Lowe's Companies, Inc.
Q2 2011 Earnings Call Transcript

Published: 15 Aug 2011

[Operator:]

Good morning, everyone, and welcome to Lowe's Companies Second Quarter 2011 Earnings Conference Call. This call is being recorded. [Operator Instructions] Statements made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Management's expectations and opinions reflected in those statements are subject to risks, and the company can give no assurance that they will prove to be correct. Those risks are described in the company's earnings release and its filings with the Securities and Exchange Commission. Also during this call, management will be using certain non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP financial measures and other information about them posted on Lowe's Investor Relations website under Corporate Information and Investor Documents. Hosting today's conference will be Mr. Robert Niblock, Chairman, President and CEO; Mr. Bob Gfeller, Executive Vice President of Merchandising; and Mr. Bob Hull, Executive Vice President and CFO. I will now turn the program over to Mr. Niblock for opening remarks. Please go ahead, sir.

[Robert Niblock:]

Good morning, and thanks for your interest in Lowe's. Following my remarks, Bob Gfeller will review our operational performance, and Bob Hull will review our financial results. But first, let me share a summary of our second quarter performance, as well as how we're thinking about our near-term and long-term opportunities. Despite some recovery from the first quarter in our seasonal business, our performance for the quarter fell short of our expectations. Sales for the quarter increased 1.3%, while comparable store sales were essentially flat to last year. Comp traffic increased 0.6% in the second quarter and comp average ticket declined 0.9%. Bob Gfeller will provide more details regarding our comp performance in a few minutes. Gross margin contracted 37 basis points in the quarter. Our 5% off everyday offer for Lowe's consumer credit card holders impacted gross margin by 11 basis points. However, the gross margin impact of this offer was more than offset by leverage in tender and other costs associated with our proprietary credit program, which are components of SG&A. Bob Hull will provide more detail regarding gross margin in a few minutes. We had good operating expense control in the quarter. However, as detailed in today's release, we recognized a charge associated with impairment of long-lived assets, including 7 stores that closed on August 14, which reduced pretax earnings for the quarter by $83 million and diluted earnings per share by $0.04. We generated substantial operating cash flow during the quarter, which allowed us to repurchase 59.7 million shares or $1.4 billion, exhausting our share repurchase authorization. Including the impairment charge, we delivered earnings per share of $0.64 in the second quarter. Our second quarter consumer survey indicates that high fuel prices remain at the top of consumers' minds as they consider future spending plans. However, recent headlines regarding slowing growth and the U.S. credit rating downgrade underscored the continued weakness in the U.S. economy. The volume of negative news and the unsettling impact on equity markets is having a significant effect on already fragile consumer mindset. More specifically with regard to home improvement spending, consumers continue to focus on small ticket, less than $500 repair and maintenance items and projects. Even after taking into account the challenge of the macro environment, we're still not pleased with our performance this year. For both do-it-yourself and commercial business customers, we must drive more trips, close more sales and build bigger baskets. So what are we doing about it? Earlier this year, I restructured the executive team and together, we are looking at our business with a fresh perspective. We have critically evaluated our performance over the past several quarters and have identified some gaps. The gaps are in addition to convenience of store location, which we discussed in our first quarter earnings call. We have plans in place to address the gaps we've identified, but we also know that there is no silver bullet, and it's going to take time to see the full benefit of these changes. Bob Gfeller will discuss several of our near-term plans to compete more effectively in the current environment. He will also outline ways in which we will go to market differently beginning in the second half of this year. We also remain focused on cost-efficient and effective operations. The management team is reviewing how we operate on a cross-functional basis to ensure consistent and connected execution, while also evaluating our organizational structure to streamline decision-making and ensuring that we have the right people in the right roles throughout the organization. We're making tough decisions in order to improve profitability, and I'm confident that the team is focused on the right areas and making the necessary decisions within the parameters of our longer-term strategy. Today's announcement regarding the closing of 7 stores is an example. Closing underperforming stores is always a tough decision, given the impact on hard-working employees and the local communities. But it was a fiscally responsible decision to further strengthen our financial position and drive shareholder value. Those are some of the near-term opportunities we're addressing. We previously shared with you our longer-term commitment to deliver better customer experiences, while pulling together the best combination of possibility, support and value whenever and wherever customers choose to engage. We continue to differentiate Lowe's from the competition, and we're building momentum behind our transformation in 2011. Let me share some of the progress we've made this quarter. We completed the rollout of our repair services concept. We now manage the repair experience for outdoor power equipment, as well as appliances. Our contact center is taking the calls, diagnosing the problems and facilitating the resolutions making after-sales service simpler for customers because they're dealing directly with us rather than the manufacturer. We tested this model in more than 100 stores and found that managing the experience ourselves positively affected customer satisfaction, which drove incremental store visits. In addition, we expect to realize cost savings through lower product return rates and the identification of quality concerns that we'll work with our vendors to resolve. We continue to be excited about the performance of lowes.com. In fact, we experienced a 130-basis points increase in online unit share on a rolling 4 quarters basis. We've also generated significant amount of interest with our social media campaigns. According to third-party data, we've ranked fourth among the top 25 brands and have the most online buzz and positive sentiment. At the end of the second quarter, we had over 190,000 items available online, a 73% increase since the fall of 2010 with significant expansion planned for the remainder of the year. We've also recently begun shipping items to customers from service stores and regional distribution centers in addition to our dedicated Internet warehouse. This means with more items available for partial shipment than ever before, we can provide faster delivery and reduce our cost to fill orders. We're also offering for the first time preprinted labels for partial returns free of charge, a simple and convenient option for customers and a competitive advantage in the home improvement industry, and there's more. We are launching the Spanish version of lowes.com this week, in an effort to better resonate with this very important demographic. This launch is a full translation of our lowes.com site, including commerce. You will also see our first mobile app in market in the coming weeks. Additionally, we will build on the fundamental capabilities that were delivered on lowes.com this quarter such as the ability to create lists and reminders as we develop My Lowe's, a set of capabilities that will revolutionize how customers interact with us to more efficiently manage projects and improve their homes. My Lowe's will launch near the end of fiscal 2011. And finally, we are pleased to announce that we have begun deployment of approximately 42,000 handheld devices for our stores in the U.S. and Canada. We expect this rollout to be complete by the end of the fiscal year. Our goal is to make home improvement simple for customers and for our employees. Leveraging Apple's iPhone technology, our employees will check inventory availability, access how-to videos and utilize lowes.com from the aisles of the store. This is a significant step towards simplicity and seamlessness and we will continue to add functionality to these devices over time. The progress that I've outlined is building momentum behind our brand differentiation and will ultimately drive market share gains. In the interim, we are working diligently to improve sales and profitability in a way that will generate sustained customer preference and shareholder value. Before I turn over to Bob Gfeller to provide more details on the quarter and our near-term opportunities, I would like to thank our hardworking employees for their ongoing dedication and customer focus. Additionally, I'm pleased to announce that our Sanford, North Carolina store, which was destroyed by a tornado on April 16, will reopen to continue serving the Sanford community on Thursday, September 8. Thanks again for your interest. I'll now turn it over to Bob.

[Robert Gfeller:]

Thanks, Robert, and good morning. During my time today, I will review our second quarter performance, as well as describe how we are working to win the customers' hard-earned money, drive sales and grow market share. Then I will move on to explain our merchandising direction for the next few years and how we are working across all functions to accelerate sales and differentiate our brand. We finished the second quarter with negative 0.3% comps. Our performance was driven by some rebound in the first quarter in nursery and lawn and landscape products, offset by tough appliance comparisons resulting from last year's Cash for Appliances stimulus program. Geographically, performance exceeded the company average in the North Central and Northeast regions of the country, as we energetically served customers who had been waiting to start spring and summer projects and who needed to make repairs after a tough winter of snow and ice storms. Comp performance in the Gulf Coast region was significantly lower than the company average as extreme heat and severe drought dampened sales of outdoor products, most notably outdoor power equipment, nursery and lawn and landscape. We observed large regional swings in these categories but most significantly in outdoor power equipment, where double-digit comps in the Northeast and high-single digit comps in the North Central were offset by negative double-digit comps in the Southeast and South Central. In the second quarter, our outdoor categories recorded roughly a positive 3% comp, and our indoor categories recorded roughly a negative 2% comp. We reported strong nursery and lawn and landscape sales in the Northeast, North Central and West, while building materials performed well in the Southeast, South Central and North Central regions of the country, as our teams sold roofing materials and installation services to customers in the aftermath of the strong storms that hit those regions in the late spring. Looking at indoor categories. Tools comped in the mid-single digits, driven by new Father's Day offers and the launch of our new and improved Kobalt mechanics tools. The new program has premium specifications for torque, teeth count, metal hardness and ergonomics as good as any other leading brand. And we have more than twice the SKUs of our prior program with a wide variety of single-socket sizes, which is what the commercial customer demands. The new line was launched as part of our second quarter Father's Day gift offering, and it sold very well. The Lowe's tool business has now comped positively for 6 consecutive quarters. This momentum is reflected in our 60 basis points of unit share gains on a rolling 4-quarter basis. Paint, the #1 home improvement project, continues to comp positively both indoors and outdoors. Our Valspar interior Hi-DEF launch last year, along with the launches of our allen+roth paint palette, Kobalt Express Deck and Valspar Hi-DEF Duramax exterior paint earlier this year are driving this performance. We expect the recent launches of Olympic 1 and Valspar Plus, which is asthma and allergy certified by the Asthma and Allergy Foundation to drive continued positive paint comps into the second half of 2011. In addition, the paint desk area was reset in the first half to ensure customers have all the products they need to complete their paint projects, organized in a way that is intuitive to them

[Robert Hull:]

Thanks, Bob, and good morning, everyone. Sales for the second quarter were $14.5 billion, which represents a 1.3% increase over last year's second quarter. In Q2, total customer transactions increased 2%, while total average ticket decreased 0.7% to $62.44. Comp sales were negative 0.3% for the quarter, which was below our guidance of approximately 2%. The lower-than-expected performance was driven by less recovery than anticipated from Q1 in our seasonal businesses and by higher-than-expected impact from lumber deflation, which hurt second quarter comps by approximately 70 basis points. For the quarter, comp average ticket declined 0.9%, while comp transactions increased 0.6%. Looking at monthly trends, comps were negative 2.7% in May, flat in June and positive 2.2% in July. The improvement in monthly comps during the quarter was driven by a few factors. First, we experienced a delay in our seasonal business, which improved as the quarter progressed. Second, demand associated with effort to remedy store damage was moderate in May and strengthened in June and July. Lastly, the toughest Cash for Appliances comparison from Q2 last year was in May. Appliance comps for the quarter, while still negative, improved throughout the quarter. With regard to product categories, the categories that had above average comps in the second quarter include building materials, rough electrical, modern landscape, nursery, tools, rough plumbing, paint, hardware and seasonal living. Year-to-date comp sales were negative 1.7%, and total sales of $26.7 billion were essentially flat to the first half of 2010. Gross margin for the second quarter was 34.49% of sales, which decreased 37 basis points from last year's second quarter. In the quarter, promotional activity negatively impacted gross margin by approximately 20 basis points. This promotional activity was initiated by both us and the competition. As you heard from Bob earlier, we are expanding our benchmark list to sharpen our everyday pricing on the most visible items, and we are working to lessen the frequency of special advertised promotions. Higher transportation cost, both fuel and ocean freight, negatively impacted gross margin by an estimated 15 basis points. In addition, our proprietary credit value proposition, which offers customers the choice of 5% off every day or promotional financing negatively impacted gross margin by 11 basis points. As Robert noted, this was more than offset by a leverage in tender and other costs associated with our proprietary credit program. I will provide the details of SG&A and EBIT impacts in a moment. Lastly, clearance activity associated with resets hurt gross margin by approximately 10 basis points. Slightly offsetting these items were Base Price Optimization and patch area expansion aided the gross margin by approximately 15 basis points. Year-to-date gross margin was 34.93% of sales, a decrease of 8 basis points from the first half of 2010. SG&A for Q2 was 22.22% of sales, which deleveraged 1 basis point. During the quarter, we incurred an $83 million charge related to an evaluation of the carrying value of long-life assets, including 7 stores that were closed. This compares to approximately $11 million in Q2 2010, which results in deleverage of 49 basis points. We also experienced approximately 15 basis points of deleverage related to investments made to improve customer experiences. The expenses related to staffing up our contact center to support the in-sourcing of repair services, internal and external resources for additional lowes.com capabilities, advancing the My Lowe's concept and continued efforts to build out our customer relationship platform. Store payroll deleveraged 10 basis points due to a slight increase in average hourly rate and new stores. Payroll taxes deleveraged 7 basis points as a result of both higher payroll taxes and higher payroll expenses. Almost completely offsetting these items was leverage in the following areas

[Operator:]

[Operator Instructions] Our first question comes from Brian Nagel with Oppenheimer.

[Brian Nagel:]

A couple of questions if I could. First off, an easy one. You gave us the comp progression through the quarter, and you mentioned too just some of the noise in the marketplace. Can you comment on, recognizing it's early in the third quarter, but can you comment at all about how sales have tracked here in August? And have you seen any, again, I know it's difficult to break apart all the pieces, but if you've seen any clear impact upon your business of the recent volatility in the financial markets.

[Robert Hull:]

We've not seen any -- we don't believe we've seen any activity from what's transpired in the financial markets on the performance August to date. I will tell you, Brian, that our comp performance through yesterday is slightly positive.

[Brian Nagel:]

Okay. That's helpful. Then the second question I have a little bit longer in nature. You've laid out -- you gave us a lot of detail on some of the re-merchandising efforts in your stores. You said that you -- we should see the benefits of that in 2012. Near term, as this is taking place in your stores, do you expect any type of sales disruption? And then, could there be any type of extra promotional activity as you clear through product that may not be part of that longer-term plan?

[Robert Gfeller:]

Brian, this is Bob Gfeller. I would answer your question as no. As I said in my remarks, we've been working on this re-merchandising effort really for the first half of this year. We did eliminate some SKUs to make room, do not foresee a major impact from that. We have been kind of working on how to execute these most efficiently for the stores. And that's part of our test-and-learn kind of mentality and approach going forward. So I can tell you that for the second half, working with Ricky and his team in store op, we don't see significant disruption. In fact, I would say, we would probably see a similar type impact that I started talking about that we saw in the test results.

[Operator:]

Our next question comes from the line of Matthew Fassler with Goldman Sachs.

[Matthew Fassler:]

My first question relates to the move from the outdoor season to the indoor season. Obviously, with the seasonal rebounding, it helped Q2. As the indoor products become seasonally more significant, how is that factored into your comp outlook? And perhaps you can synthesize the appliance compare into that discussion as well.

[Robert Hull:]

I'll start, and let Bob Gfeller add any color. So certainly, Matt, when we take a look at our performance by category, we understand that in the second quarter, we had some negative impact in appliances as results for the Cash for Appliances compare. That's really 25-basis point drag in Q2. We think that's only about 5-basis point drag in Q3. Also as Bob mentioned, a number of things transpiring in flooring should help the second half of the year. So those are 2 indoor categories, as Bob mentioned in his comments struggled in Q2. We expect better performance in the second half of the year.

[Robert Gfeller:]

Matt, I would add to Bob's comments that, as you look at appliances, flooring as Bob said, fashion bath, that the IP&E process and the line review process is opening up some positive for us in the back half. I think, I mentioned the tools strength, which we expect will continue into the holiday season. And the whole focus on product differentiation as we move to the back half is very focused on indoor products.

[Matthew Fassler:]

Got it. That's great. And then just by way of follow-up, your vendors as they reported their second quarters spoke a lot about price increases or the attempt to take price increases. I know this is nothing new. You did not seem to discuss any real impact from input cost increases, when you talked about gross margin. So if you could just post us on what’s transpiring in the supply chain from that perspective.

[Robert Hull:]

Matt, as you know, as we think about the many different impacts on gross margin, it's tough to necessarily discern basis points here or there. I'll let Bob Gfeller talk about the process regarding vendor requests. The price increases that we saw were somewhat included in the promotional activity of 20 basis points that I referenced. What that means is that promotions might have actually taken price down a little bit, while some of the input costs may have gone up slightly.

[Matthew Fassler:]

Got it.

[Robert Gfeller:]

Matt, just to add to Bob's comments. As I think we mentioned before that vendors are coming forward with price increase requests. Our approach is to negotiate as hard as we can to the lowest cost possible. We certainly take them under consideration. Where we have taken pricing, we have moved some through to retail, the paint being one good example and rough electrical and rough plumbing are similarly. But as it relates to looking into the back half, as Bob said, I think it's more neutral than it was in the first half.

[Operator:]

The next question comes from the line of Chris Horvers with JPMorgan.

[Christopher Horvers:]

On the -- I just want to follow up on the pricing commentary. How does -- I guess, it's a refocus on EDLP. How does this interact with your recent price optimization effort? Do you think you'll unwind some of the margin gains? It looks like maybe you got 20 basis points of benefit to gross margin in the past year out of pricing initiatives. Will we get some of that back as we look forward?

[Robert Gfeller:]

Chris, this is Bob Gfeller. Just in terms of pricing and price perception, Every Day Low Price is our goal and our focus. And therefore, everyday low cost is primary to deliver that everyday retail pricing approach. We do use new lower prices and special values at times although again going forward, we're going to be much more selective on promotion. Base Price Optimization and patch area expansion are now cycling really a year of being part of our everyday way we manage merchandising, and we are going to continue with those programs. And I would say that Base Price Optimization is not always a price increase. It can lead to -- I'm sorry, not only is it price decrease, it can lead to price increases, so that we are competitively priced overall. So overall, I would say that looking forward, Base Price Optimization and patch area expansion will be part of our program in the back half as it has been for the last year.

[Robert Hull:]

The other thing I would add, Chris, is that in some cases, Base Price Optimization identified areas where prices were actually below the competition. So we can be Every Day Low Price, in some cases, raise our price up to the level of competition.

[Christopher Horvers:]

Okay. Totally understood. So it sounds like net-net, just really trying to refocus the industry on EDLP. So perhaps are we talking -- how many SKUs would you say are in that benchmark group out of a store that maybe has 40,000? And just a quick clarification, Bob Hull, did you say tax rate 36% for the year? Does that mean that it's going to be abnormally low in 4Q?

[Robert Hull:]

Chris, good catch. I think I did say 36%. It's actually 37.6% to clarify.

[Robert Niblock:]

Chris, this is Robert. With regard to the number of benchmark items, that's something that we don't disclose. I think the important point there is that we're expanding the number of benchmark items from what we have in the past. Several things we've done is we kind of take this movement back to EDLP. As you know, going through the financial downturn that took place over the past several years, housing, economic downturn, it naturally led to a more promotional environment. As we transition out of that, we do think that the customers are telling us that they're looking for great value every day. So whether it's expanding the list of benchmark items to better send the message to them on an ongoing basis that they can find great value every day, whether it's what we did with our 5% off value prop that we did with the -- on the Lowe's credit card, the return back to EDLP and the work that Bob and his team were doing to work with our vendors and say, we're going to take everything we can out of cost, so we can provide that EDLP benefit to the customer and protect margin every day. Those are the type of things that we're working on. And so I think, the important takeaway is not how many is on the benchmark list, but the fact that we're expanding it to really, to drive that price perception home with the consumer every day.

[Operator:]

Your next question comes from the line of Eric Bosshard with Cleveland Research.

[Eric Bosshard:]

On the price optimization, just to clarify, there's been good gross margin benefit from this over the past year. Should we expect that going forward, you continue to get gross margin benefit out of that? Or how should that play especially as you focus on this great value everyday effort?

[Robert Hull:]

Eric, this is Bob Hull. I'll start. Yes, I think just continued opportunities to refine our efforts in Base Price Optimization. I think all these tools work in tandem as Bob Gfeller described, integrating planning and execution is about taking the right SKUs in the right locations to be better market assorted. We've done a good job in the past. This kind of takes it up a notch. As a result of the overall umbrella effort to go local, Base Price Optimization has a role to play there to refine the retails of the SKUs that are in market there. So we do expect to continue to tweak the dials to have some novel positive impact going forward.

[Robert Gfeller:]

And, Eric, I would just add one other comment. We've cycled the year of the program. So again, in the notion of test and learn, we're taking a look at all we've done, driving sales, helping margin, being more price competitive and as a merchandising organization, taking that into year 2 of the program. So it's just an ongoing approach, that's really part of how we're going to market now.

[Eric Bosshard:]

I guess to be more direct about it, it feels like you’ve had good gross margin success but perhaps not the sales success in the last year. Is more of the emphasis over going forward or over the next year to grow the gross margin less and grow the sales line more? I just want to be clear on what's different within this.

[Robert Niblock:]

Eric, this is Robert. I think our real focus is on how do we drive gross margin dollars and EBIT and better return to shareholders. So it's -- a great example is what we did with the 5% off everyday value prop on the Lowe's credit card. It has a slight negative impact on gross margin rate, but it actually drove more gross margin dollars at lower expense, so it drove a higher EBIT. So those are the type of opportunities that we're looking for. So take that, combined with what we're doing, EDLP, we used Base Price Optimization for those tiers. We're going to drive traffic. There'll be other areas where we'll gain margin opportunity, and we'll look at the entire mix and say, how do we provide enhanced margin dollars and a better EBIT to drive greater shareholder value.

[Eric Bosshard:]

And then just one follow-up. In terms of the store closing decision, can you just review what led to that, what the thoughts were for that and what's changed in the equation?

[Robert Niblock:]

Yes. As we've talked to you in the past, we have several stores that were on our watch list, and we said we would continue to monitor them. We've done a lot of things in those stores to try and reduce operating costs of those stores, to try and make necessary changes that we could, that we thought would improve sales. As we looked at ongoing slow economic recovery and what now, according to the Fed, will even be probably even more delayed or slower growth over the balance of this year and potentially into next year and we looked out over the time line, what we thought those stores could accomplish, we just came to the conclusion that we didn't think there was enough opportunity in those markets to get those stores operating at the level that we needed to. So we made the difficult decision to go ahead and close them. Rick, I don't know if you have anything else you want to add?

[Rick Damron:]

No, Robert, that's -- as we discussed in the past, we have a process in place with operations, where we consistently review our underperforming stores to evaluate them against the market performance. As part of that ongoing process, as Robert identified, in this quarter's review and looking at the markets and what's happening at the macro level, we just determined that despite the best efforts of our teams in those locations, that the opportunity just wasn't there. So we made that difficult decision last night to inform those employees that we would close the stores. But it is part of our ongoing process as we review our stores on a quarterly basis.

[Operator:]

Our next question comes from the line of Peter Benedict with Robert Baird.

[Peter Benedict:]

A couple of questions. First, just help us understand what you had baked into the second half of gross margin outlook, Bob, for the impact of increasing the benchmark price list and is that offset either partially or fully by lower kind of ad promotional cadence? How do we think about that? And then secondly, on the SG&A front, do you think you guys can hold this flat as a percentage of sales in a flat comp environment? How should we think about that? And how long you could do that?

[Robert Hull:]

So, Peter, I think for Q3, we're looking at gross margin performance not dissimilar to what we saw in Q2, all the same factors at play. We've got, from an SG&A front, we do have a bit of a headwind regarding the $30-or-so million associated with store closings. We do expect continued benefit from proprietary credit, the same or maybe a little bit higher in Q3 versus what we saw in Q2. As it relates to our outlook for the second half, sales and earnings are below plan, which means we'll likely leverage bonus expenses in the second half probably not to the same degree of what we leveraged in Q2. And then, we're always taking, I think, as Robert identified in his comments, we're continuing to take a critical look as to how we operate, how work gets done, whatnot, and ensure that we are getting value for all the dollars we invest in the business.

[Peter Benedict:]

And then one follow-up, in terms of assessing the options for the capital structure, can you give us a timeframe maybe for when we might hear the result of those discussions?

[Robert Hull:]

No real timing, Peter. We went into the year with a plan to repurchase $2.4 billion. We did that in the first 2 quarters. If you take a look at both cash flow from operations and free cash flow, we generated 80% of free cash flow in the first half of the year. And in fact, more than 100% of free cash flow in the first half. So we try to better orient the timing of share repurchases with cash coming in the door. However, as we've done in the past, we'll continue to evaluate the market and options. And to the extent we feel we can be opportunistic, that's consistent with our long-term direction, we will do so. But more to come there.

[Operator:]

Our next question comes from the line of Laura Champine with Cowen and Company.

[Laura Champine:]

You mentioned that your outlook for 2012, at least for the stores that you closed, came down a little bit on the top line just given the macroeconomic conditions. Can you talk about from a broader perspective, what we should be thinking for 2012 in terms of a total company comp as you’ve got these in-house initiatives that hopefully will offset a weaker environment. Should we be looking at low-single digit to maybe mid-single digits? Or if you could comment just qualitatively on the shape of the recovery for next year.

[Robert Hull:]

Laura, this is Bob. I'll start. So I think we talked in terms of taking a look at our outlook more broadly, we took, as I mentioned in my comments, our sales and earnings outlook for the back half of the year down 4 to 7 stores that Rick described. We took a little bit longer-term view of those stores and the markets they're in and as he said, despite the best efforts of the team, made the decision to close. Longer term, we'll update you on our expectations 2012 and beyond at our Analyst Conference in the fall. I think news is changing dramatically. We're seeing that reflected in the roller coaster ride in the equity markets, so I think it's premature for us to comment on what 2012 looks like. I'd like to get to our Analyst Conference later this year.

[Robert Niblock:]

As always, thanks for your continued interest in Lowe's, and we look forward to speaking with you again when we report our third quarter results on November 14. Thanks, and have a great day.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.