勞氏公司 (LOW) 2002 Q1 法說會逐字稿

This is Premiere Conferencing, please

stand by. We are about to begin. Good morning, everyone

and welcome to the Lowe's Companies first quarter earnings

release conference call. This call is being recorded.

Statements made during this call my include forward-looking

statements within the meaning of Section 27-A of the Securities

and Exchange act. The company believes that such statements

are reasonable, it can give no assurance they will prove

to be correct. Possible risks and uncertainties are detailed

in the company's May 20th, 2002, earnings release and the

company's filings with the Securities and Exchange Commission.

Hosting today's conference will be Mr. Robert Tillman, president

and CEO, Larry Stone and Mr. Robert Niblock, executive

vice president and chief financial officer. Please note the

call will conclude at 9:40 EST. I will turn the

call over to Robert Tillman. Please go ahead.

Thank

you for joining us. Today after hearing from Robert Niblock,

chief financial officer and Larry Stone, we will review

the factors that drove our performance during the quarter.

The first - I would like to highlight a few items from

the first quarter results. Sales in the quarter total

$6.5 billion a 22.6 percent increase over last year. Comparable

store sales increased 7.5 for the quarter.

During the quarter, we experienced widespread sprints across

geographic regions and product categories. Our strong

results are also a sign that our initiatives like SOS, CBC

and installed sales are working to drive incramental sales

across our chain. During the quarter, we continued our

focus on metro markets and continue to be pleased with the

results our Metro market stores are [inaudible], particularly

in the northeast and western U.S.

For our expansion in the first quarter, more than 50 percent

of our stores are in Metro markets, which we define as

MSA's with 500,000 people. Our Metro market growth continues

this year with nearly 65 percent of our expansion occurring

in Metro markets. Highlighting of the items on the income

statement, we achieved a record [inaudible] of 29.7 percent,

which when combined with effective expense controls drove

pre-tax earnings to a Lowe's record 8.5 percent, quite

an accomplishment considering the difficulty many others

experienced during the first quarter. The results we delivered

for the past several quarters certainly adds to our conviction

we have a successful model, despite concerns about the economy,

the American consumer continues to spend and home improvement

customers remain willing to invest in their homes.

We approach the balance of the year with optimism, but

continue to keep a sharp eye on unemployment, housing trends

and the effect these have on the consumer. Our optimism

comes from the fact we know we are putting the right stores

and the right markets with the right assortments of product

and services, all supported with a marketing program driving

traffic.

We will continue to approach the year with some caution

and to the economic pilot climate becomes more clear. Our

caution hasn't slowed expansion plans. In the first quarter,

we opened 46 stores, including four relocations, while closing

1 older and smaller store, bringing total store count to

785. Square footage increased to 86 million square feet

and 19.7 percent increase over the first quarter of 2001.

We remain on plan to open 123 new stores this year. However,

we won't rest on the success of our first quarter. Our

business process improvement teams remain focused on eliminating

wastes and inefficiency. We will continue to diligently

control expenses, while at the same time ensuring service

levels in our stores remain high. We will continue to

leverage our distribution and support infrastructure as

we drive higher volumes through our big stores. Focus

on these initiatives will ensure a better shopping experience

and continue improving home improvement for customers.

With that, let me turn the call over to Larry Stone.

Thanks,

Bob. I would like to talk about sales trends, highlights

by Metro market stores, as well as details to the store

managers to drive increased sales and productivity out of

our store base. First, we were impressed with the quarter.

We experienced positive comps in 17 or 18 regions. The

only negative region experienced unseasonably cold and wet

weather during the quarter, which nipped sales. Our regional

sales balance shows consumers are willing to invest in their

home, despite the economic environment. We saw a balance

across product categories, with no one category driving

our performance. In fact, all 17 product categories experienced

positive comps in the first quarter.

We continue to be please wide above-average comps in appliances.

We achieved 12.1 percent share of the appliance market

at the end of the first calendar quarter, up from 9.3 percent

in the first quarter of 2001. This market share gain exceeded

all other competitors and supports our belief consumers

prefer offering of premium national brands with 250 SKU's

in stock in a bright, clean, shopable environment. We

are not resting on our success. Despite our strong market

share gains, we continue to invest in our stores. This

year, we will remerchandise the appliance areas of 170 of

our existing stores.

Those stores don't have the newest sets. To provide an

even better service to customers. The investment we are

making is representative of our continued investment in

the future and our dedication to provide customers with

the best home improvement stores in the industry. Our

outdoor power equipment category also performed well during

the quarter. Many of you have heard us describe our intentions

to offer well-known brands in this category to exclusive

agreements with [inaudible]. Those new brands help drive

double digit comps during the quarter and also served to

re-enforce our strategy. Lumber, millwork and hardware

delivered solid comp increases during the quarter, a sign

commercial business initiatives are providing continued

success. Our [inaudible] categories remain strong, also

delivering double digit comps in the quarter.

As Bob mentioned, we are still very pleased with results

we are seeing in the Metro markets around the country,

especially the strong store performance experienced in the

northeast and west. In the second quarter, we will add

to Metro store base by opening two stores in the Boston

area. We continue to add stores in the Metro markets

in California and our plans to store the greater New York

city area continue with a new store in Homedale New Jersey

and a second store in Long Island, expected to open in

the third quarter of the year. While the results we are

experiencing grate enthusiasm about expansion, we know that

the key to our continued success lies in the efficient and

proper alteration of our existing store base. We can't

and I won't allow our comp store base to lose sight of

the fact we must continue to improve execution in our existing

stores everyday.

It all hinges on our vision, which is for a customer's

first choice store in each and every market we serve. We

continue to be focused on the fundamentals of retailing.

We challenged our stores to improve on five measures this

year. Customer service, inventory strength, employee turnover,

inventory turnover and management involvement. Our first

quarter results show we are making progress. The first

step in building a strong retail foundation is to provide

exceptional customer service. We have made great strides

in the service we deliver in stores. Independent surveys

show we have reached [inaudible] from in the industry.

We must strive to be better. As good as is not good enough.

We know that we can drive higher volume by increasing

the average ticket. Our real focus is to drive more traffic

through the stores. This is accomplished by using staffing

plans that better match payroll and sales and improve stock

programs and clear direction of our cross-merchandising,

are just a few examples of new plans we have grown to improve

service.

This year we completely revamped our customer first program.

A program developed a few years ago to promote and measure

customer service in our stores. This year's enhancement

provide our teams more and better information to help them

stay focused on service. Our mystery shop program has

been revamped to dig deeper and better understand why we

are not achieving exceptional customer service. Through

our 800-CALL-LOWES[phonetic] numbers we get instant feedback from

customers. Our call-back report tells us where staffing

is needed. Our goal is to answer every service call in

60 seconds or less. By using complaint index, we can determine

which stores are failing to solve issues at the local store

level.

Stores we measured against established standards, as well

as against other stores. A detailed report will show how

each store stacks against other stores, where the store

can improve and how each store compares to our standards.

All stores receive a quarterly score and detailed action

plans will be developed for each store below the standard.

First quarter results show our efforts of paying dividends.

Average ticket was up and total customer traffic was up

19 percent. The second challenge for our stores in 2002,

is controlled inventory stream. By controlling strength,

we improved our in-stock position, helped gross margin and

helped drive performance of our stores. We added increased

focus on technology, to control shrinkage in the stores.

We have worked closely with vendors to develop new ways

to track the product they supply and ensure merchandise

is not walking out of the doors of our stores. Electronic

article surveillance tags have been incorporated into many

products as part of the process, not just placed on the outside

of the packaging. This makes it difficult for shoplifters

in our EAS system by removing tags from the products. We

know that some thieves will continue to find ways [inaudible]

even the best electronic systems.

We have challenged our stores to provide the human component

to compliment our electronic system to control strength.

We will also have greeters at our entrance to help control

the thieves that come in empty-handed. We have issued

a tough refund policy for customers without a receipt.

We will not give cash back, only a merchandise credit card,

which can never be cashed out. We have been inputting a better

track record for repeat offenders. In some case, we will

not issue a new card. New job descriptions and new focus

of cashiers are helping.

More scan errors are being detected. I know issues with

scanning will be greatly reduced with the renewed focus

of head cashiers. All are small steps, together, they

can deliver large results. In the first quarter, shrink

was down 24 basis points to last year, an improvement that

drove our gross margin improvement for the fourth quarter.

The third challenge is to reduce employee turnover. In

our efforts, we challenged our store manages to become more

involved in the hiring process. I have told them to spend

at least 15 minutes with every potential new hire and not

just leave the hiring process to the coordinators in the

stores. Store managers are required to participate in

new employee orientation. By doing this, new employees

better understand standards and the opportunity they have

with Lowe's. To help us achieve our goals, we provide

our employees with a total compensation package that includes

competitive pay, employee discount, medical, dental and

life insurance programs, retirement plans and a discounted

stock purchase plan. This package has allowed employees,

even at entry levels, to see the opportunity and think about

their employment not as a job, but as a career. We are

finding in many markets people want to work for Lowe's.

So far this year, we have received 400,000 applications

in our stores, allowing us to become more selective.

We know our efforts are working, turnover of hourly employees

improved by 18 percentage points in the quarter, continuing

a 16-month improvement in turnover rates. Employee retention

measured as percentage of people that begin the year and

are working with us at the end of the year tells an impressive

story, improving seven percentage points in the first quarter.

Retention of part-time employees is up over 7 percentage

points in the quarter. The challenge we get is to help

drive productivity to inventory turnover. Inventory turnover

has remained flat. We have not totally leveraged our distribution

network and sometimes higher inventory are driven by over

zealous managers. Last year we turned inventory 3.3 times.

Our goal is to improve by 30 basis points per year. To

achieve our goal with initiatives directed toward this issue.

First, for the past nine months we worked on a functional

effort to improve internal supply chain. One initiative

we have adopted and currently implementing is moving safety

stock into the network. The network we have in place today,

we can maintain safety stocks of many items out of D.C.

and reduce inventory in our stores. Should a store have

a run on an SKU, we can replenish the store quickly from

D.C., most of the time in 48 hours or less. We are evaluating

every SKU to see if we will have the opportunity to reduce

inventory without sacrificing service levels or sales.

We have done an extensive study on manufacturing case quantities

to determine what we need to decrease or increase the quantities

needed to meet customer demand. The merchant and logistics

teams have [inaudible] and to make sure just in time strategy

meets demands of our customers. Lastly, we challenged

our stores to get involved and manage the assets. We must

find the battles between lean inventories and sales, but

our managers are aware of the benefit scheme for managing

inventory. Our managers must ensure product is pulled

down during the recovery process. Inventory discrepancies

must be handled immediately to ensure automatic [inaudible]

process is supplying the store with the appropriate level

of inventory. If the first quarter, inventory increased

16 basis points.

In the fifth challenge we have given our operations team

is to ensure every member of the management team that is

engaged and involved in helping effectively run our stores.

In 2001, we added five regions and 16 districts to our

operational structure. This new structure was put in place

to assure regional vice president and district managers

can provide the appropriate level of supervision, guidance

and time in the stores they are accountable for. Their

expanding regional structure will drive better corporate

initiatives and provide consistent and safe shopping environment

for customers.

As I mentioned earlier, these initiatives are fundamental

in retail, but to improve performance, we must improve our

execution of these and other initiatives everyday in every

store. By improvements, it will allow us to continue our

aggressive market expansion. The results we delivered

in first quarter are a step in the right direction. Our

customer service, measured by independent sources, continue

to improve. I will continue to push our stores to excel

in this critical area. Inventory strength has helped drive

gross margins for the past several quarters and the internal

controls should continue to drive improvements in shrink

results. The progress we have made in employee turnover

and retention has been significant. Not only does that

lead to reduced training costs, but better trained and more

tenured employees to provide great customer service. Inventory

turnover has turned in the quarter and we expect gains in

the next several quarters.

Finally, the management teams are engaged in successfully

introducing Lowe's to millions of new customers every week.

For the past 12 to 18 months, our business process improvement

team worked to take a deep look at many of our processes;

including representatives from operations, logistics,

merchandising and real estate, the teams look for ways to

improve the basis of activities with the goal of improving

efficiency of the whole company, not just one district.

While our continued expansion was the focus on the Metro

markets provide tremendous opportunity for Lowe's over

the next several years, we have the capability to drive

our existing store base and help identify and develop in

our VPI process. Store directives incorporate some of

what these teams have identified and the impact these directives

had on first quarter results, mark only the beginning of

what we expect to gain through this focus on efficiencies.

With that, I will turn over to Robert Niblock to describe

financial details in more detail. Robert.

Thanks

and good morning. As Bob indicated, sales were 6.5 billion

for the first quarter, representing a 22 percent

increase over last year's first quarter and ahead of our

guidance of 21 percent. Comp sales were 7.5 percent for

the quarter, which exceeded our four to six percent guidance.

Comp performance was relatively consistent throughout

the quarter. Inflation in lumber and building materials

resulted in a favorable impact on first quarter comps of

eight basis points. As Larry mentioned, we experienced

widespread strength in comps with all, but one region reporting

positive comps for the quarter. With regard to product

categories, the categories that performed above average

in the first quarter include millwork, outdoor power equipment,

appliances, paint, windows and walls, fashion plumbing,

fashion electrical, cabinets, flooring and home organization.

In addition, hardware and lumber performed at approximately

the overall corporate average. Gross margin for the first

quarter was 29.71 percent, improvement of 140 basis points

over last year's first quarter and significantly ahead of

our guidance of 20 to 30 basis points. The improvement

was attributed to a number of factors, including better

rates, product mix improvements and 24-basis point reduction

in inventory shrink that Larry discussed.

SG and A leveraged 17 basis points in the quarter, below

our guidance of 20 to 30 basis points of leverage. The

shortfall is attributable to higher than planned incentive

compensation which deranged 24 basis points and was driven

by earnings which exceeded our plan for the quarter. Store

cost leverage 11 basis points and reflects the opening of

42 new and 4 relocated stores in the quarter.

This compares to 32 new and 5 relocated stores last

year. The decrease in average store opening costs versus

last year, derived by providing opening costs in the financial

statements by the number of stores open in the quarter is

attributable to timing differences since we expense opening

cost as occurred. Excluding timing differences our average

store opening cost has not changed from last year's first

quarter. Depreciation at 2.24 percent of sales total $145

million and leveraged two basis points. At the understand

of the first quarter, we owned 73 percent of our stores,

versus 16 percent at the end of last year's first quarter.

For the quarter we achieved a record EBIT margin of 9.2

percent which represents an improvement over last year's

first quarter. Interest expense increased to 47 million

for the quarter, with leverage 5 basis points. For the

quarter, total expenses were 21.18 percent of sales and

leverage 35 basis points, which exceeded our guidance of

20 to 30 basis points with leverage. As Bob mentioned,

for the for the, pre-tax earnings were 175 basis points

over the prior year. The tax rate for the quarter was

37.4 percent versus 37.3 percent. The increase was driven

by above-planned earnings. We are anticipating an effective

tax REIT of 37.4 percent for the remainder of the year.

Diluted earnings per share of 44 cents increased 51.7

percent, versus last year's 29 cents and exceeded our guidance

of 35 to 36 cents.

Diluted shares outstanding total 798 million for the

quarter. The competition of diluted shares takes into

act the effective convertible debentures, which increased

first quarter weighted average shares by 16.5 million.

In computing first quarter earnings per share, the after

tax to net income for interest on convertible debentures

was [inaudible]. For each of the remaining quarters of

2002, the after-tax is $2.6 million. For the second

quarter, we are projecting diluting shares of 800 million.

For the year, projected diluted shares outstanding of

801 million. For the quarter, we saw increase in average

ticket to $58.08. Customer count increases 19 percent

during the quarter.

Now, highlighting a few items on the balance sheet. First

of all, our cash position improved to 1.5 billion at the

end of the quarter. In addition, inventory increased 11.3

percent, significantly less than 22.6 sales growth. Internal

invested capital measured using beginning debt and equity

and earnings decreased 28 basis points for the quarter and

14.07 to 13.79 percent. The decrease is attributable to

our decision to prefund our 2002 financing needs. For

the entire fiscal year 2002, we expect investment capital

to increase 10 to 20 basis points. For 2003, we expect

return on investment capital to increase 60 basis points,

as we currently anticipate being able to fund our 2003 expansion

program with little to no external financing. Our strong

first quarter performance drove shareholders equity, determined

use of beginning equity and earnings to 19.83 percent, representing

increase of 244 basis points.

Cash flow from operations was $1.2 billion, representing

increase of 88 percent, compared to the first quarter of

last year. The increase was driven by increased earnings

and improved payables leverage. As we have discussed many

times before, our process of relocating our older is some

smaller stores is almost complete. As a result, for the

quarter, our big stores represented 97 percent of total

sales and generate 98 percent of operating profits. These

percentages will continue to grow. We replace smaller

stores with large format stores

I would like to discuss several items detailed in the outlook.

A second quarter sales increase of 21 to 22 percent incorporates

a comp assumption of 4-6 percent, which is expected to generate

diluted earnings of 53 to 54 cents, representing an increase

of 26 to 29 percent. As a result of our strong first quarter

earnings for fiscal 2002, we are now anticipating diluted

earnings per share of $1.66 to $1.69, which represents

an increase over last year of 28 to 30 percent. Gross

margin for the second quarter is expected to increase between

50 to 60 basis points. For the entire fiscal year, we

are also anticipating a gross margin improvement of 50 to

60 basis points. For the year, we are estimating a comp

sales increase of 5 percent. This guidance incorporates

a comp assumption of 4 percent for the second half of the

year as we cycle against tougher comp comparison.

We expect to open 23 stores in the second quarter and are

on track to open 123 in fiscal 2002. Regarding current

sales trends, our business outlook for the second quarter

anticipates 4-6 percent comps. For the first 16 days our

comps are at the upper end of the range. Before I turn

over to the operator for inquiry questions, in addition

to Bob, Larry and myself, Dale Pond, Bill Warden and Perry

are present. We are ready for questions.

Thank you. Today's question and

answer session will be conducted electronically. To ask

a question press the * followed by 1 on the touchtone telephone.

That is * 1 on your touchtone telephone. We will take

as many questions as time permits. We will pause for a

moment to assemble the roster.

Our first question will come from Bill Julian

of Salomon Smith Barney.

Good morning. And, congratulations.

Your guidance for the gross margin for the back half of

the year looks like it is all of 20 basis points of expansion,

given what happened in the first half. Yet, when I look

at your comparison for the last two years, it is not like

they get that much more difficult. Talk about what is

driving the slow down.

Bill, this is Robert. We have

been consistently saying we expect 20 to 30 basis points

per year, that is what we charge the merchants with.

If you look over the back half of the year, you are looking

at increase in the 20 to 30 basis point range. I think

in the fourth quarter of last year we were up one hundred

basis points. We are cycling in tough numbers in the fourth

quarter and we just want to maintain the flexibility in

our business as we look out over the longer term to manage

the business the way we think is most prudent. Short-term,

we are taking out the guidance once we have seen the performance.

Longer term, I want to take up the guidance until we

think it is necessary or until we think it is prudent, that

is after the second quarter. We think we have a better

outlook on the back half of the year. I guess it is wrapped

up in our stance we have taken for the past several quarters,

which is being cautiously optimistic.

Okay. Did you mention

what your level of inventory shrink is today?

We don't disclose that. 24 basis

points improvement as an explanation through the 140 basis

point increase in margin. The 24 base improvement exceeded our

planned improvement in inventory shrink.

Any sense on whether you

are above or below industry average, can you give us that

much on shrink?

We believe below.

Next, we will hear from Bud [inaudible]of Raymond

James.

Hi. My congratulations, as well.

I am still perplexed about the guidance on gross margin

for the second quarter, up 50 to 60 basis points. It

looks like - I am not sure why it wouldn't be better

than that or stronger than that.

We are sitting here at the

beginning of the quarter. Certainly we will not guide

you to more than 50 to 60 basis points in the quarter.

We need to maintain flexibility in the business. If we

decide we want to get aggressive on pushing through, discontinued

or nonproductive inventory, we will maintain flexibility

in the business. We will deliver 50 to 60 basis points.

Depending on how on the weather, that number could be

more. We feel comfortable with 50 to 60 basis points,

but will not guide you above that.

Correct me if I am wrong.

Doesn't look like mixed [inaudible] change evident in

the numbers. If I look historically first to second quarter

gross margins, look at them quarter by quarter, year over

year, quarter over quarter, looks like relatively stable

margin performance in the last couple of years.

It is. In the second quarter of

the past three years we had 34 basis points and 45 basis points

improvement over the last three years, 50 to 60 is in line

with the numbers.

I understand that. Then

that looks like where the first quarter came in significantly

better than that.

There are several things out there.

Inventory shrink and other drivers that we are just -

not knowing how you will sell through seasonal categories

and not knowing how we will be at the end of the spring

season, that inventory to sale through if it doesn't sell

through. We are optimistic and will not guide you above

that.

Congratulations. Thank

you.

Next David Chick of [inaudible].

Hi, good morning. Could

you give us a little bit more update on the CBC initiative

in terms of progress during the quarter, anything you would

release on numbers?

The

CBC continues to perform. We had positive comps in CBC

for the quarter. We don't have any new, exciting initiatives

we have added. We continue to do the things we outlined

in the past, making sure we have the right people to take

care of our customers and inventory and certainly have the

the right folks on all the various key places in the stores,

whether the paint deck or CBC desk or millwork deck or whatever.

Very pleased with it, still driving positive comps and

still on plan based on how we projected 2002.

Thanks.

And again, * 1 to ask a question.

Next we will hear from Matt Savler[phonetic] of Goldman Sachs.

Thanks a lot and good morning.

I want to get another derivative on the gross margin question.

Give us more detail on how mixed plays into the gross

margin improvement that you saw and whether you would expect

changes to sustain themselves through the second half of

the year? Your guidance on this?

15 basis points in gross

margin in the quarter. We will anticipate mix continuing

to be a positive driver over the balance.

Following up, if mix was

15 base points and shrink was 25 that would suggest over

one hundred basis points was your original mark-up.

Also, margin REIT is driven

by better acquisition cost. It is also driven by what we

saw as rational pricing environment in the first quarter.

It didn't have to do a lot of discounting or anything

like that. A number of things we won't - we don't know

what the future holds, we won't count of that much of a

REIT improvement over the balance of the year.

Were there initiatives

you had on a corporate basis in terms of acquisition costs

and were there any reasons to believe those would not be

sustained in the competitive environment? It is a wildcard.

Look at the areas under your control.

DALE POND, EVP Merchandising: We are continuing

the process of reviews. We are working with vendors in

terms of working with them in lowering the cost of goods.

So, that is certainly continuing the initiative. There

is mix within mix that has been favorable. Certainly a

lot of our reset that we put into play last year are starting

to deliver the kind of results we were hoping for within

the margin, as well. So, those are some of the issues

we have got. Logistics has been a big help in the cost

of business, as well. That is part of the way we have

lowered the cost through vendors.

Got you. Thank you so

much for the details.

Aaron Rubenson[phonetic] of [inaudible].

Thanks, guys. Great job.

Robert, your mentioned return capital [inaudible]. I

am curious what is embedded in that from a capex standpoint

and therefore, square footage?

I think we have given that

in '03 square footage would be between 17 percent in '03.

As far as capex on a cash capex basis, you are looking

at a couple of hundred million for '02. As I said, I

think previously we had started out, if you look maybe six

months ago, we talked in the neighborhood of needing 500

million of external funding [inaudible]. The max and depending

on how well performance goes, the back half of the year,

there is a good likelihood we may not need any external

financing for next year.

Does that represent a change

in psychology internally or natural progression with decelerated

square footage growth rate?

It is a natural progression

of the growth rate, new stores performing very well, maturity

base of the old stores. One thing that is a key driver

is inventory turns, if you can imagine that generates a

significant amount of cash flow to fund the business.

You don't have a ton of

discretionary cash on hand, but you will get there. You

do seem to have earnings cushion built in. Do you have

an area to invest in more so than you are now, what areas

would those be, pricing or people or corporate or what?

We will address those when

we get there. We are talking about the balance of this

year, we need the cash on the books to fund the expansion

plan. We think we will have four or 500 million carry-over

if we meet our plan for the rest of the year. That funds

the shortfall we otherwise would have next year.

Then, we will continue to invest in our logistics and regional

distribution and infrastructure in the future. You are

looking at real between 2004 and 2005, before you would

really be significantly on a cash flow basis beyond your

expansion plan. Up to 2005, we have 600 million of debt

maturities out there. We could use it. By that point

in time, we may have other things we are investing in.

We still have time to make that decision.

Thanks.

Thank you. Our final question will

come from Daniel of J.P. Morgan

Thank you. Where did

the pick-up in accounts payable leverage back to historical

levels come from? I am wondering how you were able to

team it with such a large gross margin gain with the trade-off

between the two in vendor negotiations?

That is Robert. There is no real

change in vendor negotiations. At the end of the year,

there were timing issue that is drove us down lower than

where we had historically been. There was no real change

in vendor negotiations and inventory improving drives that

leverage up. Between inventory turn and getting back -

that helped us get back to that historical level. No real

change in negotiation with vendor terms in the fourth quarter.

One final question. This

past year you increased the percentage of new store openings

in large Metro markets. Are Metro stores comping at

a higher rate than non-Metro stores that were open at the

same time?

If

there is no change in the landscape, they comp at a higher

rate. Most of the time in Metro markets, there is a change

in landscape, given a static environment, Metro stores

will comp higher than stores in a small to mid-sized market.

Thank you.

That will conclude our question and

answer session. We will turn the conference back over

to Mr. Tillman for closing remarks.

Thanks to you

for your continued interest in Lowe's. We look forward

to speaking with you again to report our second quarter

results in August. Goodbye and have a great day.

That concludes today's teleconference, we thank

you for your participation.