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

Well, good morning and thank you all for joining us. My name is Brian Nagel. I work here at Oppenheimer as the senior equity research analyst covering consume growth and e-commerce. So you're attending -- this is our 21st annual Oppenheimer Consumer Conference. It's the second consecutive year that the event is being held virtually. So I appreciate everyone's attendance. I'm very pleased to introduce our next presenting company, Lowe's, and the company's CFO, Dave Denton. So Dave, thank you very much for joining us for this fireside chat. We really appreciate it. Before jumping into our fireside chat, I'll just make a couple of comments about Lowe's. For those of you who follow my work on the consumer space know I look very fondly upon Lowe's. This -- I think we'll talk about this in our discussion today, but Lowe's has been under what I consider a significant and rather amazing transformation over the last few years. Dave has been a big piece of this. The company operates in what I consider to be one of the healthiest spaces within the consumer, that's home improvement. And we recently upgraded Lowe's in what we call with LOW, again, we'll talk about this as well. But the shifting backdrop as we pull out of COVID, we think Lowe's is really one of the most attractive relative plays in the space right now given the power of this model and importantly the improving story -- the improving execution at the company. So Dave, again, thank you very much for joining us.

Yes, my pleasure. Thanks for hosting us today.

So look, I thought we can start. I was preparing for this event, I think there's a couple of big buckets of questions. I mean, one, I want to talk about a lot of the internal efforts that are happening at Lowe's, but then I also want to talk about how you see or you're reacting to what I consider to be a rather shifting backdrop. So let's start with the internal side. I mean, maybe for some people who are a little less familiar with Lowe's, talk about a lot of the changes that have happened over the last, say, several quarters now to really help to position this company much better.

Yes. Brian, really excellent question. I think what -- if you're familiar, probably 3 years ago, we started this journey of, I'll say, reinvigorating kind of core Lowe's. And we started with, we call it retail fundamentals, really getting back and making sure that our merchandise was appropriate. We're back in stock within our stores because we felt like we had a fairly large out-of-stock issue when Marvin and the new management team showed up here. We've really focused our efforts on the supply chain to be much more efficient and, importantly, deliver better service. At the same time, we've leaned really into some operational efficiencies. We are putting in technology in the stores to relieve the burden of many tasks in the stores to allow us to focus more on customer service and improve profitability within the box. And finally, we've actually invested a bunch into the omnichannel effort as we've elevated our performance in that area, growing probably in excess of 100% over the last year, year and a quarter, if you will. Again, focused on really the basics, making sure that we are just really solid world-class retailer. And then COVID hit and COVID has allowed us to kind of leverage that base and capture incremental share as we've gone through the COVID period and continued that momentum as we come out of COVID and the U.S. begins to open up. And so I feel like the investments we've made have allowed us to be really stable, deliver really good service at the same time, capture additional share. And I'll just close this question a little bit around the fact that we've made a lot of efforts to capture incremental Pro business, and we've historically focused on improving our service model in the Pro, making sure that we have the right -- again, the right job lot quantities, the right assortment. We've just completed a fairly large remerchandising effort within our stores to make it more efficient and easier for the pro to shop. We've enhanced our service level by putting, again, supervisors in that area, loaders in that area, making a very convenient area for a pro to shop us. And so I feel like that's a -- we'll talk about this more, but I think it's a real opportunity for us to keep, take share over the next coming periods.

Great. No, Dave, that's a perfect setup for our conversation today. So let me just ask one more bigger picture question. So with respect to all the shifts, the adjustments that have been made at Lowe's, what's still -- what are you still working on? What was -- as investors, what should we still expect to see from the kind of an internal execution improvement story?

Yes, I think there's probably 2 key areas that we still have investments to do. One is in the supply chain, as we're building out what we call market delivery model. So today, think about each one of our stores is almost its own delivery hub to a consumers' home. And so think about appliances, each store is holding a complete assortment of appliances and then delivering those to the neighborhoods around their stores. What we're doing is taking appliances and big and bulky items, moving them up one node in the supply chain into essentially a cross-dock facility so that we can: one, spread that working capital over multiple stores; and then route-plan our deliveries to be much more efficient and elevate our service levels. We're live essentially in one market today in a pilot standpoint, but actually performing quite well. So over the next really 24 months, once we're completely stable and rock solid, we're going to roll this out across the nation. I think this will allow us added capacity in the stores, a better service environment for our consumers and allow us to take labor out of our stores as well to be more efficient. So that's job one. The second piece of work is we have built a pretty robust loyalty program and a CRM tool for our Pro customer. We now have to make sure that we fill that database up, and then we can begin to harvest that information to drive performance in our Pro segment. That's the second piece of work that largely needs to get done, and that can drive our Pro share capture and share gains over the next 12, 24 and 36 months.

Okay. So before diving more into these specific initiatives, I do want to shift gears a bit. Just talk about the backlog backdrop here. And again, I think most of you would agree, I think this has been one of the most fluid, volatile, interesting -- whatever word you want to use -- macro backdrops anyone who studied the consumer brand many times has ever seen. So as I look at this and having studied Lowe's very closely, Lowe's did an absolutely phenomenal job over the last several quarters of really capitalizing upon these shifting demand trends within the home improvement space and frankly, consumer broadly. The economy now, thankfully, by most -- all indications, really start to pull away from the COVID crisis. We heard from Lowe's. Lowe's reported fiscal Q1 results, I'd say, a few weeks ago, and you gave an update there on results and what you're seeing. So I guess I want to -- the question I have for you is, help us understand really what you see, what your team sees from a consumer backdrop. And respecting that you've given guidance in the form of kind of this scenario type, how should we think about what you're seeing, how -- what could ultimately play out here from a consumer standpoint?

Yes. So I think what -- if you recall, when we had our Analyst Day or Investor Update in December, we kind of gave 3 scenarios because we didn't know really how the market was going to behave. But what we said were 2 things that we knew we could control, it's: one, depend upon -- no matter what the market environment was, we were going to take some share. We regained share probably at a pace of 300 to -- 300 or 400 basis points more aggressively than the market. And secondly, we're going to expand operating income margin in our business because we are just getting more efficient. And so as coming through the first quarter, we're actually performing better than our robust market scenario, and we saw that trend continue into early Q2. I would say the backdrop from a demand perspective is still quite healthy. If you -- in the housing sector, you're still seeing rising prices in the home market. There's relatively short supply of new homes. So therefore, investments are tilted back into the existing home to make that home as comfortable as possible. Third, the home is just becoming a more important asset in every consumer's life. You -- now not only you're living there, you're working there, sometimes your kids are going to school in your home. So you're really investing in your home to make it more comfortable. And then finally, you're using your home much more frequently. So therefore, repairs and maintenance, because the higher levels of utilization, are accelerating. So you're seeing that dynamic play out as well. So those trends, as we cycle into this year are continuing. And despite even in areas where across the country that we're pretty open, whether it be -- and I would argue that some of these areas have been open for a very long time. Think about Florida or think about Texas, the demand profile in some of those very open markets is still very robust. We are, as you -- Brian, as you know well, we're going to comp over some very aggressive overlaps. But if you look at it on a 2-year basis, performance and demand continues to be quite healthy.

So I want to just focus -- just help to want to focus on one of the points you've made with respect to just the various markets. So clearly, the reopening in the United States, just given the sheer size of the United States, has not been even. There are markets that we're not -- maybe not hit as hard by COVID during the crisis and/or opened up quicker. So what you're saying is you're not really seeing much of a spread, if you will, between the performance in your markets where the openings happen faster than markets where it's been slower?

That is correct, Brian. It's actually really interesting. The spread of performance across the nation has been pretty tight and pretty consistent despite whether you're open or not. There has been a little bit of -- I would say, if there is any change in performance, it has been largely around weather. The Northeast is just now breaking into spring. So you see the spring demand beginning to grow in the Northeast whereas here in the South, spring has been in full bloom for the past 6 or 8 weeks. And so that demand, as typical, is pretty strong kind of towards this peak, if you will.

Yes. So sticking just on this -- on the kind of our macro discussion. I mean there's -- beyond COVID, there are some other really interesting factors happening out there. It's still probably COVID-related. But one, we're seeing this massive increase in home price appreciation. As long as I've studied your business, that has historically been a driver for home improvement. What are you seeing right now? Would you -- I guess, a, would you agree with that? That there was home price appreciation, we're seeing potentially in accelerating pace across the country, is really helping to drive incremental investment in people's homes and, hence, sales at Lowe's?

Absolutely, Brian. I think if you're a consumer and you're seeing the appreciation of your home, you're feeling a lot more confident in making an investment in your home to make it -- to enhance an area in the home. So I think it does stimulate some demand from that perspective. And Brian, I think the other thing that's really interesting is just take a step back and look at the balance sheet of consumers. Today -- the balance sheet of consumers today are much healthier now than they probably were 12 months ago in aggregate, particularly in those consumers who are homeowners. And so I think that now you're actually -- not only do you see the appreciation of your home asset going up, you actually have a better cash position today. So you're seeing that investment even accelerate on top of that.

And the other factors with lumber prices, again, a lot of commodity pricing -- commodity -- or I guess, inflation in commodity prices, lumber has definitely been one that pulled off a bit lately. But I wonder I guess as far as your business, lumber is being a key component, what are you seeing there as far as either from a pricing standpoint or a demand perspective?

Well, obviously, pricing is because the commodity has been going up pretty significantly over the last 18 months. Demand has still maintained a very strong pace because despite the increase in price, the demand for lumber to support home improvement has continued. So we have not seen any softening of that demand. It's been pretty consistent as we've planned it, at least through the balance of the year today.

And just looking from a commodity standpoint or a pricing standpoint, going beyond lumber, have there been any other -- do you see any other significant disruptions within your merchandise mix given commodity price inflation?

Well, obviously, there's commodity price inflation across many categories. And so we pretty actively: One, monitor that, but pretty actively manage it and push back where appropriate. I think between the finance and merchandise team, we've got our arms around it. And our objective here is to make sure that if we -- first and foremost, push back on that price increase that is not warranted. If we do have to take the price increase, work in a fashion that we kind of share some of that with our supplier and then furthermore make sure that we price ourselves within our assortment in that category to make sure that we can make that margin up with -- if it's not SKU by SKU, certainly within the product group. And so we've largely been able to work through and plan our way through that.

And just on supply chain, again, another rather large topic within the consumer community right now is the disruptions within the supply chain in various forms. What I guess, I would say: a, what has Lowe's seen with that? And b, how are you dealing with the supply chain disruptions coming from wherever the products are arriving from?

Yes. I think a couple of things, Brian, is: one is, I think, our supply chain, from a performance perspective is better today than probably what it was 8 or 10 months ago. So we're catching up, if you will. And it's not so much a Lowe's issue, it's actually our suppliers in the industry in totality is catching up, if you will. I think one thing that we did do cycle into '21, we actually planned for imports to come into the U.S. about 6 weeks earlier than we had planned it for last year. So despite the fact of maybe having a little bit of delay, because we planned it early, we actually were able to have products in our stores and in our supply chain network in advance of the spring season. So we didn't feel a lot of disruption. Are there pockets of areas where we're still -- that the supply chain in totality is having trouble by either keeping up with demand and/or there's a shortage because there are constraints on different product components? Yes. But they're pretty limited in scope at this point in time. I would say, particularly in lumber, it's -- we're able to meet the demand, but it's pretty much real-time almost at this point in time. So we're keeping up, but we're not building our in-stock levels as nicely or as aggressively as we would like. But I don't think it's largely slowing down our sales performance.

All right. I just want to shift a bit to some of the internal initiatives that you and your team have discussed recently. So one, we've talked about this on the Q1 conference call, but just the shift to everyday low price, or EDLP. Just talk about philosophically what that means for Lowe's. And again, as we, those investors or analysts watching the story, how should this play out in your financials?

Yes. So Brian, you've heard me talk about this in the past. This was a program that even prior to COVID, we said we have got to get off this high-low mentality. We've got to get ourselves back to an everyday competitive price position in this business. I think COVID has allowed us to really accelerate that performance probably 2 to 3 years in advance of when we really thought it was going to happen. I think now we're not going to -- we're always going to have promotions and we always want to have special buys. And we always want to be, within kind of the Tier 1 holidays or seasons, be very relevant to consumers. So you won't see promotions go away completely, but you will see us being much more strategic, much more focused and in areas where that we can actually drive demand, at the same time, improve our performance from a product margin perspective. You should -- and what you saw in Q1 is a pretty good example. If you look at our product margin, we expanded it in excess of 150 basis points. And that's because we've done a nice job of kind of managing our cost complement in our cost of goods sold at the same time is really being a lot more thoughtful, programmatic and direct about how we're planning promotions. And I think -- so you should see that continue -- that pace should continue over time. Now some of that gets eaten away as we invest in supply chain, but we should be a better steward of managing our product margins over the long-term based on what we're doing here.

I just want to push a little bit on further. So to be clear, so your pricing, you think, is now where it should be in some matter of just basically continuing the work you've done? And then second -- and I want to -- I think I heard this correctly, so this overall, in and of itself, should be an enhancement to your gross margins?

Yes. So it will be an enhancement to our gross margin. Keep in mind, Brian, we said that over the long term, think about gross margins in totality largely being flattish. And so we're going to expand product margin rate, but then we're going to actually eat some of that away as we invest in our supply chain. And then secondly, from a pricing perspective, we've made really nice progress on putting together a pricing platform and a technology infrastructure to drive pricing across Lowe's. So I feel like we've kind of elevated our performance into the modern era, if you will. I think now there's probably a set of initiatives that we have over the next 12 months to be just a lot more specific and, I'll say, manage price at a micro level, kind of like almost by store or by market within stores. That is the next turn of the crank here to improve our pricing performance. So we're probably fourth or fifth inning, if you will, from a pricing infrastructure perspective, probably nearing the kind of getting a really good infrastructure by the end of this year, early next year.

So look, home improvement has been a very rationally priced space for a long time, but I think that's one of the positives that's really added to the kind of the fundamental prowess of the sector. So as you made these changes or adjustments in your business, have you seen any type of competitive response from any or for either big players or small players?

No, not really. I think the market -- as you said, the market has always been a very rational market. I think we continue to see it play out very rationally. And I think the things that -- the adjustments that we've made to our base business from a pricing perspective has performed extremely well, both from a unit and a margin perspective. So I think we feel really strong about where we're positioned now. We think there's still opportunities to -- as we further refine our infrastructure to be even better here from a pricing perspective, but we haven't seen dramatic shifts in the market at this point in time.

You mentioned -- Dave, you and your team have mentioned your perpetual productivity initiatives of PPI. So maybe, again, for the sake of the group, articulate that a little bit more like what this is and the underlying enhancements to the business that come as a result of this initiative.

Yes. So Brian, this is not like a big bang kind of productivity effort. What we have is a series of initiatives both from a store, a supply chain and a corporate office perspective around things that we can do or technologies that we can deploy to improve our productivity, and it improved the bottom line. And so I would say that -- and you can imagine, Brian, just because of the scope and the scale of our store footprint, a lot of this resonates and comes about via the store because if you can begin to improve performance in the stores, you can unlock a lot of labor. And so we have a series of initiatives over the next 2 to 3 years, think about them as largely little singles that we can just kind of keep hitting and kind of improving our performance in taking -- relieving tasking hours and taking some of those hours and investing them in service and taking some of those hours and taking them to the bottom line to improve our performance. And we're doing the same in the corporate office side, even here in finance. We're working on, "Hey, how can we improve the accounts payable department?" And if I can automate this or that process, I can relieve 2 or 3 FTEs out of my environment. So we're just kind of, I'd say, just grinding our way through that, Brian. And with all of this objective of: one, getting us to 12% and then ultimately getting to just this 13% operating margin.

So that's -- so just to kind of the movements in bottom line there. So this PPI effort, I mean, how much of your ultimate operating margin improvement should come as a result of this?

Well, if you look at -- if you go back to like my investor presentation, you can see that kind of SG&A productivity is a big component of this over the next 2 to 3 years in performance as we get to this 13% operating margin. And keep in mind, it comes about really twofold: One is -- one, we're going to get more productive just day over, day over day, but at the same time, as we grow our online business and as we grow our Pro business, we can also just leverage that SG&A more effectively. So that's also a big component of us putting additional operating margin to the bottom line.

Can you talk a bit about omnichannel and specifically e-commerce? So I think at this event a couple of years ago, Marvin and I spent a lot of time talking about the e-commerce efforts of Lowe's. At that point, it was really not working well. Your company has made significant progress here. I think -- and so I want to talk about the progress you've made and kind of what we should still expect going forward. But I think another interesting topic is, again, for a lot of us who followed home improvement, but we never thought that e-commerce would amount to much in this space. But here, you and your competitor now are rather significant. And I say not lightly, rather significant e-commerce players. So there clearly is a desire on the part of the home improvement consumer at least to shop partially online?

Yes. No, I think you're right. And I think the COVID dynamic has allowed people to engage in the e-commerce business in our platform. And I think because it's been successful and we've -- I should deliver really good service. I don't expect that to revert back. I do expect this is going to be a foundation for us because consumers like it. Consumers enjoy the experience. They like shopping online, buy online, picking up at store or we put in touchless lockers across our entire fleet of stores here in the U.S., just getting tremendous amount of customer, I guess, positive results from that. Customers really like that platform. So I think that you're going to see us continue to lean into the e-commerce platform more aggressively. And Brian, for folks who might not be aware of the history of Lowe's, if you look back at 2018 and you look at Black Friday, the Lowe's platform couldn't handle the traffic. It actually went down several times during that day. There were -- we ultimately replatformed that onto Google Cloud, and our business has been performing at or above that level pretty consistently day over day, week over week for months on -- at a time with absolutely no interruption from a technology perspective. So I think we've largely -- we fixed the foundation. Now the foundation is enabling us to rapidly roll out enhancements to our online platform to meet the just changing demands of consumers as they engage with us through that channel.

So what portion -- we get some multi-part questions. Well, what portion of your sales today are online? And then where is that -- I guess, where should we think about that going? But then also, what portion of that is, like you mentioned the lockers in your stores, is people shopping online and then picking up in the store?

Yes. So if you look at our -- historically, about 4% of our sales were in the online channel, it's now getting closer to 10% as we exit COVID. And I would say, of what's happening online, about 60% are essentially buy online pick up at store or buy online pick up at curb. So consumers are really using the platform but are, in fact, going to the store at some level to pick up their orders. And I think that does give us a little bit of an advantage because I do think that that's a little bit more economically efficient transaction for us as opposed to buy online, ship to home. That's a little bit more dilutive for us just economically.

So if a consumer gets a smaller subset of your online business, maybe a consumer is buying a product on Lowes.com and having that product shipped to home. What -- is there a way to characterize what that is or maybe, you said better, what that's not? I mean you look at what's been shipped to home versus what's being picked up at the store?

Yes. It varies. I don't know if I have a specific answer for that. But keep in mind, Brian, that a lot of product today, even if they're bought in the store or shipped to home, I'll give you a good example of not many people are buying an appliance and picking up and take them to their home. It's getting shipped to their home, right? So we're already in that business pretty dramatically. I think what we're trying to do is make that component of our business much more efficient because we're -- you heard us speak to this. If I went to a store next to my home and now I went to a store next to work, 2 different stores at Lowe's, in one store I bought a washing machine and the other store I bought a dryer, guess what, there's going to be 2 Lowe's trucks showing up at my house on the same day. One with a washer, one with a dryer. That's a very inefficient model that we have put in place because each store is their own delivery ecosystem today. What we're trying to do is move that up into a node that services multiple stores so they can consolidate that order and deliver a better service experience for the customer because I'm not very happy I've got 2 deliveries. I'd rather have 1. And so our opportunity here is to just make that whole supply chain delivery component of our business much more efficient.

Got it. So I want to talk a bit about the Pro business, Dave. Again, you mentioned this in some of your opening comments, a big focus for Lowe's. I mean we've discussed a lot. This is -- if you look at the market share opportunity out there, while there's still market opportunity, DIY Pro is significantly larger. So where are we today in the Pro? What are some of the really -- the key initiatives that Lowe's has put in place to cater better to its professional customers? Again, and how should we think about where this business is going to go?

Yes. Brian, if you went back 3 years ago, it was harder for a pro to shop Lowe's because if we were out of stock in many really key categories, we didn't have the right depth of inventory from a job lot quantity. So if you wanted to do a tiling project and you needed 200 square feet of tile, we'd carry 100 square feet. So we were -- although it looked like we were in stock, we were largely out of stock to the Pro customer, and we were very inefficient to shop. So a Pro customer, if they want to shop Lowe's, they were bringing a team member or 2 with them off of their crew, off of getting billed for to come shop Lowe's because they need somebody to help them load their truck with their purchase. And so we've actually gone back and I say, improve the service model, make sure that we have the right staffing in that area of the business. We just did a major reassortment of the Pro, really of the box in totality being geared specifically to the Pro to make it much more efficient to shop. We put in depth of inventory where it made sense and put in preferred parking, so it's easy for a pro to get in and out of our stores. And I think that's generating a really nice performance. As I said earlier, the opportunity now is to lean into loyalty, lean into our CRM tool so that now we truly know who that Pro customer is, understand what they're shopping, where they're shopping, what they're not buying from us and make sure that we can now engage them individually to be able to drive performance over time. And I think that's just -- I don't think people realize the power, if you can unlock that, at how much business we can drive from that perspective. And so I think that's the next, I'll say, turn of the crank to improve our performance in Pro. And today, if you look at our business, about -- we probably -- our Pro penetration is probably in the low 20s at this point in time. My major competitor is probably in excess of 45%. So it just shows you the gap of performance that we have against our major competitor and the opportunity we have to begin to improve and close that gap over time.

So is there -- as you begin to -- as you're connecting better with these professional customers, is there something -- is there a way you can kind of frame for us where the opportunity with your customers is? I mean how much of their spend are you capturing now? How much would you capture over time?

Yes. I think what's interesting, Brian, that some of the really specific data around that is what we're going to capture through our CRM tool. But having said that, if you just look in aggregate and just look at the data sets we do have is our Pro customers are probably shopping us maybe 1/3 of what they would be shopping at one of our major competitors. So -- and that's largely because they're using -- they have historically used Lowe's as a fill-in trip as opposed to a destination trip because if you were going to Lowe's for a big purchase, we were out of stock and we weren't very efficient. So now we're -- since we're beginning to solve that, we're seeing our pros spend disproportionately more in our store. So this is all about capturing a bigger share of wallet of our existing Pro customer. And if we can solve for that, we can drive our Pro penetration up pretty significantly over time.

Got it. So time is just starting to wind down, there's a couple more questions I want to get in somewhere there. But again, we talked a lot about labor, about installation and the efforts there Lowe's has put forth. Maybe discuss that a bit, the opportunity for the company.

Yes. It's an opportunity. This is a business that historically wasn't growing very rapidly. And two, just from an economic perspective, we're very dilutive to our core business. We've actually, I'll say, reinvigorated that business a bit. We've kind of streamlined our suppliers in that area and our contractors in that area. And I think we have an opportunity to, again, improve performance. It's about -- we probably have from a penetration perspective, maybe 4% to 5% penetrated in that business at this point in time. And again, it's an opportunity that as -- particularly as millennials move into the home sector space, they're much more akin to do-it-for-me type efforts versus do-it-yourself. And so this is an opportunity for us to lean into that customer segment and drive meaningful growth over the next several years through that program.

Is there much in the way of investment needed to sort of say, build a platform from installation or is that in place now, Dave?

I think it's largely in place. There's some interesting technologies coming about to allow us to more efficiently, I'll say, measure and do some configurations, if you will. And we've actually enhanced our configuration tools here at Lowe's pretty dramatically over the last 18 months. So there's some additional investments to be made here, but not dramatic.

I do want to talk a bit about just the product. I think one of the more also -- a lot of exciting stuff going on Lowe's, but one of the more interesting factors lately has been the enhancements you and your team have made to just the product lineup, with CRAFTSMAN, you talked recently about STAINMASTER. So I guess as you look at the enhancements to your merchandising, I mean to what extent is that alone allowing you to connect better with your DIY and then like your discussion with professional customers? And should we expect additional additions to products coming forward?

Yes. Listen, I think what we've tried to do here is twofold. One is, I think Lowe's had a pretty large portfolio of private brands. We've actually tried to streamline that private brand portfolio. We've gone from in excess of 30 down to about 12, but we want to make those private brands very meaningful. So we probably have in the neighborhood of 13% to 14% penetration in private brands. We think, over time, that can be in excess of 20%. Big opportunity to add a lot of value to consumers, but also improve gross margin over time. So big opportunity there. Secondly, you've seen us lean into and bring in incremental brands into our assortment, really supporting the Pro. So you saw Simpson Strong-Tie is -- even Eagle coming into our portfolio, again, with the idea of just being more relevant to our Pro customer. I feel like we still have some work to do from a brand perspective, but I think we -- our brands are -- we have a large enough breadth to be very relevant to the Pro. So it's not holding us back. I think we could continue to support some additional brands that would even help us further over time. So that's more work to come. We're still kind of pushing through that, and you'll constantly hear us adding to the portfolio there, Brian.

Look, the final question, I mean it's one of the ongoing positive aspects of Lowe's is just the amazing amount of cash you generate and your efforts to redistribute appropriately that cash to shareholders, either through buybacks or dividend. So just from your perspective, how many -- how do you look at that effort and particularly as you pull out of the COVID crisis?

Yes. Listen, I -- Brian, as you know, I'm a huge advocate of a very strong capital allocation program. If we look over the next several years, this company throws off a tremendous amount of cash. We're going to use a certain portion of that cash, about $2 billion on an annual basis to invest back in the business from a CapEx perspective. We just announced an increase in our dividend. We're on a march to get to a 35% payout ratio over time. And importantly, we're doing, what I call, value-enhancing share repurchases. We have -- this year, we'll do at a minimum $9 billion of share repurchases, and we're at a leverage ratio in the low 2s. My expectation that over the next several years, we'll get back to our target of 2.75x. And that will allow us to actually borrow some additional money to put that money to work to drive meaningful returns for shareholders over time. And it's my expectation that we will use share repurchase as any cash that we're not investing back in the business up to that 2.75x after dividends is going to go back into the hands of shareholders through share repurchases. And so I think that will be a way in which we'll really focus on driving returns and improved performance from a shareholder perspective. And we talk about it all the time. We're very adamant about it. We think that's the right thing to do for shareholders.

And just the timing on that, that leverage ratio going back to 2.75 how should we think about that?

Yes. I think what -- I've probably been a little conservative. I want to make sure we get past COVID. And then my expectation is we'll, in a reasonable amount of time, get back to that 2.75x. So probably more to come on specific timing, but it's my expectation we will get back there before too long. It won't be this year, Brian. it's just -- practically speaking, you can't get there this year.

Got it. So we're looking out in '22 and beyond?

That's right.

Well, thank you very much. We appreciate your time as always. Congratulations on all the progress that's been made to Lowe's and managing the crisis so phenomenally well also.

Well, thank you, again. Thank you for hosting us. I appreciate everybody's interest in Lowe's, and everybody be well.

Thank you.