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

Thank you for joining us today. I'm Kate Pearlman, Vice President of Investor Relations. And this morning, I'll be joined by Marvin Ellison, our President and Chief Executive Officer; and Dave Denton, our Executive Vice President and Chief Financial Officer. Before we begin, I'd like to take a moment to review our notice regarding forward-looking statements. This information will also be included in today's press release and presentation. Both of which will be on available on Lowe's Investor Relations website. During this event, we will be making comments that are forward-looking, including our expectations for fiscal 2020 and 2021. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings. Additionally, we'll be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP will be included in today's press release and presentation, which will be posted on our Investor Relations website. Following our prepared remarks, we'll be hosting a Q&A session, and we'll be joined by other members of our executive leadership team at that time. With that, I'll turn it over to Marvin.

Hey. Thank you, Kate, and good morning, everyone. I want to thank you for joining us today for our virtual investor update. We look forward to the time when we can host this meeting in person again. Looking at today's agenda, I'll begin by updating you on the significant progress that we've made against our strategic initiatives since the 2018 analyst and investor conference. Next, I'll update you on the growth opportunities that's giving us confidence in our ability to continue to grow market share and achieve our operating margin of 12% and beyond. And then Dave is going to close us out with a discussion with a look at the productivity unlock that lies ahead and our plans to drive sustainable shareholder value and also discuss our expectations for 2021. At Lowe's, we take our responsibility as a Fortune 50 retailer across North America very seriously. And we're committed to our associates and our communities in promoting the health of our planet. To support product sustainability, we set out several goals to promote sustainable practices throughout our value chain, while providing our customers with the highest quality and safest products, and also helping them reduce their impact on the environment. To support our people and our communities, we've established several targets to support the health and the well-being of over 300,000-person team as well as commitments of both time and financial assistance to our communities with a focus on safe, affordable housing and skilled trades education. And in pursuit of operational excellence, we've established operating targets designed to reduce the environmental footprint of operations while also reducing operating cost. Our values and our culture is captured here. The core behaviors outline how we lead. And our core priorities are our associates, customers, communities and our investors. And operating during the pandemic has highlighted the importance of being a values-driven company. Now our commitment to our associates and our communities have never been more evident than in this extraordinary year. Not only have we managed through a global pandemic, we've also experienced one of the worst hurricane seasons on record and historic wildfires out West. To say that our associates have been resilient and heroic would be an understatement. Our teams on the front lines, they make me proud every single day when I come to work because we believe that supporting our associates and our communities is the bedrock of our values and culture. And we're proud that in 2020, we committed over $1.2 billion in financial assistance to support our associates, store safety initiatives and our communities. And this includes $100 million in charitable contributions, including $55 million in grants for minority-owned and rural small businesses. At Lowe's, we're proud of our commitment to our associates and to our communities. In addition to the $1.2 billion in 2020 to support our associates and our community, since 2018, we've invested over $1.4 billion in incremental wages and equity programs for our frontline associates. These investments include wage increases for hourly associates, adding new supervisors or lead positions across high-impact areas like Pro, the garden center and fulfillment. And at Lowe's, we'll always be committed to financially supporting our frontline associates. Now let me turn to the business. When I joined Lowe's 2 years ago, I knew that it was a company with a rich history, a strong brand, an outstanding group of associates and a healthy balance sheet, operating in a thriving industry. But coming out of the Great Recession, this once dominant retailer had lost its focus on the core home improvement business and failed to live up to its potential. This was reflected in the company's overall market share decline and performance gap versus its closest competitor. A poor commitment to Pro, coupled with inadequate investments in supply chain, Lowes.com and modern IT systems created this gap. We quickly assembled a talented, experienced and diverse team. We exited noncore businesses. We pruned our real estate portfolio and aligned our organization to focus on the core business. We set out to transform Lowe's into a world-class, omnichannel retailer that provides outstanding customer experiences and creates a great place for associates to work and consistently delivers value for our shareholders. And together, we created a plan to build retail fundamental capabilities through supply chain transformation, merchandising excellence, operational efficiency and customer engagement. I'd like to begin today by quickly discussing the progress we've made against each of these 4 objectives since our 2018 analyst and investor conference. So let me begin with supply chain transformation. Within this initiative, we set out to modernize our supply chain. Our goal was to improve our fulfillment and delivery capabilities by transforming an outdated model into a true omnichannel ecosystem. In the past, every element of Lowe's' supply chain was store-centric. The core focus of our supply chain transformation is to pivot from a store-based delivery model to a market delivery model for big and bulky items like appliances. We are now expanding the network through several new facilities: 50 cross-dock delivery terminals; 7 bulk distribution centers; and 5 e-commerce fulfillment centers, to increase our capacity for more same-day and next-day service offerings and faster e-commerce shipping across the country. Now allow me to discuss merchandising excellence. Our investments in merchandising excellence over the past 18 months has allowed us to meet the surge of demand we've experienced during the pandemic. Because of these investments, we have significantly improved productivity, driving a 26% increase in sales per square foot, from $336 in 2018 to our expected results of $423 for 2020. We've also expanded our brands and product offerings across CRAFTSMAN, Honda, YETI, DEWALT, Little Giant, Simpson Strong-Tie, and most recently, Eagle and Skill. These new brands have brought new customers to Lowe's and increased the span of our existing customers. We've also made improvements in our stores. We've invested capital to put new merchandising sets in departments, such as flooring, millwork and kitchens. We've also rolled out our first new signage and way-finding package in over 15 years, making it easier for our customers to shop. And at the same time, we've improved gross margins, building out a more robust pricing ecosystem and reducing our reliance on promotions as we shift toward a more EDLP approach with targeted, event-driven promotions. And we've improved reset execution by leveraging the new vendor-funded Merchandise Service Team, or MSTs, of over 23,000 associates who handle reset, bay and endcap maintenance, which has allowed our red-vested associates to focus more on customer service. And we made significant progress in evolving Lowes.com toward a best-in-class online experience. We replatformed Lowes.com from a decade-old platform to the cloud, which has improved stability and enabled the site to handle the tremendous increase in demand that we've seen so far this year. And we've been also able to quickly deploy enhancements to the site, as demonstrated by our rapid rollout of curbside pickup earlier this year and the current launch of our touchless BOPIS lockers. And we've also unlocked productivity through operational efficiency by leveraging payroll expense in our stores, as we've shifted our associates' time from 60% tasking and 40% customer service to now 40% tasking and 60% customer service. And we put more than 115,000 handheld smart devices in the hands of our associates to enable better customer service. We've also added mobile printing cards to enable printing right in the aisles and digital signs in our appliance departments to drive faster price adjustments. And we deployed a new labor scheduling system last year based on customer demand patterns, allowing us to align our labor hours with peak traffic to provide better department coverage and customer service and further unlocking payroll leverage. We've also rolled out touchscreen point-of-sale systems across all stores. And we replaced those white boards and binders that we used previously to manage large installation projects for customers with a new, modern online project management system. And we focused on owning the Pro by investing in job-like quantities while increasing the number of national brands to our assortment. We've also made investments in department supervisors and dedicated loaders to improve the overall service experience, while also investing in point-of-sale checkout technology to get our Pros in and out faster. By making the right investments in products, technology and associates, we've driven improved customer engagement. And we're beginning to grow our business with this very important customer segment. Given our disciplined focus on retail fundamentals over the past 2 years, we're on track to deliver a 23.5% 2-year, stack sales growth; 225 basis point improvement in overall adjusted operating margin; and nearly a 70% increase in EPS. And at the same time, we've improved our customer satisfaction by 400 basis points and increased total shareholder return by 71%, outperforming the S&P 500, which returned 37% over the same time frame. But let me be clear, our commitment to retail fundamentals has been essential to our 2020 financial success. Our supply chain, in-store and digital systems would have collapsed under the weight of the unprecedented customer demand created by the pandemic without this focus. Therefore, I am really excited to share with you today that the best days at Lowe's are still in front of us, as we move into the next phase in our journey towards becoming a $100 billion world-class omnichannel retailer. At our 2018 analyst and investor conference, I presented this transformation time line. At that time, we accurately estimated that it would take about 12 to 18 months for us to build the foundation of retail fundamentals. As I just discussed, we've made great progress against these initiatives. The combination of the pandemic and our success in implementing our retail fundamental initiatives has accelerated this time line. We're now transitioning from retail fundamentals directly to taking market share. This is 18 months ahead of schedule. We are calling our new strategy for market share acceleration, Lowe's Total Home. After all, we're committed to offering everything a homeowner needs to provide a total home solution across everything in the home. Our Lowe's Total Home strategy will lean into market share growth through intensifying our focus on Pro, online, installation services, improved localization and elevating our product assortment. So let me take a few minutes and discuss each growth initiative. Let me begin by discussing our continued focus on the Pro. Our target Pro customer is a small business owner who relies on Lowe's as one of their primary sources for products and services. While the DIY customer shops our stores about 5 times per year on average, the Pro customer is a significantly more frequent shopper. This is a very valuable customer for Lowe's and one that we believe is being overlooked within the marketplace. After focusing on the basics for the first 18 months, this year, we began to shift into a more strategic phase of Pro growth by launching our Pro loyalty and CRM programs. This has allowed us to win new customers with Pro and grow our share of wallet with our existing Pros. Now we're intensifying our efforts to better service this important Pro customer. And with that in mind, last quarter, we launched an initiative to reset the footprint of our U.S. stores to make our stores easier and more intuitive to shop, especially for the Pro. For example, we put drywall screws next to drywall, and we put pipes next to pipe fittings. In short, we reconfigured the store layout with product adjacencies top of mind. We're also moving cleaning to the main aisle or the first aisle of our store. This involves bringing together all the cleaning products that were spread out across the store in the old layout into one, single aisle to make it much easier and faster for both the Pro and the DIY customers to find the products they need. Since every project begins and ends with cleaning, placement on the main aisle allows us to highlight these critical products for our customers. These changes may sound very elementary, but believe it or not, the legacy store layout was designed to satisfy the internal alignment of our merchant team rather than aligning with how our customer shops to complete a project. We'll also equip our store associates with new Pro selling tools that they can easily access on their handheld devices. These tools will be designed to reduce the time to quote for a bulk purchase and streamline the order management process, which will also increase transaction volumes and throughput. And our Pro customers will be incentivized to return for another trip to Lowe's through our Pro loyalty program, which is a CRM platform that offers member-only benefits, including meaningful discounts and rewards, while also enabling us to deliver targeted, even personalized offerings. By the end of this quarter, we will convert our ProService business cardholders who are our long-standing loyal customers into our Pro loyalty program. By bringing both of these new and existing Pro customers into one platform, we'll create a powerful database that will further enhance and refine our marketing capabilities. And next year, we'll also be converting our LowesForPros website to the cloud and significantly upgrading the site functionality, making it a one-stop shop for busy Pros so they can quickly track their purchase requests, order histories, active jobs and annual spend all in one place. And for the Pro, it's mission-critical that we deliver excellent customer service and meaningful rewards. But we also need to have the right products in job-like quantities that are consistently available week in and week out to continue to earn their business. And as I mentioned earlier, certain national brands are especially important to the Pro customer. And over the last couple of years, our store operations team focused on dramatically improving our Pro service experience And the merchandising team built out our brand and product offerings across a number of brands that Pros value, like Simpson Strong-Tie, DEWALT, Eaton, SharkBite, Bosch and Spyder. And for certain jobs, especially work that they don't perform regularly, Pros prefer to rent tools. In fact, roughly 70% of Pros rent tools at least once per year. And to better meet the needs of our Pro customers, whether they're looking to buy or rent, last quarter, we launched a multiyear national rollout of our tool rental initiative. And as a relative newcomer to this business, we took advantage of the opportunity to leapfrog the competition, starting with an intuitive and easy to use service offering that allows customers to reserve their tools online, quickly pick them up in the store without the hassle of paper contracts. Our tool rental locations will offer a broad product assortment in a large store footprint with a fully equipped mechanic shop. Continuing to grow Pro sales with a targeted Pro customer will be critically important for Lowe's' Total Home strategy. And we're also going to contribute to the goal of accelerating our overall market share growth. Now I'd like to take a moment and discuss an equally compelling growth opportunity for the company, which is expanding our digital and online business. Measured against most any other retailer, Lowe's' online business, even at 8% of sales year-to-date, is still meaningfully underpenetrated relative to our total sales volume. The unexpected growth of 108% that we've delivered so far this year is indicative of a long-term shift in customer preferences to omnichannel shopping. And in June, our online team achieved a major milestone of completing the replatforming of Lowes.com to the cloud. This dramatically improved both the stability of the site as well as its capacity to handle the unprecedented levels of traffic that we've seen this year. But equally as important, the new platform enable us to accelerate our time to market as we can now handle over 100 deployments per week of enhancements to the site versus less than 600 during the entire year of 2018. We remain focused on the basic enhancements to the site, like a dynamic home page, simplified search and navigation and one-click checkout. We've also rolled out online delivery scheduling and rescheduling of appointments so that customers can easily and efficiently self-serve and select delivery times that works best for their busy schedule. And we're building our product collections on the site now with over 500 collections and growing, across multiple categories, including kitchen and bath, lighting and hardware as well as several holiday collections, while also modernizing our product onboarding process so that we can quickly incorporate product specs, images and related attachments, providing our consumers with the product details that they need to be confident in their purchase. And we're making steady progress against longer-term initiatives, like separating freight from product costs, so that consumers can easily compare our prices to our competitors. As we look to lean into Lowe's' Total Home strategy, the continued expansion of our online platform will be critical in our goal to accelerate market share. Looking forward, we're developing an always-available digital services and support which will leverage artificial intelligence to answer customer questions around the clock. And we're investing in configurable selling tools that will enable virtual in-home measurements. Earlier this year, we acquired [ Dineva ], a small company with a configurable online blind selling platform, which we will leverage to power other digital design and lifestyle configurable experiences across countertops, flooring, cabinets and paint. We also launched JobSIGHT, the augmented video chat technology that enables Pros to conduct virtual home visits through a partnership with Streem. Both of these transactions bring a leading-edge technology within our reach so we can continue to innovate and modernize our approach to serve the total home for our customers. Another key element of our Lowe's Total Home strategy is the expansion of our online-only assortment across our core categories, starting with a broad assortment of appliances, to kitchen and bath, covering everything from cabinets, countertops to faucets. And in decor, where we're increasing assortment across paint, lighting and even doors and molding, and into new categories like furniture, bedding and textiles. When I started at Lowe's in 2018, we had less than 400,000 SKUs online. Now we have in excess of 2 million and growing. This example reflects the commitment we've made to enhance our online experience at Lowe's and to allow Lowe's the opportunity to provide a total home solution for all customers to enjoy. As we expand our online business, we'll continue to enhance our fulfillment channels both in-store and delivery to home. Our customers generally prefer to pick up their purchases at our stores, with roughly 60% of online orders fulfilled in store. As I just mentioned, we've expanded our in-store fulfillment options this year with the earlier-than-expected launch of curbside pickup and BOPIS Lockers. And now we're improving our service levels by standing up dedicated store fulfillment teams to meet the sustained increase in demand. Although BOPIS lockers are no longer viewed as new innovation, our touchless lockers are best-in-class. And when the customer makes a purchase online, they will receive a bar code along with the order confirmation on their mobile device. When they arrive at the store, they scan the bar code, and the designated locker door will automatically open. The customer can process the entire transaction in a contactless manner. This is a great example of how a talented technology team, smart capital investments has allowed us to expand and improve our omnichannel ecosystem. And we realized that some of our customers prefer that we ship or deliver their purchases directly to their home, so we're expanding our last-mile fulfillment capabilities. We now have 2 direct fulfillment centers, or DFCs, one in Nashville and a new one in southern California. This will enable us to handle 2-day shipping effectively to all consumers in the U.S. And while the DFCs are designed primarily to handle smaller parcels, we're also opening 3 new e-commerce fulfillment centers located across the country to handle oversized and larger product shipments. And for big and bulky items, like patio furniture, appliances and grills, as I mentioned earlier, we're standing up a market-level delivery model, bypassing our stores for bulky delivery. This market-based model replaces the legacy store delivery model where we've been loading appliances into a large area in the back of our store and then delivering to consumers' homes from the stores. This new approach will open up a sizable area in the back of our stores that we plan to put to better use. So allow me to share with you a pilot that we've been running out of the stockroom space that we're very excited about. As our new market delivery network removes major appliances from the backroom of our stores, we will free up approximately 10,000 square feet of space in each store. We're replacing appliances with key online-only SKUs that will drive our same-day and next-day omnichannel delivery model. Because our 1,700 U.S. stores are geographically dispersed, we see this as a unique opportunity to leverage their proximity to improve shipping lead times and reduce online shipping costs. Because our closest competitor has limited backroom space available, we see this as a structural advantage that we can potentially expand our fulfillment capabilities without adding a network of capital-intensive online fulfillment centers. Our ultimate goal is to increase the total percentage of online orders fulfilled fuel from stores. If we can accomplish this, we'll better serve our customers at a lower fulfillment cost. We look forward to keeping you updated on the progress of this pilot. While building out our capabilities of online fulfillment from BOPIS lockers to curbside, to parcel shipment, to big and bulky deliveries, we will continue to strive to meet our customer expectations to shop however, whenever or wherever they want, while growing market share and supporting our Lowe's Total Home strategy. We've come a long way from our Black Friday site crash in 2018. In fact, almost every day since April, we've handled traffic volumes in excess of the volumes that triggered that site crash in 2018. In fact, this year, we reached something of an inflection point in our online business. Even though our dot-com sales volumes have more than doubled this year, we still have significant growth opportunity in front of us. As a company, we're very blessed to have a talented leadership team and a robust technology platform. Combined with the power of our merchandising talent, we are very excited about the future of Lowes.com. And if you haven't already, I encourage you to download the Lowe's mobile app so you can experience this growth right along with us. Another significant opportunity for us is the installation services business. We're now overhauling this business into 2 focus areas. Starting with co-installation of products that we sell in our stores, like flooring, ceiling fans and faucets, these are typically simpler installations that generally are performed by independent third-party installers. This new service model is already delivering improved sales, elevated customer service scores, while dramatically reducing our overhead expenses. And we'll enable the purchase of installation services on Lowes.com as well, with a seamless integrated process that will connect customers to our provider network. Although we're late to the game with this functionality, connecting installation services to Lowes.com is a significant financial opportunity for Lowe's. We're also standing up an outsourced third-party model where the vendor sells, furnishes and installs more complex products like HVAC and bathroom remodels. Lowe's is paid a fee for providing the leads without needing to carry the inventory. We're now expanding this third-party model into new categories like kitchen refacing, countertop overlays and water heaters. I'm really pleased with the top line growth that we're seeing in this revamped business model, and our install services business will play an important role in our Lowe's Total Home strategy. Turning to another market share growth opportunity to support our Lowe's Total Home strategy is improving the localization of our products. When a new leadership team arrived at Lowe's, we found that the product assortments were essentially the same across the U.S. portfolio no matter the climate or demographic of the local market. This contributed to the productivity gap in terms of sales per square foot in our stores. Once again, the decision to limit localization was made to simplify the assortment process for the merchants and the planning and allocation teams. But due to poor system visibility, it was simply easier to manage the product assortment from North Carolina if all stores have basically the same assortment. That's why you would see riding lawn mowers in Brooklyn, 12-piece patio sets in west Philadelphia and deck stain in Arizona. So through our U.S. stores reset initiative that I referenced earlier, we're eliminating unproductive bays with our planograms to free up shelf space for these localized assortments. We've also done an assessment of the various market types that we serve so that we can create a template for a few common market categories, specifically, our urban, rural and coastal stores. Looking forward, the best is yet to come with regard to Lowe's' local market alignment. And because we're trailing our chief competitor in this area, we are excited by the productivity unlock that lies ahead as we continue to localize our stores. But our merchants also recognize that there are other opportunities to expand our product assortment to target an evolving consumer need that's not specific to a market, but rather spans across generations, including millennials, Gen X and baby boomers. So starting with decor, a category where some of our smaller competitors have recently stumbled. We've identified an opportunity to elevate our offering, and this will be one of the key initiatives in our Lowe's Total Home strategy. As a result, we plan to refresh allen + roth, which is one of our strongest private brands in our decor expansion, with an eye towards consumers with more traditional taste across a wide array of products in multiple categories. And next year, we're also planning to launch a new private brand in decor. This brand will be targeted to appeal to more modern taste across multiple product categories. Now let me close my prepared comments with a focus on marketing and branding. This year, we shifted our marketing efforts to directly address the challenges that so many of us have faced due to this global health crisis. As the pandemic took hold early this year, we pulled back on our promotional advertising and instead, we highlighted our commitment to our communities and our appreciation for our frontline associates. And as we moved into the summer season, we launched campaigns that addressed the needs of our customers to expand the use of their backyard living space and improve the functionality and enjoyment of the home as they spend so much time there. And finally, as we approach the holidays, we focused our campaigns around helping our customers invest in the time and memories that they are creating at home with their families. And we're pleased that our campaigns are resonating with our customers in this unprecedented time, which is evidenced by the accolades that we've been receiving for the first time for our efforts in this area. Through the incredible work of our Executive Vice President of Marketing and Branding, Marisa Thalberg, Lowe's has been named the #3 marketer for Ad Age overall. This very prestigious ranking recognizes Lowe's as the #1 retailer in the country for effective marketing. I'd like to extend my thanks to Marisa and her entire team for their outstanding work and this noteworthy accomplishment as well as to Bill Boltz and the merchandising team and Joe McFarland and the stores team for collaborating with Marisa on our new approach to marketing and branding. There is no doubt that these efforts have elevated our reputation and our brand and expanded our customer base. And going forward, marketing and branding will continue to play a key role to inform the customer on how Lowe's will offer everything that they need to provide a total home solution across everything in their home. Look, in closing, for the past couple of months, the question that's been top of mind for many of our shareholders is, how can Lowe's continue to deliver top line growth after the unexpected surge in COVID-related demand this year? A related concern has centered around how we can continue to grow market share while also driving further improvement in operating income. My intention this morning was to answer these questions by demonstrating the progress we've made thus far, then providing you with specific initiatives that will support our future sales and profit growth. As a leadership team, we are very excited about the runway that's ahead of us. And as we transition from retail fundamentals to our Lowe's Total Home market share strategy, we are committed to executing 5 key growth initiatives: Pro, online, installation services, localization and elevating our product assortment. Our investment thesis is very straightforward. We are laser-focused on investing in our stores, dot-com, supply chain and information technology to deliver sustainable productivity. We're fortunate that we still possess enormous value creation by continuing to invest in our core business. Now let me turn it over to Dave for him to outline the value of these initiatives, and how we will generate strong operating leverage and profit growth for our company.

Thank you, Marvin, and good morning, everyone. Thank you for spending time with us today, and thank you for your interest in Lowe's. Marvin started out today by outlining our progress against our retail fundamental strategy. He then updated you on the key strategic efforts that will encompass our Lowe's Total Home strategy going forward to aggressively grow market share. Now I'll begin this morning reviewing how Lowe's has been creating shareholder value, and importantly, our plans around value creation going forward. We introduced that framework at our 2018 investor conference. This framework is focused on 3 key areas: first is to drive operational excellence throughout the enterprise; second is to consistently generate high levels of free cash flow; and finally, to employ a disciplined approach to capital allocation. Since embarking upon our multiyear journey, we have delivered significantly improved results and have created meaningful shareholder value. Maximizing shareholder value continues to be a top priority, and we believe this formula will unlock additional value going forward. This morning, we are confirming our 2020 financial guidance that we just outlined during our third quarter conference call a few weeks ago. Based on the midpoint of our Q4 guidance, we expect comparable sales of approximately 23% for the year. And despite significant investments in store operations and supply chain, we are expecting to lever adjusted operating margin by 170 basis points to approximately 10.8% and grow adjusted earnings per share approximately 50% to $8.67 for the year. As Marvin mentioned, in 2020, we saw unprecedented levels of demand driven by COVID-related nesting trends. Additionally, we experienced a consumer wallet share shift from other forms of discretionary spending and into home improvement. Throughout this year, demand has been broad based across both Pro and DIY customers and across channels, merchandising divisions and geographies. As Marvin outlined earlier this morning, these results could not have been realized without efforts beginning in late 2018 to implement our retail fundamental strategies. These efforts dramatically improved and modernized our technology and our operating platforms. Additionally, our teams rapidly implemented enhanced protocols in support of the health and safety of both our associates and our customers. Many Pro and DIY customers rediscovered Lowe's during this time, and we've been focused on retaining these new customers while growing our share of wallet of our existing loyal customer base. We are investing capital, with the focus on expanding our omnichannel capabilities. We now are expecting to spend $1.7 billion in CapEx this year. And as Marvin discussed, throughout this uncertainty we faced this year, we never lost focused on supporting our associates and the communities in which we serve. We have committed more than $1.2 billion in COVID-related support for our associates, store safety and cleaning and charitable contributions. This year also presented the opportunity to reprioritize and pull forward investments in the business to drive future growth and returns. This includes a significant merchandising investment of approximately $250 million to reset the layout of our U.S. stores to support our Pro customers and to align with project-focused shopping. The new layout creates a more intuitive shopping experience with improved product adjacencies. These changes are aligned with our goal of increasing the sales productivity in our stores while driving operating margin expansion longer term. Turning to 2021, we anticipate COVID-related expenses to step down by approximately $900 million. We expect ongoing expenses of approximately $250 million per year to support enhanced cleaning and other store safety-related programs. In addition, more than 90% of the store resets are expected to be completed in 2020, so there will be approximately $50 million of expense carried forward into '21. Lowe's operates in a vibrant yet fragmented $900 billion home improvement sector. The sector has experienced broad-based, accelerated growth trends this year. And the underlying macro drivers that support strong home improvement trends remain very favorable. 2020 has been a year of significant expansion in the sector. It is our expectation that the sector will continue to experience long-term growth even after widespread availability of COVID vaccines. Residential investment is expected to benefit from historically low mortgage rates, rising home prices and growing household formation trends. Further, we are seeing near-term migration trends out of major urban settings to more rural and suburban areas across the country, many of which are regions that have historically been strongholds for Lowe's. Approximately 2/3 of our business is driven by nondiscretionary repair and maintenance activities. Repair and maintenance spending continues to perform well based on higher home utilization levels and a backdrop of aging U.S. homes. In fact, the share of homes older than 40 years is up more than 10 points since 2010 at roughly 40% of all U.S. homes. Finally, well-capitalized, big-box retailers are positioned to gain shares as consumers consolidate shopping trips and seek new, modernized omnichannel services. Many small regional competitors have not made the necessary investments in the omnichannel experience to meet the rapidly changing consumer demands. Despite our strong growth for this year, we still only maintain a market share of approximately 10%. We are underpenetrated with the Pro customer, which presents a meaningful growth opportunity for Lowe's over the coming years. This backdrop is highly supportive of our sustained growth outlook well into the future. Despite strong growth trend longer term, the home improvement sector is likely to contract modestly in 2021, while returning to growth in subsequent years. And this unique period is nearly impossible to predict with confidence the home improvement market performance for the next 12 months. But based on our analysis and current trends, our 2021 outlook for the home improvement sector assumes a demand decline of between 5% and 7% on a mix adjusted basis. This would represent an impressive 2-year stack growth of 18% for the industry. This outlook assumes a gradual return to normal consumer mobility in the back half of '21, driven by the availability of vaccines and treatments for COVID-19. It's likely that a more normal mobility environment would drive slower investment in the home. Next year, we anticipate headwinds as we lap a few transitory demand drivers, such as government stimulus, broad-based shutdown of nonessential businesses and spikes in demand for COVID-related cleaning products. Despite some near-term uncertainty, the home improvement sector should benefit from several factors even after COVID-related demand slows. Residential investments will likely remain high due to historically low mortgage rates, rising home prices, and higher household formation trends and longer-term wallet share shifts to the home. Housing inventory is low, which should continue to exert upward pressure on home prices. And home repair and maintenance work will be driven by the aging housing stock and some permanent shift to remote work. Unlike the pullback in 2008, consumer balance sheets remain healthy, with high levels of untapped home equity. Our core customers are homeowners who have been better insulated in this COVID-related downturn. In short, while we are planning for a modest sector pullback in '21, we remain confident in the long-term growth drivers in the home improvement market. Now given the uncertain nature of the sector and the range of potential outcomes, we are planning our business next year based on various scenarios, scenarios that will allow us to quickly adjust our operating plans throughout the year, with both a focus on maintaining market share gains and expanding operating margins. While we can't control the variability in the macro environment, we can ensure that our plans allow us to quickly pivot as marketplace trends evolve. Our first scenario assumes robust market performance, with demand down 5% to 7%. We are assuming that Lowe's sales would outperform the market by approximately 300 to 400 basis points. Keep in mind that throughout 2020, Lowe's consistently outperformed the broader market. The robust market share scenario results in total sales of $86 billion, representing a contraction of only $2 billion or approximately 2% versus last year levels. This scenario expects DIY sales to moderate over the period and our low-penetration Pro business to gain added momentum. Given our mix of DIY and Pro business, this customer demand profile represents a headwind for Lowe's as we enter 2021. Now I'll walk you through the building blocks in a minute, but our focus continues to be on expanding operating margins, driving towards 12% or slightly over $10 billion in operating income. As you know, our business model generates significant levels of cash flow, and next year will be no different. Given this operating plan, we would expect to buy back approximately $9 billion of our stock in 2021. Additionally, we'll expect to invest approximately $2 billion in capital expenditures. We are planning to increase our strategic investments in supply chain and in tool rental locations to further drive long-term growth and improve return on invested capital. Our strong operating outlook and capital allocation strategy would deliver approximately $9.90 in adjusted earnings per share, an increase of over 14% compared to last year. As you know, we've been making investments in Lowe's in an effort to improve operating margins. We have a clear line of sight to achieving 12% operating margins in 12 to 24 months. We are poised to deliver strong results in 2020, while pulling forward investments to drive sustainable growth. Now let me walk you through the major building blocks of operating margin expansion for the next few periods. The midpoint of our 2020 guidance assumes operating margin of 10.8%. Now using that as a jumping off point for next year, the robust market performance scenario assumes that sales decline approximately 2% in '21, given the outsized market growth in 2020. This contraction represents approximately 60 basis points of operating margin pressure next year given we can't leverage our fixed costs as effectively. We expect overall gross margins to remain relatively flat, supported by product margin expansion, but offset by supply chain investments. The supply chain pressure is a result of expansion of our network to support a market-based delivery and direct-to-consumer fulfillment model. We expect to lever SG&A by over 200 basis points as we continue to drive productivity gains across the company. U.S. and Canadian store productivity will significantly contribute to SG&A enhancements over the next several periods. The operations team have a comprehensive list of efforts, all focused on improving service while lowering our SG&A footprint. Additionally, we've launched an enterprise-wide productivity effort focused on streamlining corporate expenses while ensuring cost takeout of all nonessential COVID-related expenses incurred in 2020. These building blocks give me increased confidence that we can achieve our 12% operating margin target over the next 12 to 24 months. As I stated earlier this morning, given this unprecedented time in the market, it is very difficult to predict demand for next year with much certainty. Given the range of potential top line outcomes, we have planned for multiple scenarios to allow us to effectively manage the business at various sales thresholds. Our primary financial objective under all these scenarios is to improve operating margin versus 2020 levels as we continue to push towards our near-term 12% target. Now this slide specifically outlines 3 points on a spectrum of potential outcomes for next year. Under these various scenarios, we have the ability to manage our inventory and our SG&A to meet demand in a robust home improvement market or to moderate our spending in investments in a more muted market. We want to make certain that we are actively managing those items within our control, while quickly reacting to market trends as they materialize. In each scenario, we anticipate that Lowe's sales performance will outperform the market. Embedded within each of these various potential outcomes are the incremental investments in frontline associate wages and equity programs, including ongoing merit increases that Marvin outlined earlier. Importantly, and consistent with our primary objective, all scenarios yield operating margin expansion, from a high of 120 basis point improvement, if we achieve our robust market sales level; to a 40 basis point expansion in a weaker market scenario. Becoming more financially productive remains a focal point for Lowe's. We have a number of levers that we can use to flex our business model in the event of a lower sales environment. Over the past 18 months, we've implemented significant enhancements to our labor model and our scheduling infrastructure. These enhancements will allow us to more effectively flex our payroll to better match service needs with customer demands. As near-term sales demand changes, our new operating model allows us to more rapidly adjust our store operating expenses. Additionally, we would aggressively manage corporate-level SG&A to improve our flow through, flexing advertising spend and incentive compensation, while rationalizing or deferring incremental projects. And finally, we are focused on buying the highest-quality inventory to meet our Pro and DIY customer needs. We are investing in core replenished inventory versus higher-risk seasonal inventory, which will limit our markdown risk in a slower sales environment. These are the operating levers that we can quickly pull to ensure that we are continuing to deliver operating margin improvement even if the macro environment slows. The investments we've made in our technology platform enable us to more nimbly adjust and still support the right service levels in our store. Building on the momentum of our 2020 results and our plan for '21, we are updating and raising our long-term financial targets. This year, we are on track to exceed the sales per square foot target that we set in 2018 of $370. In fact, we expect to end 2020 with sales per square foot of approximately $423. Now we're setting a new target of $460, as we capitalize on the growth opportunities that Marvin just outlined. This largely centers on capturing additional sales within the Pro channel. And now that we're closing in our 12% operating margin target, we are increasing our long-term objective to 13%. This represents a 220 basis point improvement over our expected 2020 results. This improvement will largely be achieved through a combination of sales leverage and better SG&A performance. Overall, gross margins will remain relatively flat as we improve product-level margins, but these gains are offset as we invest in expanding the supply chain network. And finally, with accelerating sales growth, improving operating margins and continued disciplined capital deployment, it's our goal to expand return on invested capital by roughly 500 basis points to 32%. And note that when adjusting for the new lease accounting standards, this 32% target is equivalent to the 35% target that we set back in 2018. Now I'll spend just a few minutes outlining several of the key efforts designed to deliver on our long-term targets. And before jumping into these specific efforts, let me remind you of the company's long-term financial model. Over the long term, we expect gross margins to be essentially flat to slightly down. We will continue to drive product margin enhancements, which will be largely offset by continued supply chain investments. We will continue to lever SG&A through top line growth, gains in store productivity in both the U.S. and Canada, and drive enterprise productivity. These building blocks give me confidence in our longer-term operating margin target of 13%. I'll begin with our efforts centered around improvements in product-level margin. These product-level margin efforts are expected to produce over $1.3 billion in gross margin enhancements throughout the planning horizon. In aggregate, these efforts are really clustered in 3 basic areas. First is modernizing our pricing and promotion technology infrastructure. This enhanced environment will allow us to improve market-level pricings, resulting in additional margin capture. Our improved technology will support dynamic pricing, allowing Lowe's to more rapidly adjust to marketplace dynamics for both Pro and DIY customers. Second is our focus on improving the company's product cost management process. We've expanded and enhanced the company's product line review process, while creating a center of excellence for proactively managing commodity and raw material cost changes. And finally, we are more strategically approaching our promotional strategies and our growth plans for private brands. Transitioning to a more EDLP-like environment will support everyday value for our customers while improving gross margins. Turning to our supply chain investments. Now as Marvin mentioned, we are evolving from a store-based delivery model for big and bulky products to a market-based model. These investments are expected to pressure gross margin by more than $1.3 billion, essentially offsetting the gains realized in product margin. By moving these products out of the back of the store and up one node in the supply chain, we can significantly improve both customer service levels, while driving greater productivity and lowering cost. The increase in supply chain expenses associated with the new market-based, cross-dock terminals is expected to be more than offset by improved store operating expenses. Supporting our omnichannel strategy, we are expanding our parcel shipping capabilities to bring online 4 new direct fulfillment centers, including our new West Coast DFC. These fulfillment centers will allow Lowe's to fully service North America with 2-day delivery, but will apply added pressure to gross margin. And finally, technology will play an important role within the supply chain efforts. We are modernizing our technology platforms in demand planning, allocation and forecasting. Further, we are using artificial intelligence and an advanced delivery scheduling technology to further enhance our omnichannel performance and manage delivery cost. While the supply chain investments in aggregate pressure near-term financial performance, they are necessary to support our long-term sales and service objectives. Store operating expense productivity presents the largest opportunity for margin expansion in the future, yielding over $2.5 billion in savings. We plan to unlock efficiencies by further mobilizing our workforce through added functionality deployed to their handheld devices. We'll enable our store associates to sell on the Lowes.com platform directly from our store aisles, providing access to our expanded online assortment. New in-store automated signage will also drive customer awareness, while freeing up tasking hours in support of improved service in our stores. We are modernizing our checkout infrastructure, launching self-checkout across our store base and enabling remote tender on our associates' smart devices. These additional checkout options will provide more choices and a better experience for our customers, while also driving meaningful payroll leverage. And we'll continue to improve our in-store fulfillment process through pickup at the front of the desk, BOPIS lockers and curbside. Our dedicated fulfillment team and enhanced picking technology will drive payroll leverage, improve speed of service and greater customer satisfaction. Finally, as I mentioned earlier, there were significant costs from unique investments occurred in 2020. We have a very specific effort focused on taking out these nonessential expenses on a go-forward basis. Albeit a somewhat smaller outcome, improving our performance in Canada while driving productivity and corporate expenses is expected to drive over $250 million in savings. In Canada, we are implementing our retail fundamentals playbook to improve operating efficiencies. We are leveraging lessons learned from the U.S. business to improve results. Similar to our approach in the U.S., we are driving greater labor productivity by reducing tasking hours and enabling associates to focus on customer service. We are also equipping our associates with smart mobile devices and launching our retail scorecard to simplify store operations. We are executing a banner simplification initiative aimed at reducing operational complexity and driving synergies across the platform. Further, we are reducing the levels of promotions in the business. We are also pivoting to a more EDLP-like pricing strategy similar to the U.S. to deliver greater everyday values to our customers while, again, improving gross margins. We are pleased with the early improvements delivered by the new leadership team in Canada, and we expect that they will continue to drive improved operating margins going forward. And finally, we are launching a new program across the enterprise to reduce indirect spend via improved sourcing, better negotiations and demand management. We are employing a disciplined approach to managing nonstrategic costs by leveraging our scale and our purchasing power. Now looking forward over the next 3 years, we believe the company is very well positioned to generate significant levels of cash. Assuming a reasonable financial plan, the company could generate operating cash over this period of approximately $25 billion. If you assume that slightly less than 25% of this cash will be invested back into the business in high-return efforts, over $19 billion in free cash would be generated. Now additional cash of about $11 billion can be made available as we move back to our target leverage ratio of 2.75x. This will result in approximately $30 billion of cash available to enhance shareholder returns. Given the strong cash generation capabilities and the attractive long-term outlook for the company, our Board of Directors just authorized an incremental $15 billion in share repurchases. This brings the total share repurchase authorization to $20 billion. We expect to use our substantial cash generation capabilities to return value to shareholders through our approach to a disciplined capital deployment. Our capital allocation priorities remain unchanged: First is strategically investing in our business to drive outsized returns. Second is supporting our 35% dividend payout target, and finally, returning capital to our shareholders through value-enhancing share repurchases. We remain committed to maintaining a strong balance sheet and a solid investment-grade rating with a target leverage ratio of 2.75x. Our healthy balance sheet is critical to creating the flexibility we need to make high-return investments that will allow us to drive sustainable shareholder value. In closing, this is a very exciting time for Lowe's. We operate in a vibrant industry that has a fundamental long-term growth outlook. At the same time, those market participants that are well capitalized and who are investing for a future in omnichannel will likely outperform the market longer term. We also have significant opportunities ahead of us to grow both the top and bottom line. 2020 was a pivotal year for the company. We are taking market share earlier than we expected, and we are making the right investments for future growth. We are establishing a strong track record of delivering sustainable value and shareholder returns through a disciplined capital allocation strategy. The Lowe's business consistently generates high level of cash flow, and we are deploying this cash in a manner to drive long-term shareholder value. Thank you for your interest in the company and for your time today. Now we're going to take a quick break. [Break][Presentation]

Before we begin our Q&A session, I'd like to introduce the additional members of our executive leadership team who are joining us here in the studio now in a socially distanced manner. Joining us for today's Q&A, we have Bill Boltz, Executive Vice President, Merchandising; Don Frieson, Executive Vice President, Supply Chain; Seemantini Godbole, Executive Vice President and Chief Information Officer; Joe McFarland, Executive Vice President, Stores; Marisa Thalberg, Executive Vice President and Chief Brand and Marketing Officer. Operator, we're ready to begin taking questions.

[Operator Instructions] Our first question today is coming from Simeon Gutman from Morgan Stanley.

My first question is on the robust market guidance. And I mean this respectfully. I guess the question is the $9.90, Dave, is that effectively what you're guiding to for next year? Is that your base case? And then within that question, if you're going to retain it looks like 98% of sales in that scenario, and you're losing $1 billion of cost or COVID-related costs, I would -- it would look like you can actually do better than that 12%. And so I don't know what it contemplates in terms of investments. Or how do you think about wages in that $9.90 scenario?

You could take that.

Great. Thank you, Simeon. I guess if you look at our outlook for next year, as you can well imagine, it's pretty hard to predict with certainty what the top line performance is going to be. So we did put those scenarios together. Obviously, if the market is to contract 5% to 7%, we would expect to perform better than the market, so down 2%. And if you think about -- so with that, under that scenario, yes, we would deliver $9.90. Yes. And we are taking out those expenses from a wrap perspective out of '20 into '21. But at the same time, we are making investments. We're improving product margin pretty substantially. At the same time, we're investing some of those dollars back in the supply chain. So that presents a headwind. Having said that, we -- with those investments, while they give pressure from a margin perspective, we're relieving SG&A opportunities for us as we cycle into '21, so driving that improvement from an operating margin perspective from roughly 10.8% to 12%.

And Simeon, the only thing I'll add to that is we want to do a really thorough job of laying out different scenarios. I think you would agree, 2021 is going to be the most challenging year to forecast in recent memory for all the obvious reasons. But we felt it was the prudent thing to do is to lay out different top line scenarios, but demonstrating that we finally have enough levers in place in this business, where we have more control on driving operating income. And so we can't control the macro, but we definitely can control our investment thesis and we can control how we execute to deliver operating profit. And that's the major theme that we wanted to demonstrate this morning.

Great. My follow-up is maybe just -- it's 2 parts. One, look, I don't want to get ahead of ourselves. No one knows what next year will bring given how unprecedented this year is. But if the business or if the market ends up flattish, right, so even better than that robust case that you mentioned, how do you handle that upside? Does that flow through? Or are you inclined to accelerate some of the spending or pull forward like some of the investments this year? And do you have any guesstimate in 2020 how much market share you gained? And then what is that assumption as far as what you retain for that in 2021?

So I think you answered the question. We don't want to get ahead of ourselves. And that will be a great problem to have. Obviously, we're still making investments in the business, but I think they will support this point. The key message is we're going to have a much more specific control over bottom line operating income performance than we probably ever have based on all the investments that I talked about: new labor scheduling system, new price management system, improvements we're making in the supply chain, digital signing, which allows us to make price adjustments a lot more intelligently, localization, so we can price based on market store level SKU base basically different from how we do today. So there are a lot of levers we have today that we didn't have just 12 months ago. So the short answer is, it will be a great problem to have. If the macro environment improves, we believe our operating income performance will improve concurrently based on the top line performance.

Yes. Simeon, I'd just add that from an inventory perspective, we're making investments in replenished inventory as opposed to seasonal inventory, as we discussed in our prepared remarks, such that we can keep pace with demand. So as demand accelerates or demand pulls back, we'll be able to flex our buys to be able to accommodate that consumer, both from a Pro perspective and a DIY perspective.

Our next question today is coming from Michael Lasser from UBS.

Recognizing how difficult it is to project in this environment, how did you come up with these various scenarios for robust, moderate and weak? It would be helpful to understand the underlying assumptions both from an overall macro scenario and what you're expecting from a category and customer perspective within each. And when would you expect to see the market starts to decline, in the first or the second quarter of next year?

Yes. Great question, Michael. When we looked at it, we've got a couple of things. One, we've taken some outside input from a macroeconomic perspective. We've done some analysis and got experts to opine on their projections for next year. Secondary, we've actually done some work internally as far as how the categories, geographies and regions are performing, and done different -- and perform different scenarios. At the same time, we went back and understood, what was the overlap that we're against as it relates to both stimulus and kind of the macro shutdowns across the geographies or across the country both here and in Canada for next year, and try to work on what that incremental lift was last year versus coming up into '21. And so I think that's -- if you look at that, you would expect that the total market would be down 2% to 3%, and then you need to kind of adjust for how we participate in the market. As you know, we're under-penetrated a bit from a Pro perspective. We think the Pro is going to probably accelerate some growth in the future periods. So while that will accelerate, it's a smaller portion of our total business. At the same time, DIY growth will probably moderate. We over-penetrate to some degree in DIY. So that mix-adjusted basis gives us that confidence that in projections that we'll be down 5% to 7% from a macro perspective. And I do think Q1 and Q2 are kind of odd quarters. We look at comparisons. Because if you recall, kind of late March is when some of the shutdowns begin to occur, and I think those present unique opportunities and challenges for us as we cycle over those events.

And Michael, just a couple of points. So going into this year, historically, Lowe's has always underperformed the market, at least for the last 5 to 7 years. So we made a commitment coming into 2020 that we would change that trend and we would always outperform the market. And we obviously executed to that this year. And going forward, that's an expectation. I think Dave laid it out in his prepared comments that we have an expectation that we'll outperform the market. Also, if you go back through some of the specific initiatives I talked about, whether it's Pro, whether it's the U.S. retail reset initiative, whether it's online, whether it's installation services, localization, all of these are part of our financial plan going into 2021, although in different increments. And you can appreciate that we have to have a financial plan internally by next year. So we have to make macro assumptions, but then we have to look at category-specific initiatives. And I want Bill Boltz in the studio to just talk a little bit about this U.S. retail reset initiative and just highlight 2 or 3 things that we're excited about as we think about going into 2021.

Yes. Thanks, Marvin. Just a couple of things in regards to our Reset program that is underway. We're about 2/3 of the way through the company right now, with an expectation to finish most of the stores by the end of the year. And we look at the efforts around what we're focused on, it's all about trying to make it easier for the pro to shop. And so those areas that we focus on, obviously, you can think of rough plumbing, rough electrical, focused on job-lot quantities in our lumber and building materials area. And then looking at areas that complement those categories like areas like hardware, capacitors, products like that. And then the areas around cleaning. The cleaning program isn't going to change. And we're headed down this path long before the pandemic, but now moving the category to the main aisle, certainly one that we're excited about what we think we can do not only start the basket for a DIY customer, but also enhance for our Pro customers. [indiscernible] .

Okay. That's very helpful. And my follow-up question is a more near-term question, and it involves reconciling the guidance. So you're guiding to a 23% or reiterating the guidance of a 23% comp for the full year. And then you reiterated the fourth quarter guidance. But to get to a 23% comp for the full year implies something in the -- maybe in the low teens for the fourth quarter. So can you help us understand where that -- how you reconcile that?

Yes. Michael, the only thing we did is we took the midpoint of the guidance for Q4, which was 15% to 20%. So we put 17.5%. That is what we use and roll forward for the full year. It's just math from that perspective.

And Michael, let me make this point to make sure this is clear. We feel really good about Q4. Through the month of November, we're actually ahead of forecast. We had a very strong Thanksgiving, Black Friday, Cyber Monday performance. So today's point is just math.

Our next question today is coming from Kate McShane from Goldman Sachs.

Of the investments that you're focused on, specifically for 2021, how much of this was contemplated back in 2018 versus it perhaps being a newer initiative due to what you saw during COVID or as you evolve the total home strategy?

Kate, I'll take that. It's a really good question. I would say there's nothing new on the project list, but we've had some reprioritization. As an example, Joe McFarland and his operations team have a 3-year project plan to drive operating efficiency and productivity. One of those projects that were probably 2000 -- late 2021, '22 project was curbside pickup and BOPIS lockers. But obviously, due to the pandemic, we felt it was the prudent thing to do to accelerate those initiatives. Bill Boltz just talked about this U.S. Reset initiative. We knew coming in that we had stores that were really problematic from an adjacencies perspective, specifically for the Pro customer. And we've built out a project plan to get this completed over an 18- to 24-month period. But obviously, with the business accelerating this year, we made a business decision, let's see if we can accelerate this and get the majority of this done in 2020. And we're going to get roughly 90% of all the U.S. stores reset before the end of this year, which is a herculean effort. And a lot of credit goes to the field merchant team and the store operations team. So nothing new, but we just basically had to reprioritize. Obviously, we've talked a lot about lowes.com and replatforming to the cloud. That was an initiative that was on the project plan. It's a pretty large and very complex project, but Seemanti and her team had to accelerate it because we knew we had to get that platform modernized because it was holding up other investments and other technology innovations that we couldn't get done. So long answer to more reprioritization versus new initiatives.

Our next question today is coming from Eric Bosshard from Cleveland Research.

2 things I'm curious on. First of all, perhaps for Bill, but the gross margin discussion and strategy as we move forward, I'm curious about how you're thinking about the impact on the consumer. Obviously, promotion is not that important in 2020. But your thought about weaning off of promotions and how that might impact sell-through, how are you thinking about managing that balance in 2021?

Eric, let me just take the first part of that first, and then I'll kick it over to Bill. One of the first things that Bill identified to me when he arrived back in 2018 is that we really had to get off of this high-low promotional cadence that we were on. Because what he and I have lived through in the past is that, that process devalues your value proposition to the consumer, but it also trains the customer to wait for a deal to come in. And we believe in this business, you want to be everyday low price. And so Bill had that as a perspective from his very first day, but we needed to have the platform to make that happen. And so the work that Seemantini and the IT team had to do on the price management tool, et cetera, helped with that and Marisa coming in from a marketing standpoint gave us a platform. And so we're excited now that we're transitioning. And I'll let Bill provide more context to exactly how we see 2021 playing out in that regard.

Great. Thanks for the question. Just a couple of things to add to that. And when we were together back in 2018, we've highlighted the strategy of trying to get closer to competitive price strategy. And certainly, what's happening, there's a lot of to accelerate that. We're not going to walk away from the complications on our promotions that we're required at certain times in the year. And then the work that we've done with our pricing systems and work we've done with -- we feel like an opportunity to be viable doing every day and making sure that those [indiscernible]. And so a lot of that is -- will be up on a number of our end gas, on our shelf and our Pro category. All we've done is be -- to allow our value, otherwise we've [indiscernible]. So we're really proud of what we've been able to accomplish and really proud of the work that we've gotten to this point. And we're going to continue to put forward that there's obviously opportunities to do but we need to enhance that. I'm going to continue to look at that as it relates to pricing opportunities across the country and making sure that we provide every area [indiscernible]. Thanks for the question.

Great. And then just a follow-up, could you provide some clarity on the timing for tool rental and the appliance distribution change? And specifically, when this starts? And then how you think the spending on that matches up with the payback from it? Is this a meaningful or modest net expense? And then the time frame we should be thinking about, about the implementation of those 2 initiatives?

Yes. So Eric, I'll take the appliance piece. I'll let Joe talk about tool rental, because we're very excited about both. I laid out that we're trying to get to a market-based delivery model from a store base. One of the big surprises for me when I arrived here 2 years ago was that we had the store base distribution and supply chain strategy. And not only was it physically tied to the store, it was systemically tied to the store. In other words, if a store sold an appliance, the only way they receive credit for the sale is they had to physically deliver it and the systems were hardwired that all deliveries had to go through a store, which created all types of expense and productivity issues. Not to mention, it wasn't a great customer experience. So we're in the process now of fine-tuning this market-based strategy that we talked about. And we are going to start to roll this out in earnest as we get in probably to the second, third, fourth quarter of next year. The model is in place. It's being piloted. We feel really good about the learnings. Trust me, if we would have picked another year to transform the supply chain, it would not have been transformed in the middle of a global pandemic. But timing is everything, and we learned a lot through some of the supply issues we had in appliances and other big bulky items to really learn a lot. You're going to see this start to roll out around the country, I would say, latter part of Q2, but in the back half of next year, but we're excited by it. And like anything, Eric, you put the capital investment in, and the payback comes later. And so these are long-term investments, but these are investments that we are well capitalized to make. They're all within our financial forecast that Dave talked about. So there's no new expenses coming. Everything that we're doing is already built into our financial forecast. And we're excited about the future. I'll let Joe talk a little bit about Tool Rental and why we're excited that this is going to be big for our Pro customers.

Yes. Eric, thanks for the question. And for Tool Rental, as Marvin stated, this is not a stand-alone initiative, but 70% or more of our pros really rent tools on a daily basis. So we're really excited about Tool Rental initiative. We announced our first opening in Central Charlotte shortly after our Q3 earnings call. We've got a handful more Tool Rentals that open up here in Q4, but really excited about the go-forward plan. And so think about close to 200 Tool Rentals per year for the next several years. So really excited about what this adds to the Pro offering and really pleased with the early results we're seeing in the Tool Rental.

And Eric, if we're pleased with the opening and the customer response, that 200 number can be accelerated. So again, Joe and I both have a lot of history with Tool Rental. And we understand that it is very, very key to creating an environment that drives improved Pro penetration. And so we're going to be rolling out a best-in-class environment with paperless -- no paper contracts. It's going to be paperless, reserve tools online, expanded space, mechanic shop on site that's going to be best-in-class. So a lot of great innovation coming to a space that's in desperate need of modernization and innovation.

And Eric, just from a financial standpoint, as Joe and Marvin articulated, this is a play around the Pro. So you need to look at it in totality. But if you were to just separate and just look at the Tool Rental box itself, it performs like a new store. In the beginning, it takes a while to ramp up. So financially, in the very year -- or first year or 2, there are some headwinds before it begins to produce meaningful operating income.

Our next question today is coming from Seth Sigman from Crédit Suisse.

I want to follow-up on that 12% margin target, which is obviously earlier than expected. And the math makes a lot of sense based on all the costs that are rolling off and the progress in a lot of areas, including sales. But can you just articulate the rationale to flow that through and target that level of margin expansion at this point versus perhaps leaning even more into investing? And I think the message is probably that you are investing at an elevated level and -- but there's still a lot of productivity gains that are helping offset that. But just curious, the rationale and how you think about that.

Yes. Seth, I think as we've said in the past, the issue has largely not been the availability of capital to invest and make investments. It's actually the bandwidth and just the management bandwidth that we have to deploy against all these efforts. So I think what we've tried to do is being very thoughtful to make sure that one, we're investing capital with the best return; but secondly, we're putting the right resources against all these investments such that we can manage them seamlessly across the enterprise and make sure that we are actually harvesting the return as we implement these projects. So it's more of a focus on that bandwidth than it is capital. So I think our plan is reasonable and it's appropriate as we think about all the things we have, both for the rest of 2020, but importantly as we cycle into '21.

And Seth, the one thing that I can commit to you is that this management team has put a lot of thought and effort in the investments we need to make, medium and long-term, to modernize this company. And so we are not bypassing any investments. We're not pushing aside or postponing any strategic initiatives in order to hit a financial target. I mean, to the contrary, the investments we've made thus far are some of the reasons why we believe we can achieve this a little bit sooner than previously expected because we're starting to get the benefit and the return from some of the key initiatives under our retail fundamental strategy. But to Dave's point, we don't have capital constraints. We don't have strategic idea limitations. It's all about making sure that we can get everything through to pipe and run this business effectively at the same time.

Okay. Great. That's very helpful. Just a quick follow-up here, thinking about the long-term sales outlook. Is there a normal sales growth cadence to think about past FY '21 to get to that $460 million? Obviously, it's going to be market dependent, right? But just thinking about related to strategic initiatives and the time line there, just any commentary there that would be helpful.

Yes. Seth, I think it's probably a little early to think about '22 and '23 and beyond, kind of the -- I guess the cadence of growth half of that period of time. But I think just from a modeling perspective, we thought it fairly consistent in the out years. Now when we get closer to '22, we can probably have a different dialogue and understand how the market is shaping up from that perspective.

Our next question today is coming from Christopher Horvers from JPMorgan.

Can you talk about the range of EPS scenarios in the moderate and weak environments? And following up on an earlier question, it didn't sound like you were saying a robust scenario was the base case for '21. So in terms of those 3 scenarios that you laid out, based on the work that you did, how are you weighing the probabilities of each scenario from a top line perspective?

Chris, we didn't say that was the base case scenario because, as we said, it's just really hard to predict what's going to happen next year. I think we've tried to create all these scenarios as somewhat equal from that perspective, making sure that we're planful we're making the right investments and pulling the right levers such that we can deliver operating income enhancements over that period of time. We obviously want to drive as much top line and flow-through as possible. So clearly, we're focused on doing the best that we can from an operational perspective, but we realize that we don't control the macro. And from that perspective, we've just tried to be very thoughtful to make sure that we have plans in our playbook that we can implement on essentially a moment's notice to make sure that we can flex appropriately to drive performance through next year.

And look, Chris, the only thing I'll add to that is I made the point earlier that our goal is outperform the market, and we have every expectation that we can do that. So if you think about those different scenarios and Dave's point about our commitment to outperform the market, then you think about the operational levers that he laid out that we now have in place. I think, again, the broader point is we can't predict the macro. But irrespective of what the macro gives us, we're going to be able to outperform it relative to the marketplace. And we're going to be able to use all of our different leverage points to create operating income that's going to be accretive to what we deliver in 2020. That's kind of the broader thing.

Yes. And Chris, I would just say that under all those scenarios, we would continue to run our capital allocation playbook. So we would anticipate doing $9 billion of share repurchases through each of those from a robust scenario down through a weak scenario. So I think you can do the math and understand the financial flow-through from that perspective from the EPS, if you want to do that.

Makes sense. And then as a follow-up, you talked about gaining market share and flipping that over the past couple years. How much market share have you gained year-to-date? How are you thinking about the opportunities going forward in terms of the categories in the channels where you see the greatest market share gains in 2021 and beyond?

Chris, maybe I'll start with just a big macro perspective on that. If you look through this year, probably the market's grown 15% to 18%. We're growing in excess of 23% to 24%. So obviously, we're taking share from that perspective. And I think if you look across both geographies and categories, we've actually done quite well across all those categories. We continue to lean in and grow share pretty much across the box, if you will, and further enabled through our online presence as we pushed into that channel. And I would say that, again, back to thinking about the long-term financial algorithm and how we're going to grow this business, obviously, today, we over-penetrate in DIY. We're going to continue to do that. At the same time, the opportunity we have in this business is to really win that Pro customer, grow more share of his or her wallet, and at the same time, lean into omnichannel. Those 2 channels, those 2 are the biggest opportunities you think about getting to our longer-term targets over time.

So Chris, let me do 2 things. Let me allow Joe McFarland just to talk a little bit about Pro Loyalty and provide some insight because we think that's an incredible unlock for us in 2021. And I want Seemantini to just talk a little bit about some of the key new initiatives for online that we think will allow us to grow that channel and the whole omnichannel experience as well. So Joe, you take Pro, and then Seemanti, you can just quickly cover online.

Well, thanks, Marvin. And listen, for the Pro, think about this journey that we've been -- we were laser-focused on the retail fundamentals, things like job lock quantities, things like Pro staffing, right? If you just remember back even 12 months ago, we didn't even have registers at our Pro desk to ring the customers up. So as we have come through kind of this retail fundamentals, really excited about what we're seeing from a Pro standpoint. Our Pro growth this year has been quite robust in -- as you look at the Pro Loyalty and early read on our Pro Loyalty is we're seeing the trip increase that we certainly expected. We're seeing a larger share of wallet with that Pro. So increased trips, increased basket size from the Pro. We -- the pandemic throughout '20 caused us to pause a little bit on our Pro Loyalty rollout and really focus on some of the incremental underlying trends that we were seeing in the business. As we got into Q4 this year, we continue on our Pro Loyalty, and really excited about all the steps, all the unique business tools under this platform we'll provide to these Pro customers, as well as the overall experience of the new look of Pro that we have discussed and really condensing these Pros, the number of trips that they are making to other competitors and really getting that simple solution all under one roof. So really excited about what's happening in the Pro business from the overall loyalty and the Pros' acceptance to the new home for Pros. And I'll turn it over to Seemantini so she can talk about our install business.

We are really excited about what online can do for us. And like Marvin was saying, we are working towards that Total Home strategy and to -- in that -- to service to that. The first thing we are going to do is have very category-specific experiences. Whenever I talk to Joe, Bill, my peers, we always think about, you don't buy drill the same way. You buy home decor product. And that's why we are going to have completely different experience when it comes to buying different categories, make it really easy for our customers. The second thing we'll do is, you will have this feeling of completeness online, just like we did delivery scheduling this year. What we are going to do is you're going to be able to buy your complete project by that installation, make sure that your project is trackable online. So we'll just make sure that we have this complete project experience on the website. The other thing we are absolutely going to do is have omnichannel experience. We are a home improvement retailer, and there are many steps in the whole purchase process. And more than any other retailer, we feel like omnichannel experiences are really important to our customers. So even if you bought your appliance in the store, you will be able to change it. You will be able to service it online through your app. So these are all the different things we are doing online to make sure we have a really great experience.

And so Chris, look, we're excited about the tangible initiatives we have in place to drive this business. And the good news is that we put a lot of effort into 2020 to set us up to continue to drive incremental improvements across multiple categories and multiple functions. And the goal this morning was to lay some of those out. So we can be very specific around how we see the future of our sales growth and our profit performance below it.

Our next question today is coming from Peter Benedict from Baird.

I guess my first question, Marvin, kind of relates to, how do you balance service levels as you kind of flex labor across some of these scenarios? I mean I know you guys are doing more selling hours versus tax -- tasking. I mean I just -- when Home Depot really turned the corner, you could feel that higher service level in the store. And so just how do you get confidence that, as we lay out these new scenarios, that, that service level is going to really be maintained in the store, not sacrificed to achieve the margin targets? That's my first question.

Now Peter, it's a question that we think about every day. And so I'll hand this over to Joe, but I'll just make an opening comment, that everything in our store environment, everything in our omnichannel environment begins with serving the customer. And even the kind of shift from 60% task to 40% task and 60% now service, now realize this is a high-touch service environment. And 2 years ago, 60%, 6-0, of all of our payroll hours in the store were spent on something other than serving a customer. And re-engineering that was not an easy task, but it was done very effectively. And if you go back to one of the slides in my opening comments, we've improved service by 400 basis points within this time frame. We've made all these monumental changes. So it gives us some confidence that what we're doing is working. So what I'll do is ask Joe to just talk about that service commitment, but I'll also ask Marisa just to talk about how we're trying to communicate to the consumer the renewed Lowe's brand because the pandemic allowed customers to rediscover Lowe's, but also allowed customers to discover Lowe's. And the message that she's putting out there is connected to the service environment that Joe is trying to create in the store. So Joe, you take what we're doing, and Marisa, you can talk about how we're trying to communicate that to the marketplace.

I think it's a great question. And I think you've got to go back over the last 18 months. 18 months ago, if you can remember, we had a labor scheduling system that was really a template corporate schedule, right? The schedule was the same in every geography, in every store. And it was really kind of a blunt instrument tool. And so as we built this new labor scheduling system, our new payroll management tools, we're able to drill in specifically by store, by department, by geography to make sure that we have the right level of service in the right areas of the store. And so as we have been -- as we've done that over these last 12 months, we've seen the customers really responding. If I think about incremental tools that we have put in, things like the handheld smart devices. 2 years ago, we had about 20,000 iPod Touches that really did not work. And so I think about all the enhancements we're making for the associates, 115,000 new handheld devices, things like productivity improvements and the mobile printers on the floor, the paperless, buy online, pick up in store process. So we're very confident in the initiatives that we have from a payroll and really a store simplification standpoint and taking all these complex processes that we had in the store, simplifying those, identifying the areas of responsibility. And you just think about the new supervisors that we've put in place over the last 2 years, the new assistant managers that we put in place. So even from our specialty standpoint, we had no way to track specialty productivity in the past. So very pleased with the progress we're making, the store operations and payroll side, and very confident in the initiatives that we have laid out over the next 3 years.

So Marisa?

Yes. Thank you. So just to touch on what Marvin has said really throughout this presentation and building on Joe's point, we're really focused on putting the customer at the center, and having Lowe's show up in a way that feels really genuine, salient and relevant in this particular environment and then an ongoing basis. We spent a lot of time this year even as we were rapidly changing things to be agile, really deeply understanding where Lowe's' latent advantages are as a brand and leaning into that. And I'll tell you so much of the inspiration, particularly in the earliest days of the pandemic, was a commitment we made as a management team that these are moments where companies and brands really need to show up, particularly given our role as an essential retailer. And we wanted to do that in a way that was very authentic to who we've always been. So you saw that reflected in some of our earliest work, where I and the team took a lot of inspiration in the fact that we've always been a company and our associates across Lowe's have been the types of associates that show up particularly in times of crisis. It's what we've always done. It's the culture of the brand. And we are no different in this time of need. And then working in close collaboration with Joe and with Bill in making sure we have the right products, the right propositions to really be present in the right ways for our customers through this time. And at the same time, just engaging with them differently. So we've started to see that pay dividends in terms of our levels of engagement in social media, for example, have had triple-digit. I mean it points up to 500%-plus increases versus prior. And also, the ways that we've wanted to make sure people understand that this is a brand that cares about doing the right thing. And so you see that reflected even now in how we've shown up for holiday. We absolutely are there to be commercial in our intent to get you to think about all the different ways. We are a great destination for holiday shopping, perhaps in ways you haven't thought about us before, given all of our expanded merchandise assortment. And at the same time, doing things that really reflect the unique nature of this holiday season, from our $1 billion donation of pre-lit artificial trees to homes that really need them this year, to even showing up as a big retailer to support all the Pros and other small businesses that we do support every day on Small Business Saturday. So these are all examples how, I think, we're really connecting differently with the customer. It's paying off in the levels of engagement and the response we're seeing. And I think it's just a reflection of more to come.

Great. Fantastic. And I think we've noticed the service level improvements in the store; looking forward to that continuing. A quick -- maybe, one quick follow-up. Just on the cleaning trends, moving that department up to the front of the store. I know there's adjacency reasons for it. And clearly, that's a category that's got increased relevance here. How are you guys thinking about cleaning in general post-pandemic? I mean is this a trend that you think remains elevated? Just maybe as a quick thought there.

Yes, Peter. So thanks for the question. First of all, we don't think that the cleaning trends are going to change. We think that all of that is kind of here to stay. Whether that's the project -- before and after you start a project, but now certainly with the pandemic, those trends will continue to go forward for some time going forward. So when -- stuff we had on the aisle before, light bulbs, et cetera, as you know, those trends have changed and technology has changed in that business. So the time was right, and we were starting down this path, as Marvin mentioned in his opening comments, of doing some changes in our store long before the pandemic. Cleaning was 1 of those areas that we knew we could capitalize on. And so we're excited about being able to move that into a more visible location inside of our store and being able to start a basket with that category of product.

Our next question today is coming from Scot Ciccarelli from RBC Capital Markets.

So I had a follow-up on gross margins. Now when you guys talk about product margin improvements that you're anticipating, I want to clarify that it's like-for-like merchandise margins and not a function of mix. And then related to that, assuming it's mostly merchandise margins, why would you expect to generate that much improvement in gross profit dollars when you're already one of the biggest customers for most of your vendors?

Yes. Scot, it is largely like-for-like product. But keep in mind, there is a little bit of mix in here because as we talked about before, is we have a big opportunity in private brands to lean into some of those products to grow our share and our share within our total portfolio in private brands. So I think there's a little bit of mix in there. But the vast majority of this is about us making sure, one, we're managing the cost complement of these products more effectively. And we've stood up a really strong team between Bill Boltz and my team to be able to go after that in a very meaningful way. Secondly, as we think about promotions, making sure that we're leaning into promotions in a way that's both strategic and driving real value going forward, and again, pivoting more to an EDLP-like environment. And then third is working with our vendors in a way that we can lean into in and out or special buy items and opportunities that drive real value for our vendors, at the same time real value for ourselves here at Lowe's, and importantly, offer a tremendous amount of value to customers. So I think there's -- all 3 of those levers work to really enhance the product margin performance going forward.

And Scot, I'll just add just 1 anecdote. So I talked about localization. So we have a very primitive way of sorting products based on geographic locations. So I mentioned earlier deck stain in Arizona, 12-piece patio sets in West Philadelphia and ride lawn mowers in Brooklyn. That's not made up. I mean I'll never forget Joe McFarland, Bill Boltz and I popped into a store in West Philadelphia last year for the first time. And we walked in, the first thing we saw was a 12-piece patio set, large propane grills, a massive assortment of push lawnmowers, a couple of riding lawnmowers in an urban area. And so think about the markdown pressure that happens in that environment when you have to exit those products because they should never have been in the assortment in the first place. And so Seemanti's team working with Bill's team to design this price management tool gives us now the ability to do what most large retailers have been doing for years, and that is having localized SKU assortments by market, by store and by category. And then that allows you to have the right pricing. And also, it gives you a better exit strategy coming out of season. Also, our pricing strategy is also a blunt instrument and a peanut butter spread across the country. I mean we're priced the same in Brooklyn as we are in Omaha, as we are in Miami, as we are in Jackson, Tennessee. And so that takes away different profit leverage points as well. So as we improve these tools from Seemantini's IT team, as we improve the supply chain performance from Don's team with the investments we're making, and we -- and that allows us to improve the assortment. And that ultimately improves margin and profitability. Most large retailers and all of our large competitors have had these tools in place for years and years and years, and we're just now getting these things rolled out.

Marvin, that's really helpful context. Just a quick follow-up, if you don't mind. Assuming you guys hit your longer-term sales per square foot targets, what would you expect the DIY Pro mix to look like?

Well, obviously, this year is unique. I think we would all agree with that. And the uniqueness of this year is driven by the increased penetration in DIY customers based on the nesting that's happening in the stores or in their homes, and that's driving that DIY penetration to our stores. At some point in '21, we see that converging, and we think Pro will start to regain the penetration. We've made some assumptions in our financial forecast that, that is going to occur. But we also made assumptions that our Pro penetration is going to continue to improve overall as a company. It is no accident that we are so committed to the Pro strategy, specifically this small and medium-sized Pro, because this Pro, we think is being overlooked in the marketplace. And we also know that this Pro drives incredible productivity across every department in our store and online. So we see Pro penetration converging in '21 once again and becoming higher than DIY. And we see that Pro penetration for Lowe's continue to grow because, obviously, we'd rather repress levels today specifically compared to our competition.

Our next question today is coming from Steven Forbes from Guggenheim Securities.

So I wanted to start with the 2021 expense outlook. So maybe, Dave, can you remind us where the average [ metro ] wage is for an associate today? And/or if you don't want to specifically comment on that, just what both the outlook is in terms of average annual wage increases, right, for the associate pool that underpins the achievement of 12%, and then an achievement of 13%?

Steve, so this is Marvin. I'll take that first. I presented a slide where we talked about a $1.4 billion investment over 2 years in our associates. So what I will tell you is, when you think about our average wage, we're in the top tier of all retailers today from a pay perspective. We're very proud of that. And we also are proud of the fact that we've been doing this for 2 years, and we've been making these incremental investments along the way. So we don't have any, what I would call, catch-up required that we're having to make a big investment just to close a gap. What we've tried to do here is provide localization in decision-making. In other words, if there is a store manager, district manager, district HR manager that believes that their market is not competitively set from a wage standpoint, we give that local team the autonomy to make that request. And we make adjustments. I mean Joe and our HR team made these adjustments throughout the whole year because we want to make sure we're competitive. But everything that Dave laid out in his financial forecast has all of those assumptions embedded in. So there is no big investment or no big expense that we're anticipating that's going to occur at some point in the future that's not already factored into the financial forecast. So Dave, I don't know if you have anything else to add.

No. I think that's absolutely correct. I think what's important here is that we've made investments in one of our most important assets, our frontline associates. We've done that very consistently over the past several years, and we're going to continue to do that going forward. And our assumptions from a financial standpoint assume that we maintain that momentum for the next several years.

And then maybe just a follow-up, Marvin or Dave. Can you provide a broader update around the state of Lowe's IT infrastructure [ retro stack ]? And if I think back to the commitment to hire 2,000 IT professionals, right, focused on moderating -- modernizing the company, how does that ramp, right, in that facility in Charlotte sort of correlate with the OpEx productivity time line that Dave laid out in the walks?

Yes. Look, I'll take the first part of that, and then I'll let Seemanti just kind of talk about the success we've had thus far recruiting talent to Lowe's and kind of the areas that we're focused on recruiting to make sure we can continue to improve our IT talent and also improve infrastructure. But before I hand it over to her, I'll just make a comment or restate a comment I made earlier. When you think about 2008 and how primitive we were from an IT infrastructure in store, online, supply chain, merchandising systems, pricing, just the whole gamut, I mean we've made tremendous progress. But we also know that this is an experience that doesn't have a finish line. I mean we're always working. New innovation is always coming on tap. So this is an ongoing journey that we're on. But it's all about talent. I'll let Seemanti talk about the success she's had recruiting talent, and what are the key areas that we're continuing to find people that we need for the future. Seemanti?

Yes. So to Marvin's point, over the last 2 years, approximately last 2 years, year-to-date in this year, we have been able to hire more than 1,500 associates across all our locations. We are really proud of that achievement. We feel like Lowe's has been a great talent magnet when it comes to attracting talent from a technology perspective. And we can see results as these people join us along with our existing associates. And they are able to upgrade our systems, our products to a completely new level. I think our focus has been sort of like 3-prong. And one of the things we have done is to make sure that our associates in the stores are focused on the customers and not on technology. We want technology to be invisible in stores so that the associates are completely focused on our customers. And to that end, whether we had that touchscreen POS system, whether we rolled out the electronic signage, mobile printers like Joe was saying, whether all the apps on our smartphones so that they can do their work in the aisle, in the garden center, out in the parking lot, we have been making sure that they are mobile, they are with the customers, and they are able to transact anywhere they are in the stores very seamlessly. We have also -- we have talked about online, and I think our progress on online, we are really proud of that, just making sure we are giving the best, most relevant, personalized and a complete experience online, and we'll continue to make those investments. The -- like Marvin was saying, there is really no finish line. We continue to improve. Equally important is to make sure that our associates based in our store support center, whether you're doing demand forecasting, whether you're doing assortment planning, whether you're doing localization, pricing and promotions, we have made sure that our associates have the right technology and tools so that they are making very precise decision. They are making decisions that are backed by data. They're AI infused. So we are making sure that our products like price and promo and assortment planning, workforce management that Joe talked about, all of them have AI infusion in them, so you have some insight and recommendation as to what decision you make. You make the decision in the same system. And then you also have a insight as to how are your decisions working. All our technology platforms are elastic. They are extensible. So for example, electronic science, we did it for appliances, but we could do more if that was useful for us. So just making sure that our technology really is looking towards the future, is future-proof, is scalable, is something else that we have been looking at.

And look, the one other point I want to make because I'd be remiss, I mean we're making a $1.7 billion supply chain investment over a 5-year period. And I just -- I want Don just to talk about this transition we're making from store base to market base and just the benefits because it ties to technology. And the technology platform that Seemanti is building is really part of this entire supply chain transformation. So Don, you can just take a minute and talk about the benefits of going from the store base to this market-based model that we're trying to build.

Yes. Thanks a lot, Marvin. We're very excited about what we've been able to do within the last 18 months. As Marvin articulated earlier, all of our deliveries were based out of store. So no matter what the customer bought, if he bought it at a store, it had to deliver out of the store. This market delivery model now allows us to take that complexity out of the store. We now have great communication through our driver app with all of our customers. We have the ability to e-mail or text to our customers to stay updated on their delivery, communication vehicles that we did not have before. And so while we started to move forward with our market delivery system, we know that we'll accelerate that progress, as Marvin stated earlier, starting in the second and third quarters of next year. And so we should see some tremendous advantages because of that.

Our next question today is coming from Zach Fadem from Wells Fargo.

So first question for me, on the home decor business. Curious if you could talk a little more about the opportunity here. What specific categories you're focused on? And given your DNA as a home improvement retailer, how do you think about your competitive advantages as you deepen your assortment in this business, particularly from a supply chain and fulfillment standpoint?

Zach, I'll jump in and take this. First of all, thanks for the question. Our home decor business has been strong at Lowe's historically and it's one that we want to continue to lean in on. And when we look at home decor, there's the likes of paint, flooring, lighting, appliances fall into those categories as well as other decor type categories like soft window, window blinds. And now what's happened is we're seeing certainly trends that are occurring based on the pandemic that we want to be able to take advantage of, like home office. So we're looking at areas like that. We also think in Marvin's opening comments, as we think about Lowe's Total Home, we think that gives us an opportunity to expand into areas like textiles and additional bath equipment where we can build assortments online as well as in store and be able to complement that across the store. So the home decor business, obviously, very critical to us, very critical to the female shopper. 70% of the purchases that are made in home improvement business are influenced by the female. So we want to make sure that we stay relevant. And I think we kind of lost our way a little bit over the last few years, and so refocusing our efforts there with our merchant team is one that we're doing, both online and in store.

And Zach, the only thing I'll add is, this has been a challenging year for all of us. But it's been a year we had some key learnings. And one of the key learnings is that customers have basically told us that if they trust us, they will buy a lot of different categories from us. And trust is a -- in broad definition, trust the safety of the store environment, trust your prices, trust your product quality, and trust the fact that they can find what they're looking for. And because the home has been redefined so dramatically this year, as a home office, as a home school, and as your #1 location for recreation and entertainment, customers started to look for, what I would call, single trip shopping experiences. And so what we've learned from that is that we can really serve the total home. And we're going to do that, and that's part of our market share strategy. This is our way of being the best version of Lowe's and getting back to something that's been the hallmark of this company. And so stay tuned. I mean we kind of teased a little bit with a new decor brand that we're going to be introducing in 2021. That will be coming in the upcoming months. But we're very excited about the decor-oriented categories that we can lean into and other specific categories that we can add to our assortment that we're not dominant in today, that our customers are saying to us that they will absolutely give us a shot to prove that we can be a dominant retailer. So we're going to be leaning into this very hard in 2021 and subsequent years.

Got it. That's helpful. And then just to clarify on the Pro penetration. It was about 25% of sales the last time you disclosed it. Is that higher or lower today? And what do you think it could mean from a P&L or margin perspective if you got to 35% or 45% penetration? And then for 2021, do you expect Pro to outperform the DIY business? And could you walk through any assumptions there?

Yes. Zach, this is Dave. I think what -- as you look today, what's happened in 2020, actually, Pro penetration has gone down a little bit all because DIY has performed so extensively over 2020 despite the fact that Pro's had really significant improvements in comps at the same time. So it's a function of the DIY business essentially outperforming. Now as we cycle into '21 and 22, we think that's going to rebalance a bit. We do think over the long term, Pro is going to outperform DIY from a growth perspective. And as I go back a little bit to my prepared remarks, it's kind of hard to predict early in next year. I do think that -- however, I do think that there'll be some moderation of DIY growth next year. And I think the Pro business will sustain itself and actually accelerate into next year. But there's still a little bit difficult to predict with certainty.

Our final question today is coming from Greg Melich from Evercore ISI.

So first, congrats to the whole team. A tremendous execution in a really wild period this year. So make sure to beat that. Marvin, I guess, I'm curious that $900 million -- $100 billion total market size, obviously up a lot this year. But how has that changed versus a couple years ago? We've heard -- there's Pro penetration. There's potentially MRO. There's home furnishings. You talked about decor. How has the multichannel explosion sort of changed your view as to what the addressable market is?

Now Greg, it's a good question. We've really not expanded our market share number for home improvement. So in other words, we haven't added in home decor company. We haven't added in furniture company. We basically maintained a traditional home improvement categories in that $900 billion number. And it's astonishing that we're going to still have a tremendous growth here, but we still have a very, very small percent of that market, roughly 10%. So it gives us optimism that we're going to be able to continue to grow this business, but more importantly, grow it more profitably. One of the key messages from today is, this company has never really had a difficult time growing top line. But historically, there were not good operating levers in place to drive sustained profitability year-over-year-over-year. And so we're pleased that the retail fundamental investments that we made and this very talented management team that you've heard from Dave, put processes, systems and initiatives in place, we now have better leverage points to drive operating income, return on invested capital and earnings growth. And so we just feel great about the ability to do that even going into a very uncertain macro environment in 2021.

Got it. And my follow-up is, I think, really, it's linked to that, which is as we think about that CapEx budget of $2 billion, Dave, could you give us a little more of a breakdown as to what's traditional stores or maintenance and what is all the initiatives, whether it's Tool Rental or the market operations for delivery? And as you're making those investments, when you think about what your competitors are doing, is Home Depot really the competitor now, or is it as much Amazon or specialty players that might try to go direct to the market?

Yes. So from a breakdown perspective, keep in mind, let's cycle ourselves back about 18 months ago. Largely what we were doing from a CapEx perspective was more or less catching up. We were trying to just get our -- solidify our operating platform such that we can operate in an environment that we're -- that we can really sustain performance. Now what we're beginning to do -- and if you look at it, probably back at that time, 85% or so of that CapEx was really catch-up. Now what we're doing is beginning to pivot that capital expenditure more into strategic areas. Obviously, as a large retailer and a large retail presence, we have a -- we deploy a lot of capital within our stores. So clearly, that will be the vast majority of CapEx in our business model. Having said that, now we're pivoting into much more from a supply chain perspective to support the omnichannel environment, much more in technologies as we think about elevating our pricing gain, making sure that our pricing infrastructure supports both online and in store, and that we continue to push into areas for -- to use technology to enhance productivity. So I think you're going to see us slowly and consistently bleed into more and more of that CapEx into strategic priorities of the company to deliver upon that 13% target.

And Greg, just a final comment on the catch-up versus strategic investments. So just for a moment, just think 2 years ago, as Joe mentioned, our labor scheduling system was a static schedule push from North Carolina to every store irrespective of what department penetration sales were happening in the store, geography, weather patterns, it was all irrelevant. It was just push it down and execute it. In addition to that, we had paper signs up in appliances, an area doing a normal year where you have a lot of price fluctuation with signs going up and down, up and down. Now we have digital signs. We had no mobile devices in the stores for our associates to use. And we had 2 printers located in the store, one in the garden center and one in the stock room, where associates were running all day printing signs and picking them up in 2 locations. Now we have mobile printing. When you're in appliance online, you couldn't even make it an appointment. You would get a phone call, literally a phone call from an associate that would call you to work on scheduling it. I mean -- and this was a very primitive process. Now Seemanti mentioned, you can now go online, make your own appointment, and then you can adjust it based on your schedule. So a lot of these things are revolutionary for Lowe's, but they are not terribly innovative for the marketplace, but they drive incredible productivity for us because we were spending labor to do all of these things. And now we have a technology platform that's allowed them to be a lot more efficient. And I could just go on and on and on. So we're really happy now that we can start to make these capital investments in these strategic initiatives that's going to expand our marketplace and that's going to allow us to serve a broader base of customers. And relative to the competition, we don't spend a lot of time thinking about that. We think about being customer-centric. If we focus on taking care of the customer, we really don't care who the competitor is in the marketplace. We just want to give the customer a better option to shop at Lowe's, whether it's in store or online. And we stay focused on that. We think that we'll have a shot at hitting these market share targets, hitting these financial targets, and going beyond that. Thank you.

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