that we're still seeing strong demand kind of across all price points in our business. High-ticket discretionary items at this point in time continue to perform well in all segments of our business.

Okay. That's helpful. So just a commentary around the pro shifting from inter to exterior and maybe even the slowdown you're seeing in installation. I mean at this point it would seem like that all points to social distancing and maybe some other physical restrictions but not necessarily any signal of the consumer slowing, any sort of trading down or anything like that. Is that right?

I think that's correct. Yes.

Okay. And then, Marvin, just your point around seasonal and some of the categories that seem to be performing really well right now, do you sense that maybe since we are all home, there's this abnormal pull forward? How do we think about the potential air pocket after that? If you could just give us a little bit of color maybe more around the categories that are performing well and how do you think about the potential for those categories to slow and normalize over the next quarter.

Well, Seth, what I will tell you is that we just came out of the month of March, we're in the early part of April, and those categories are performing basically where we plan them to perform. So we're not seeing an early rush where customers stock up. We haven't seen demand become outsized in a certain area where the sun is coming out and the season is breaking. Customers are buying traditional seasonal product in areas where spring has not been established due to weather patterns. We're not seeing it. So there is no unique unusual buying patterns that we're seeing as we look at the business geographically. The good news for us is this is the first spring that I've been in this role here at Lowe's that we had merchants in position for a full year in every single department. And what that means for us is this is the first time that we had a full year planning cycle where every single department, every single seasonal category we had a merchandising leader that had a full year to properly plan for it. And although COVID-19 has created a degree of disruption in our business and how customers are shopping, there are certain categories that are holding up very consistently irrespective of that dynamic that's in the marketplace.

Okay. Okay. That's helpful. Just in terms of online right now, stores are obviously still open, but maybe just talk about the role of online in this type of environment. I know you had planned for your online business to remain somewhat constrained here in the first half of the year. You've talked a lot about some of the issues that have been impacting online and how you're working through that. To what extent are you able to sort of participate in the online growth that's happening right now? Or do you feel like there are going to be some limiting factors here simply because of the work that you need to do on your website?

Well, look, I think at a high level, we have been very, very transparent regarding the work that we are doing to modernize our e-commerce site. And as I will remind everyone, we started 2019 on a decade-old platform, and we're platforming the entire e-commerce site to Google Cloud. We're roughly 2/3 of the way there. And that is good news because for every single progression we make on the cloud, we create a better customer experience when we take out friction points. So demand online is obviously up based on how customers are desiring to shop, and the changes we've made has created much better stability for us to be able to manage the increase in demand. Now we're not nearly where we would like to be from an overall functionality, but we're significantly better than we were a year ago or 6 months ago. And so as we continue to replatform the site on Google Cloud, we'll have the ability to create enhancements on a more rapid basis that will just create better functionality and a more modernized site. But in the meantime, we've taken additional steps to implement things like buy online, curbside pickup. We rolled it out chain-wide starting this week. It's a really good customer experience, and we have to muscle our way through it on the store because we're leveraging technology, and we're also leveraging improved operational process. This is an example of an initiative that we plan to roll out in 2021 that based on the needs of the customer, we moved it up. You're going to see us also move up other initiatives into 2020 because we want to meet the demand and the expectations of our customer. So the good news is our site is much more stable. We have improved functionality, but we're not nearly as efficient as we would like to be. And that will continue to improve after we're fully on the cloud in the second quarter and then you see enhancements that will continue to be added to our functionality over the course of this year on into next year.

Yes. And I think the only thing I'd just add to that is just to clear up some confusion historically is that we're not where we want to be online. We think there's a lot of opportunities to improve our performance. But our site and our app are functional. They work well. Consumers can engage with us. They can buy online, get shipped to home. They can buy online, pick up at store. So the application, the stability of the applications is enough to transact and actually perform well. We just think there's -- the next turn of the crank is to enhance that program in a meaningful way such that we can garner abnormal share over time.

Okay. That's helpful. And then just to clarify, as an essential retailer, your stores are all open at this point. And also, I'm curious, are there any plans to limit hours or sort of capacity in the stores or any other protocols that you're putting in place to limit traffic or hours?

Seth, so -- yes. So first, we have limited hours. We've -- chain-wide, we're closing at 7:00 p.m. Typically, this time of the year, we'll be closing at 10. So we've reduced 3 hours of operating time. That's just giving us an opportunity to do a more detailed cleaning in the store and restocking to get ready for the next day. Relative to what else we're doing, I mean, we're just continuing to just be as available as we can for the customers and making sure our associates are safe. So as I walked through in my prepared comments, there are a list of things that we're doing. One thing that we're able to get developed quickly, which is an example of our improved IT infrastructure, we developed a mobile app for our in-store mobile devices that will give the management team a real-time customer count of customers in the store. So where we have local ordinances on number of people in the store, we can manage that locally by having that technology alert the store the moment they are over a certain number. In addition to that, we were able to reset our garden area. The merchandise services team is a tremendous advantage just in a typical business environment, but having that team in a store to do quick resets, pay huge dividends, we basically pulled out presentation tables, created a larger space in the garden center that will enable our customers to shop without having to be constrained by product or shelving. The moment we did that, we also implemented what we call customer or social distancing ambassadors, where we take 2 associates, we put them in the garden area, and not only are they counting to ensure that we are maintaining the minimum level of customers required in the area, they're also making sure that they are directing customers on how they should maintain social distancing guidelines. So the mobile app has helped them to monitor customer count. The social distancing associates are basically individuals that are kind of making sure that they are coaching and helping customers manage that. And in addition to that, we're closing a couple of hours early so that we can assist. And I also announced that we are closing on Easter, which is this coming Sunday, and that's in response to just simply giving our associates an extra day off and giving us the opportunity to do a more detailed cleaning in our stores to be ready for business on Monday.

Okay. Okay. That's helpful. And then just on your point around curbside pickup and really accelerating that, are there signs that consumers are less willing to come into the store right now? I mean obviously, shelter-in-places have spread across the country, maybe wouldn't be surprising. But I'm just curious, are you starting to see maybe that impact on traffic in the actual store?

No. Actually, we have not. Our -- obviously, we have a set of consumers who prefer to buy online and pick up in store. But if you look at the actual traffic in our stores across the nation, very strong both traffic and very strong demand across essentially all categories that we serve today and the communities that we serve today. So we've also put in very specific protocols that our store associates administer to make sure that our stores remain a safe place to shop, both for the associate, but, importantly, for the customer and really put in ambassadors to help us maintain social distancing kind of across our platform.

Okay. Got it. And then I just want to go back to the Pro commentary. As you think about the trends in the business holding up as well as they are, are there potentially some market dislocations that Lowe's is able to take advantage of right now? Are competitors closing? Could it be distributors or maybe lawn and garden or other categories? And because stores are open and you're executing well, I mean, you're in a position to maybe take some of that market share.

I think, Seth, it's early in the whole planning cycle. And as fatiguing and as difficult as COVID-19 has been for the world and for the entire business environment, it's still relatively brief in the overall planning cycle. So the short answer is too early to tell. The more broader answer is, if this is an elongated event and if there's a broader sustained negative macro implications from the event, typically, the smaller regional players have a more difficult time being able to function. But what I'll tell you, and I say this with all sincerity, our #1 objective in this environment is making sure that we can provide the essential products for our communities and our consumers. If we can do that effectively, everything else will take care of itself. And along with that, the other priority is making sure that while we're providing essential products that we're keeping our associates and our customers more safe so that they can come in, shop, get the things they need for their homes, and we don't put them at any risk. That's priority A and priority 1A. And so for us, that's our focus. And as long as we're focusing on that and responding as quickly as we can to the demands of the customers and needs of our associates, everything else will take care of itself in due time, and we'll just see how it shakes out.

Right. Right. Okay. And then just a comment around strength in big ticket. Can you just give us an example of some of the types of categories that are still performing well? I think you mentioned some that are maybe not performing as well, but where would the strength be right now?

Well, listen, I think if you look across our categories, we have really strong demand in those categories across the business. I think where you're seeing -- let me talk a little bit about weakness, and I'll come back to strength. Probably, again, where you see weakness is in any category that requires someone to go into the home. So maybe I'll give you an example of carpet. To install carpet, you need somebody come into the home to measure it and come in and install it. That business, just given the shelter-in-place mandates across the country, is soft right now. Having said that, you see -- you have a lot of people at home at the moment working from home who now have time to do that ancillary additional project that they put off for some period of time. So paint is a category that's performing quite well. Again, our spring categories where we're in season are all across the board performing extremely well as people want to get out into their gardens, want to get out into their lawns to get some fresh air while they're sheltered in place. So I think that gives you just a little bit of perspective of how we're seeing the business trend at this point in time.

Okay. Okay. That's really helpful. And so there is obviously still a lot of uncertainty out there, certainly when you look at the job picture right now and, Marvin, you alluded to that. So how do you plan for that? I mean can you give us a sense on how you're thinking about the scenarios and planning for trends past the first quarter and how you're managing inventory ahead of second and third quarter?

Yes. So obviously, we're in a situation that we've never seen before. So we're running, as you can imagine, a bunch of different scenarios based on both current trends but also getting input from a lot of economists around the country to understand what this could look like in the next quarter or 2 quarters from now. I think the good news is, again, demand is holding up really well at this point in time. Secondly, we're in our season, so we've already purchased the product for the season. So there's not a lot of flexibility on the buy side either up or down as we go through the spring season here. So we're now really thinking about the back half of the year. Keep in mind, we are making some incremental investments in our business. Marvin pointed to about $170 million of investments that we're making to our associates and are maintaining a safe environment in our stores and in our distribution centers. We are going back, as Marvin indicated as well, looking at all the projects that we have on our docket for the balance of this year and next. We are very committed to those projects because those projects are the right projects to make us a better company over time. We are thinking about maybe prioritizing them a bit differently. Obviously, buy online, pick up in stores has become more important now. We're leaning into enhancements into that program as we speak. The things that we're doing today that we might not have done for another 6 months, we're activating them. So we're flexing, if you will, from a spend perspective and a project perspective, but we're not necessarily changing our strategic road map based on this event.

Yes. So, Seth, this is Marvin. Just 2 other points to make. So I mentioned in my opening comments that we have a strong balance sheet, and that's very important, obviously, in a time like this because it gives us the ability to maintain a level of investment in some of our long-term initiatives like supply chain, IT infrastructure and e-commerce. We don't have to pause or pull back on those investments because we know not only will those investments create long-term benefits for the company and the shareholders, it will also create some short-term benefits. The other point is that, as I've said before, roughly 2/3 of what we sell is nondiscretionary. So even in an economic downturn, homeowners and property owners will need to shop at Lowe's just to maintain their home and their property. And for us, we've worked really hard the last 12 months to have a degree of in-stock and presentation in those core essential products. And what we're seeing today in our stores is a reflection of that work. And again, you can never predict what the macro will look like over the long term, but we feel very confident that we have the right balance sheet, the right capital structure, and we have the right retail format that will give us the ability to operate well when other retailers probably will not be as fortunate.

Right. Right. Okay. So it sounds like you may be changing priorities but not necessarily changing the dollars you plan to spend at this point. Is that fair?

I think that's fair. Correct.

Okay. Okay. I mean is there -- do you see an opportunity to maybe spend more and go faster? I mean you gave us some examples, but maybe in aggregate to sort of invest through this in a much more aggressive way to put you in an even stronger position as we enter FY '21 and beyond?

Well, I guess the answer to that is potentially. I think the reality here is we've never been capital-constrained, we've been bandwidth-constrained. So the idea of going faster is a good one, and we certainly want to do that, but we want to make sure that we don't stretch the capacity of management's bandwidth here to get the projects implemented successfully. I think that's more the concern and the constraint that we're managing through.

Got it. Okay. And then just on the point around inventory maybe from a supply chain perspective, I think you had discussed that you were comfortable entering the first quarter in terms of your inventory position and the shipments that were coming in. I guess, is that still true maybe excluding cleaning supplies and things that are spiking? And then if you have any visibility beyond, that would be helpful.

Well, Seth, what I will tell you is we feel really good about our global supply chain and our domestic supply chain. The ability for China, South Korea to get ramped back up after being really devastated by coronavirus early in the year has been impressive. So we feel really good about our supply chain. We noted in some earlier investor comments that because we are a spring business, most of all of the goods we needed for Q1 and the majority of Q2 was either underwater in our stores or in our distribution centers. And so we felt good about being able to service our customers from a inventory and supply chain perspective for the spring season. But now that China and South Korea have kind of gotten in order, getting back up to normal capacity, we don't have any concerns regarding their ability to keep our goods coming as we look into Q2 and Q3. And domestically, you said that the key is dealing with certain very high-demand categories like anything related to cleaning. I mean we're basically in the same situation with other retailers that the demand is far outpacing the ability to manufacture and supply. But that's getting better as we speak. And we're doing all we can to look at alternative sources like private brands and leveraging local manufacturers and suppliers to meet the demands of cleaning that we have in certain markets, but overall, we feel really good about our supply chain performance. And this is an example of the work that we've put in place for the last 12 months to improve our in-stock position, our job lot quantities and make sure we start to make the right adjustments to our assortments in our stores. That's paying dividends for us right now.

Okay. Okay. That's helpful. Can you spend a minute on promotional activity? Pricing was obviously a big theme last year. I'm just curious, some of the things that you may be doing now running the Spring Black Friday event, for example. Just any more color around how you're managing the promotional strategy in this type of environment?

Yes. So let me -- I'll talk to you about the overall strategy. I'll let Dave talk a little bit about pricing. So we made the decision that in the mass media channels, TV, radio and starting in print, you're going to see us pull back from what would be traditional promotional activity. We just feel like that we're in a unique time in our country and with our consumers that we're going to be a lot more conservative around promotional cadence. We will still have signs in our stores. We'll still have product offers. We think, in this time, customers are looking for value, and we want to be an advocate for our customers in that regard. But we don't want to come across as tone-deaf in this environment. So you're going to see us make a pretty dramatic shift in that regard. And I think the different media channels will reflect that. We ran the print ad for Spring Black Friday because that print ad had been developed a month in advance, and we didn't have the ability to effectively pull it out. But relative to TV and everything else, you're going to see us start to make a shift in how we communicate to our customers. I'll let Dave talk a little bit more about price.

Yes. Just from a pricing standpoint, obviously, we're on a journey here to improve the technology and the underpinnings of our pricing platform. We've actually rolled out the first phase of our new price management system earlier this year. We're, in the first half of this year, going to be integrating that with our Boomerang technology to improve our analytics on top of that. I think the opportunity we have over the course of this year is to put in the next generation or the next phase of our pricing program to allow us to be a lot more dynamic at a micro market-specific area and functionality. That's going to be done through the balance of this year. We think there's a big opportunity to drive a lot of value for both consumers and drive a lot of improved performance from a margin perspective over time through leveraging that technology and that platform. Furthermore, we've just brought on a new management team to support our pricing function with deep expertise in both pricing in general but also in home improvement. And that new Vice President is building out his team to be more aligned to the merchants to support the needs both by category but also by geography.

Okay. Got it. That's helpful. So look, as we're thinking about the financial implications from all of this, I mean, are you guys in a position at this point to say whether the trends, whether it's top line or mix or costs, change your outlook for the year at this point?

I think it's just really too early to say that. I mean as we just indicated, our top line performance continues to be really strong. We're making investments in the business to make sure that both our customers and our associates are safe in a good environment, and we're making investments in the communities that we serve around the nation. So I think we're doing all that. Obviously, we're looking at the macro condition, understanding that this is a really unique period of time for the country and trying to understand the implication of what we're going through and how that will affect really Q2 and, importantly, the balance of the year. And I think there's too many variables at this point in time. We're staying close to the market, we're staying close to experts, and we're really trying to understand both the pro and the consumer demand.

So Seth, this is Marvin. Obviously, we're learning more every day and every week by geography and by category. I mean we have our Q1 earnings call coming up in May and, obviously, we are working to determine what the answers are to those forward-looking questions in time for that event. So it's something obviously we're spending a lot of time on, but it's a very dynamic environment right now to say the least, and we're going to stay very close to it, and we will form a very firm opinion on that as we get closer to the time we have to talk about it and have a better point of view on.

And I think as we speak to experts in this field from an economic perspective, there's a lot of disparity around what people think is going to happen in the very near term. I think -- obviously, I think it's really constructive that the federal government has gotten behind, I'll say, the shutoff of the economies, particularly small businesses, and deploying capital and funds into that sector to -- once this thing gets opens up, to get demand back into the marketplace. So -- but we're watching that closely as you can well imagine.

Right. Right. Okay. Lowe's has announced a lot of great initiatives to take care of its employees and associates, including the raise that you talked about, the onetime bonus. I guess for modeling purposes, can you just run us through how to think about that? And is that something that potentially continues past the first quarter?

Well, at this point in time, it does not, but we're -- this is a dynamic and fluid situation, as Marvin indicated. We made a onetime bonus to our associates. It's already been paid to them. We've raised their wages for the month of April. We're closing down our stores on Easter Sunday. We're making donations to health care providers around the nation to make sure they're taken care of. And we're making donations to local first responders to make sure that they can operate in a fashion that's safe. So we're continuing to invest to make these communities healthy over time, and I think that's good for business long term, and maybe not the best financial result in the very, very near term, but for the long term, this is the right thing to do, and we're making those right investments.

Got it. And now the team has been very focused on managing costs. We saw that all through last year, and I think that was the expectation this year as well. Now in a scenario where sales do slow, how do you think about the ability to manage costs? And if you could give us a sense of maybe fixed and variable costs and maybe what has changed versus prior slowdowns, that would be a helpful context to try to understand some of the scenarios here.

Yes. Well, I think the good news is that we have put in an infrastructure that allows us to manage hours in the stores much more effectively than we've ever been able to do in the past. I think we have a very dynamic scheduling tool and management tool to be able to manage labor. And furthermore, we're continuing to make investments that will improve the productivity of the -- day-to-day in our stores and in our supply chain. I think all that are opportunities for us to flex down cost in an environment where demand is soft. Obviously, we schedule hours based on demand. So to the degree that demand comes down, we don't need as many hours to support on the sales floor. At the same time, we'll look here in the corporate facility on how we tighten our belt to make sure that we can manage as best we can through a softening of demand if that were to occur. I will also just go ahead and point out is that I don't know that, that puts our capital projects at risk because, again, we think that many of the programs that we're currently investing in today are the right things for this business over the long term. We might move them around from a priority standpoint a little bit, but I think we're still committed to many of those, if not all of those projects.

And Seth, the only thing I'll add is, if you think about our focus on taking hours in the store from service and making sure service is a priority and removing hours from tasks to support service, that's driven almost exclusively by process redesign and implementing technology. So in essence, we can continue to bring overall expense down while providing more customer-facing associates to serve customers. We have a very detailed road map over the next 2 years to implement additional technology that will allow us to elevate service, take out costs and continue to serve customers, and that's not going to slow down. If anything, if we run into any kind of a macro -- extended macro slowdown, we accelerate those types of investments because it's going to serve customers well, but it's also going to support the bottom line in a way that we need to hit our financial targets. So we're going to continue to lean into those types of investments.

Got it. Okay. And then I guess from a gross margin perspective, maybe, Dave, just some of the implications from the trends that we talked about earlier. I know you talked about pricing initiatives but maybe just mix, are there implications from some of the trends that we talked about? And then there have been some other drags on the margin, shrink, supply chain investments that you're making. Is that worse in this environment? I guess how are you managing those things? That would be helpful.

So just a couple of comments, but I can't go too far on this one. But first and foremost, we've put in a very robust program to allow us to manage gross margins much more effectively coming out of Q1 of last year. So I feel like we really have our hands around it, number one, and I don't foresee any surprises. Secondly, there's been a lot of conversation around mix and demand mix based on what's happening in the environment today. I think you've seen many retailers who are mass merchants that have seen a very big shift into -- from categories, maybe like apparel, that have a 60- or 70-point margin into more commodity type projects that might have a 10-point margin. So the disparity between margin rates are fairly significant. In home improvement, the margin rate disparity between most of our categories is much more narrow than that. So you don't see -- even when there's mix shifts, you might see some shift in gross margin rate, but it's not nearly as dynamic as what you see in some of those mass merchants. So I expect there to be some fluctuation in -- due to mix, but it's not going to be dramatic.

Okay. And have you guys figured out shrink yet?

Listen, shrink, from an industry perspective, has been challenging over the last 1.5 years. I would say that we've -- I don't know about figured out, but I think we have our arms around it at this point in time. We have a very robust program that's multifaceted to manage shrink across the nation in our stores. I think we're doing much better in that area. But the performance that we see today is not going to show up in the financial results until a year from now based on how it's accounted for. There's really a lag as it flows to the P&L as we take inventories.

Got it. Okay. That's helpful. Just a couple of quick capital allocation questions here. In terms of the buybacks, I'd say this is probably a top 3 question that we've been getting from investors. It seems like you're still planning to buy back stock. A lot of other retailers have changed that. Any updated views on how to handle buybacks right now?

Yes. Listen, I think it's probably something I can't comment at this point in time. Obviously, we're out in the debt markets recently, making sure that we protected our balance sheet. We have adequate liquidity just given the unprecedented times that we're in, in the nation at this point in time. I think you saw the capital markets essentially shut down a few weeks ago for a period of time. I just wanted to make sure that we were always in a position to adequately fund our business needs and never ever get into a situation where we'd be remotely at risk there. So we'll have more to say about the buyback going forward, but our first and foremost is making sure that we have a strong balance sheet and we have adequate liquidity.

Got it. And the relative safety of the dividend and your level of commitment to paying that, I mean, that seems to be a concern on some people's minds as well. How do we think about that?

We're committed to that. We're committed to the dividend.

Okay. Okay. Helpful. And then we did talk a little bit about CapEx earlier, but just different types of scenarios here. Just what is the level of flexibility of the CapEx plan right now? And maybe if there's a maintenance level you can speak to, that would be helpful.

Yes. We do have flexibility. I think the reality is I don't think -- as we look at the business, I don't think we have a need to flex that down. I think we feel very strongly that the investments we're making from a capital perspective are appropriate and, quite frankly, required to make us a great company in the periods to come. And we're making the right investments for the long term. And we're not capital-constrained.

And, Seth, the lesson learned for me in living through the 2008 recession is ensuring that you manage your capital structure well so you don't forego making the investments required to drive the long-term financial performance of the company. And so we've already spent a lot of time on that. And as Dave has already discussed, I mean, we may do some reprioritization. You may see us accelerate certain investments, but we feel very comfortable with our position that we don't have to pull out of any of those investments that we believe are critically important to allow us to continue being a great retail company, and that's the goal that we're striving for.

Got it. Okay. So if we step back and think about maybe some early learnings about the changes you've made over the last 12 months, obviously, there's been a lot, right? To what extent have those changes helped Lowe's to just execute better during this time? And if you have some examples of that, I think that would be helpful. And then on the negative side, are there areas that are being exposed right now from some of the volatility that we're seeing or any of the trends in the business that is sort of going to be more of a focus going forward?

Yes. So Seth, look, I think investments that we've made in areas like -- so let's start with IT infrastructure. The investments we've made in areas in the store putting in a new labor scheduling system and a system that manages the schedules of our very vast hourly workforce with real-time data that ensures that we're putting the right people in the right locations based on transactions and sales velocity has been invaluable in this time. The mobile technology that we've put in place, the 88,000 mobile handheld devices have been critically important to allow us to remotely process customers from a transaction standpoint. And I mentioned that we've put mobile apps in place to monitor customer traffic so we can ensure that we are not having more customers in the store than we are required to have or it can put us at the risk of not running a safe environment. In addition to that, just the stability work that we've put in place in our IT infrastructure and making sure that we can manage all the volume coming into our stores without having any type of instability issues and the work that we've made already transitioning lowes.com to the cloud has already allowed us to monitor the business a lot more efficiently but also to be able to manage any spikes we're seeing in that certain segment of our business. And the assortment work that the merchants have made, along with the in-stock investments have been critically important for the Pro and for these customers that are spending on these interior projects as they spend more time at home. And the last thing that I'll repeat again is the merchandise services team in the store, the ability to quickly reset a store to allow us to have more customers in an area without being at risk of not adhering to social distancing guidelines, the ability to get that done in 48 hours in every store was critically important. The downside is we're continuing to improve our lowes.com performance and our lowes.com functionality to take out friction points. And although any customer can go online to have something delivered, buy online, pick up in store, and we've talked about curbside that we've rolled out this week, I mean, we still have more friction points in that channel than we would like, and that will continue to improve as the year progresses. And Seth, I think we have time for like one more question.

Yes. Yes. So maybe just to summarize here, and I think it's a good way to tie it all together, the experience that you've had in prior economic downturns, just give us a sense of what may be different today, what -- how home improvement may be positioned better than in the past, if you think so? Just how are you thinking about that?

Well, I would say, first and foremost, the last devastating recession we had was driven almost exclusively as a financial crisis, and homes were at the epicenter of that downturn. And so it disproportionately impacted home improvement. Now we don't have a crystal ball. We have no idea of the depth or the extent of the downturn that we're seeing, but this is not being led by housing. It's being led by a forced closure due to a health care crisis. So no one has seen this before. No one understands what this will look like, but it does not appear that this is going to turn into a housing-led downturn. And so we think that, that will be one of the unique differences. And when people try to use 2008, 2009 as a comparison, we don't necessarily agree with that because we don't know enough yet. And again, this is not a housing-led downturn. But the thing that I learned in that very difficult time working in a key position for a large home improvement company was really 2 things. Number one, customers still need to shop in home improvement if they own a home or own property. And I'll repeat, 2/3 of what we sell is nondiscretionary. Customers may decide to do it themselves, but they still will need to fix a leaking roof, to replace refrigerator, to replace anything in the house that's creating a nonliving kind of hazard, and that's what we sell. So we think we're going to be there for the consumer. And the second thing I learned is have a strong balance sheet going in so you can continue to make the necessary capital investments in the long-term viability of your company, so when the downturn subsides, and it always subsides, you can come out of it a stronger, better company than you went in it. And so right now that's what we're doing. But I'll repeat what I said, our priorities are very simple. As the central retailer, we want to serve our customers and make sure we can give them what they need so they can live in their homes comfortably and safely. As a large company, we want to serve our community, we want to provide assistance to the health care community. And as a company that employs over 300,000 people, we want to have a safe environment for our associates, we want to demonstrate appreciation for the heroic work that they're doing, and we want to give our customers a safe place to shop. If we do those things well, for however long it's going to take us in this very difficult environment, we know everything else will take care of itself.

Okay. Marvin and Dave, thank you so much for doing the call today, for being flexible. We were supposed to do this as a live meeting, so we appreciate your willingness to hop on today, especially during such a dynamic time for your business. I want to wish you guys the best. And everyone else on the call, thanks for joining, and have a great day.

Okay. Seth, thank you.

Thank you very much.

Thank you.

That concludes the Credit Suisse-hosted fireside chat with Lowe's management conference call. Thank you for your participation, and enjoy the rest of your day.