May 24, 2017
Executives
Robert Niblock - Chairman, President and CEO Mike McDermott - Chief Customer Officer Marshall Croom - CFO Rick Damron - COO Richard Maltsbarger - Chief Development Officer and President, International
Analysts
Michael Lasser - UBS Simeon Gutman - Morgan Stanley Dan Binder - Jefferies Eric Bosshard - Cleveland Research Seth Sigman - Credit Suisse Matt Fassler - Goldman Sachs Dennis McGill - Zelman & Associates Chris Horvers - JP Morgan Greg Melich - Evercore ISI
Operator
Good morning, everyone, and welcome to Lowe’s Companies’ First Quarter 2017 Earnings Conference Call. This call is being recorded.
[Operator Instructions] Also, supplemental reference slides are available on Lowe’s Investor Relations website within the Investor Packet. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the Company’s results and to be used as a reference document following the call.
During this call, management will be using certain non-GAAP financial measures. The supplemental reference slides include information about these measures and a reconciliation to the most directly comparable GAAP financial measures.
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 in its filings with the Securities and Exchange Commission. Hosting today’s conference will be Mr.
Robert Niblock, Chairman, President and Chief Executive Officer; Mr. Mike McDermott, Chief Customer Officer; and Mr.
Marshall Croom, Chief Financial Officer. Joining during the Q&A session will be Mr.
Rick Damron, Chief Operating Officer; Mr. Richard Maltsbarger, Chief Development Officer, and President, International.
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. This quarter we delivered comparable sales growth of 1.9% driven by 3.5% increase in average ticket, partially offset by a 1.5% decline in transaction stemming from weaker outdoor performance.
We posted positive comps in 8 of 11 product categories while one category was flat. A solid macro backdrop combined with our project expertise drove above average performance in indoor project categories across the appliances, kitchens and flooring categories.
We also continue to advance our sales Pros customers, driving outperformance in rough plumbing and electrical, lumber and building materials and tools and hardware. We drove 27% comp growth on lowes.com and above average comps in in-home sales, demonstrating the continued strength of our omni-channel foundation.
Our ability to connect with customers in our stores online, through our contact centers or in their homes ensures that we provide solutions to customers across the most relevant moments of the project journey. We’re pleased with the progress we've made to enhance our product and service offering for the Pro customer, delivering another quarter of comps well above the Company average.
And we continue to expand our capabilities to better serve this growing customer group. Last week, we announced that we entered into a definitive agreement to acquire Maintenance Supply Headquarters, a leading distributor or maintenance repair and operations for MRO products to the multifamily housing industry in the South East, South Central and West.
This is an important step and our strategy to deepen and broaden our relationship with Pro customers and better serves their needs. We combined with our November 2016 acquisition of Central Wholesalers, a prominent and our distributor in the Mid-Atlantic in the North East.
This acquisition will substantially expand our ability to serve the multifamily housing industry as both the primarily and secondary supplier, while also increasing our presence in major metro markets and strengthening our foundation for future growth. This combined multifamily MRO business is expected to generate more than 400 million in annual sales with 16 distribution centers and over 200 additional outside sales representatives.
From a geographic standpoint, our U.S. business achieved 2% comps for the quarter with positive comps in 12 or 14 regions.
In internationally, we delivered double digit comps in Mexico, while comps in Canada were flat in local currency. Trading comps were pressured by unusually high snow fall in addition to four years of half single to double digit comps.
Last week marked an important milestone, the one year anniversary of our acquisition of RONA. This acquisition has fortified our presence in Canada with a market proven asset.
We remain excited of the compelling opportunity to bring together Lowe’s global scale and resources with RONA’s local expertise, and we're well position to capitalize on the market strong long term fundamentals. We're pleased with early wins in key center areas such as introducing our best-in-class suppliers offering and run a branded stores serving a new portion of the market and positioning us with the capture additional market share.
Building at our e-commerce capabilities, which are already delivering strong growth above initial expectations, converting as many as six RONA a big box stores to Lowe’s branded stores in fiscal 2017 and rather improved profitability by leveraging our shared supplier relationships. Due to the great work of our Lowe’s Canada team, we've begun unlocking the value of the acquisition and remain confident that we will deliver the revenue and cost synergies we expected.
For the quarter, we delivered earning per share of $0.70. These results included a $464 million pre-tax loss associated with the early extinguishment of debt from our recent tender offer.
Adjusted earnings per share were $1.03, an 18% increase over last year's adjusted earnings per share. Delivering our commitment to return excess cash to shareholders, in the quarter, we repurchased $1.2 billion of stock under our share repurchase program and paid $304 million in dividends.
Turning to the economic landscape for the balance of the year, the home improvement industry should continue to see solid gains, job and income growth to drop solid gains in both disposable income and consumer spending. And revolving credit usage remains favorable supplementing the spending power generated by stronger incomes and supporting bigger ticket purchases.
Housing is expected to remain a bright spot. Increasing household formation is encouraging and is expected to continue amidst steady job gains.
Home parts appreciation should persist as mortgage rates have eased from their post election increase which will support home affordability. And as we survey the consumer, we're seeing similar favorable trends.
Our most recent Consumer Sentiment Survey revealed that homeowners have an increasingly favorable view of the national economy and their personal financial situation. Rising home prices are continuing to encourage homeowners to engage in more discretionary projects in addition to ongoing maintenance and repair spending, and we believe that this trend will continue.
As well over half of homeowners we surveyed, believe their home values will continue to be increased. Also nearly half of the owners we survey indicated that they intend to engage in a home improvement project in the next six months and home improvement spending is expected to continue to outpace overall spending.
As we reflect on the quarter, we're very pleased with the continued growth of our Pro customer sales and excited about the opportunity we have to further expand that business and gain additional market share. For the DIY customer, we recognize the near term opportunity we have to drive more traffic with improved messaging and an optimized promotion strategy.
Mike will share more with you on that in a moment. Longer term, we continue to focus on actions and investment capability that will add the most value for customers and shareholders.
We're focused on omni-channel project experiences and expanding the reach of home improvement, ultimately serving more customers, more effectively. We're developing capabilities to anticipate and support customers involving needs.
We're also focused on improving operating discipline and execution and are committed to making productivity core strength at Lowe’s. Before I close, I'd like to thank our employees for their dedication and ongoing commitment to anticipating and serving customers' needs.
Our employees are truly the foundation of our business. Thanks again for your interest and with that, let me turn the call over to Mike.
Mike McDermott
Thanks, Robert, and good morning everyone. In the first quarter, we achieved positive comps in 12 of 14 regions and posted positive comps in 8 of 11 product categories while one category was flat.
We delivered a comp of 1.9% on top of 7.3% last year despite softer performance in outdoor categories which gave rise to a modest decline in transactions. As you know Lowe's built a very strong seasonal business over the years with approximately 35% of Q1 and 40% of Q2 sales historically driven by outdoor categories.
Given the top comparison to Q1 last year, we designed a spring strategy intended the balance indoor and outdoor projects. However, as the quarter unfolded, we found we waited our messaging too heavily towards indoor categories.
We made the appropriate adjustments to our messaging mid-quarter and saw corresponding improvement in April. As we look to capitalize on strong demand for indoor projects and customers continue desire to invest in their homes with our projects inspiration and expertise and targeted promotions, we drove above average comps in interior categories such as appliances, kitchens and flooring.
Once again, we achieved strong comps in appliances, leveraging our investments in customer experience, both in-store and online. In-store, our appliance suits allow customers to visualize how their appliance purchase will look in their refreshed or remodeled kitchen.
Online, we've enhanced the customer experience and presentation and make it easy for customers to select their products. Our omni-channel customer experience together with leading brands, breadth of assortment, competitive pricing, knowledgeable sales specialist as well as delivery and wholly service continues to drive our performance in appliances.
Kitchens also benefited from our omni-channel customer experience, in order to provide a holistic project solution to a simply kitchen refresh or a fully remodel, we display our kitchen solutions including cabinets and countertops immediately adjacent to our clients offering. So customers can both envision and design their dream kitchens.
Following the trend from the last quarter, we again drown above average comps in kitchens through a combination of project X inspiration and expertise, our investment in project specialist and targeted events. We also drove above average comps in floor, leveraging our strong assortment as well as targeted promotions to capture indoor projects.
We continue to advance our Pro customer sales, driving comps well above the Company average. By further optimizing our product and service offering to better serve the Pro.
We achieve strong comps in lumber and building materials driven by strong Pro demand, continued recovery efforts from Hurricane Matthew and Louisiana flooding and inflation. Pro activity also drove solid comps in rough plumbing and electrical and tools and hardware.
We captured Pro sales by improving our brand assortments with exclusive like Hitachi and Bostitch, the number one and number two brands in pneumatics and the extension of brands like Von, Owens Corning and GAF. We continue to be excited about the effectiveness of destination brands and attracting Pro customers.
This strength is evidenced with the addition of Marshalltown, a trusted program and a leading supplier of masonry tools which drove double digit comps in the category. In addition to our outstanding portfolio of brands, we're also deepening and broadening our relationship with the Pro customer with our strong value proposition as well as advancing our capabilities to connect with Pro seamlessly across channels, through lowesforpros.com and our growing Pro services team.
The addition of central wholesalers along with our pending acquisition of Maintenance Supply Headquarters further expands our capabilities to serve multifamily property management customers throughout the country with enhanced product and service offering, while strengthening our platform for future growth with this important customer. We continue to drive Pro awareness with targeted marketing including expanded digital capability as well as Pro exclusive offers to grow our share of wallet with existing Pros, while also generating new business.
We've also enhanced our Buy in Bulk program with new signage in-store, messaging on lowesforpros.com and marketing campaigns designed to drive awareness of the great values we provide for the Pro. Our focus on further strengthening our portfolio of brands, continuing to build upon our omni-channel offering through our growing Pro services team and lowesforpros.com are all part of a broader commitment to build our strong foundation to anticipate and serve the needs of the Pro customer.
We also continue to focus on our strategic priorities leveraging our omni-channel capabilities to help customers achieve great project results. Customers can engage with our associates’ in-store for expert advice on lowes.com for content and inspiration with our contact center for ongoing support or with our project specialist to bring their solutions to life.
As customers engage in both indoor and outdoor projects, we leveraged our omni-channel capabilities to help them throughout their project journey driving 27% comp growth on lowes.com and above average cost for in home sales. Our interior and exterior project specialists represent another important element of our omni-channel strategy as they serve that do it for me customer who needs a bit more help navigating their projects.
Meeting them in their homes to design, plan pull together products across multiple categories and manage their project through to completion. We're also advancing our omni-channel experience making it even easier for customers to engage with our in home project specialists.
On lowes.com we've added online scheduling capabilities to our in home selling all, and we've seen a very strong response to these enhancements with increased lead and appointment request. For the quarter, gross margin contracted 64 basis points, hit 35 basis points of impact from product mix in RONA.
The remainder of the decline was primarily the result of promotional activity, inflation predominantly in lumber and pricing investments in key product categories. Looking ahead, we're working to refine our promotional strategy by improving the balance between big ticket and smaller ticket projects, eliminating less effective promotions and reducing the overall margin impact for the business.
We continue to make progress in driving productivity throughout the enterprise while investing in the areas that matter most to customers. This quarter we drove 40 basis points of payroll leverage as we realized the benefits of our new stores staffing model.
We took decisive action to design and implement a new structure to provide better leadership and accountability, allowing us to grow sales with more efficient staffing. We're working to drive productivity in our supply chain by introducing new international carriers into our system and realizing our network to balance our volumes against three new shipping alliances in South East Asia.
As these improvements are implemented they are expected to benefit gross margin in the back half of the year. As we look forward to the reminder of 2017, we’re proud to welcome to new additions to our outstanding portfolio of brands that appeal specifically to Pro customers.
SharkBite, the industry leader in plumbing fittings; and AO Smith, the leading brand of residential water heaters; and for DIY customers, we're leveraging our MyLowe's platform to drive additional brand loyalty. We're proud to announce that we've simplified our military discount program by allowing active duty in veterans to register through MyLowe's.
We're also offering free parcel shipping exclusively for MyLowe's members. And as we move to Q2, we look forward to our compelling Memorial Day, Father Day and July 4th events as well as our outdoor entertaining event featuring unique omni-channel experiences such as online tools to build the ideal backyard retreat.
We're well positioned to capitalize on a favorable macroeconomic backdrop for home improvement as we continue to execute on our strategic priorities and make progress on our initiatives to drive top line growth, while improving operating discipline, productivity and profitability. We look forward to sharing for the progress with you over the course of the year.
Thank you for your interest in Lowe. And I'll now turn the call over to Marshall.
Marshall Croom
Thanks, Mike, and good morning everyone. Sales for the first quarter were $16.9 billion, an increase of 10.7%.
Total customer transactions increased 6.4% and total average ticket increased 4% to $70.79. Our transaction growth was aided by the addition of RONA.
RONA sales were approximately $630 million or 4.2% of sales growth, as a reminder RONA is not included on our comp calculations till the second quarter of this year. As a result of the calendar shift from the 53rd week fiscal 2016, this year's first quarter included one less weaker winter and one more weaker spring than last year.
While this had no impact on comp sales, it did benefit first quarter total sales by approximately $500 million, contributing 3.6 million to sales growth. Comp sales were 1.9% driven by an average ticket increase of 3.5%, partially offset by a transaction decline 1.1%.
Looking at monthly trends, comps were positive 3.8% in February, negative 1.2% in March, and positive 4.0% in April. Lastly new stores grow 100 basis points of comp growth or total growth, excuse me.
Gross margin for the first quarter was 34.4% of sales, and as Mike mentioned decreased 64 basis points from first quarter of last year. We had a combined 35 basis points of impact from product mix and RONA combined, remainder of the decline was primarily the result of promotional activity to match the intensity of the marketplace, inflation, primarily driven by lumber, product investments in key product categories.
SG&A for the quarter was 22.99% of sales which deleveraged 73 basis points. The deleverage was driven by the comparison to an unrealized gain in last year's first quarter when we reported a $160 million associated with the foreign currency hedge we entered into in events of the RONA acquisition.
This year over year comparison drove a 105 basis points of expense deleverage. In the first quarter this year, we experienced 40 basis points of payroll leverage in the stores to realize the benefits of our new store staffing model.
We also experienced 37 basis points of leverage and incentive compensation due to lower payments levels relative to last year. Somewhat offsetting these items was deleverage from our private label credit portfolio due to the increase in program costs driven by higher losses, as well as risk insurance which was driven by favorable actuarial adjustment last year that didn't repeat this year.
Depreciation and amortization for the quarter was $365 million which was 2.1% of sales and leveraged 20 basis points. Operating income decreased to 117 basis points to 9.25% of sales.
The RONA impact associated with the mix of business and integration costs negatively impacted operating income by approximately 65 basis points in the quarter. Additionally, the comparison to the prior year unrealized gains of foreign currency hedge negatively impacted operating income by 105 basis points.
This quarter we completed a cash tender offer for 1.6 billion of our higher coupon bonds and as a result we recognized a $464 million loss on the early extinguishment of debt. To fund the tender offer in finance current year maturities we issued 3 billion of undisturbed bonds in April.
The instruments consisted of 10 and per year notes with a weighted average interest rate of 3.58%. For the quarter interest expense was a $161 million.
Effective tax rate for the quarter was 35.5% compared to 38.2% in the first quarter of fiscal 2016. The year over year change in our effective tax rate was primarily driven by the implementation of a new accounting standard for excess tax benefits associated with share based compensation.
Earnings per share was $0.70 for the first quarter including a benefit of approximately $0.06 from the calendar week shift. The loss associated with the early extinguishment of debt reduced EPS by approximately $0.33 for the quarter.
Adjusted earnings per share was a $1.03, an 18% increase over last year's adjusted earnings per share of $0.87. Now, to a few items on the balance sheet starting with assets, cash and cash equivalents at the end of the quarter was $1.96 billion.
The lower cash balance this year is a result of a larger April 2016 bond issuance in anticipation of the RONA acquisition. Inventory was at nearly $12.3 billion at the end of the quarter and increased 1.2 billion or 10.8% versus the first quarter of last year with roughly 60% of the increase related to the addition of RONA.
Inventory turnover was 3.95, an increase of 12 basis points over the first quarter of last year. Asset turnover increased 5 basis points to 1.83.
Moving on to the liability section of the balance sheet, accounts payable of $9.9 billion representing a $1.1 billion or 12.3% increase over first quarter of last year primarily due to the timing of purchases year-over-year, terms improvement as well as the addition of RONA. At the end of the first quarter, lease adjusted debt-to-EBITDAR was 12.27 times.
Return on investment capital was 15.6%. The prior year charges offset by the net gain on the foreign currency hedge related to the RONA acquisition negatively impacted for return on invested capital by 225 basis points.
Now looking at the statement of cash flows, operating cash flow was 3.3 billion. Capital expenditures were $202 million, resulting in free cash flow of nearly $3.1 billion, which was up 2.7% to last year.
In March, we entered into a $500 million accelerated share repurchased agreement, which settled in the quarter for approximately 6.1 million shares, we also repurchased approximately 9.2 million shares or $750 million through the open-market. In total, we repurchased 1.2 billion of stock in the quarter.
We have approximately $3.8 billion remaining on a share repurchase authorization. Looking ahead, I’d like to address several items detailed in the Lowe’s business outlook.
We expect to recover our first quarter sales mix over the next two quarters by increasing our way with focus on volume, improving our commercial effectiveness and rebalancing our indoor and outdoor strategy. As a result, we're reaffirming our operating outlook for the year.
We expect a total sales increase of approximately 5%, mixed sales increased driven by a number of factors. First, we're forecasting in comp sales increase of approximately 3.5%.
Second, the RONA acquisition drives about 2% sales growth also we plan to open 35 stores which adds roughly 1%. To offset that, total sales growth will be reduced by roughly 1.5% to the comparison of 52 weeks in 2017 versus 53 weeks in 2016.
On a GAAP basis, we are anticipating in operating margin increase of approximately 120 basis points. Regarding operating margin of full year of RONA results versus roughly seven months last year, will pressure operating margin by an estimated 15 to 20 basis points for 2017.
Effective tax rate is expected to be 37.8% for 2017. For the year, on a GAAP basis, we expect earnings per share of approximately $4.30.
Please refer to Page 13 on our supplemental reference lines for summary of adjustments as you compare 2017 to 2016. We are forecasting cash flow from operations to be approximately $5.9 billion and capital expenditures of approximately 1.4 billion.
This results in estimated free cash flow of approximately $4.5 billion for 2017. Our guidance assumes approximately 3.5 billion for share repurchases for this year.
Regina, we're now ready for questions.
Operator
[Operator Instructions] Our first question will come from the line of Michael Lasser with UBS. Please go ahead.
Michael Lasser
Good morning thanks a lot for taking my question. Is your decision to make price investments in response to something that you're seeing in the marketplace?
Or is it more proactive in an effort to regain some of the share that seems like you might be losing today?
Mike McDermott
Michael, throughout the quarter, this is Mike McDermott. Throughout the quarter, we saw an opportunity to improve our DIY value perception.
We feel good about our competitiveness our assortments our brand portfolio and the innovation we're bringing to market. We had to adjust our marketing more frequently include lower price point values that are already in place throughout our product offering to drive increased traffic.
Michael Lasser
So, it seems like you're maybe making some changes in response to the market where you're seeing pressure from more of your big bucks competitors or is it coming from the online channel?
Mike McDermott
I think you're seeing significant opportunity in both DIY and Pro, as home improvement continues to do very well. As it relates to the competitors there are many as you know, many competitors in the marketplace and we've got to face them all.
Michael Lasser
Okay, and my follow-up question is on the outlook for the year, the first quarter fell short of where you thought it was going to be. You're going to be a little bit more price competitive, so to still achieve your prior expectations, is it that sales will come in better than what you previously thought or you're going to find other ways to offset setting the cost pressure from the margin pressures you might feel from the price investments?
Robert Niblock
It's really the latter, we're looking at geography shift with the gross margin pressure we experienced in first quarter, we're going to experience first quarter of the year in total and we're anticipating roughly 20 basis points, but we do expect to be able to offset that on SG&A lines. We're going to get some visibility and traction to our productivity efforts.
Operator
Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Gutman
Thanks, good morning. Maybe a question for Mike on the marketing, I think over the summer or maybe postmortem from looking at last year, you talked about a little too much marketing geared towards the millennial and then this quarter we heard maybe you're more indoor oriented and maybe this quarter was just a tactful change in how to the seasons themselves were playing out.
How do you feel about the marketing planning the rest of the year and I'm sure you want to avoid these type of missteps, if you characterizing that, and how do you do that?
Mike McDermott
Yes, I'll tell you we continue Simeon to optimize our media and improve our flexibility in responsiveness to the market opportunity and the weather, ultimately driving improved productivity as we stand on the spend and as we continue to drive traffic. We tried this toggle in and out of weather opportunities throughout the quarter and found that we sub-optimized.
Our objective obviously is better connect with our customers through more personalize messaging, care of their specific needs and we continue to build capabilities to do that. We will continue to look for the most attractive and efficient way to drive traffic and build our brand across all of our assets.
So that continues to be something that we fine-tuned overtime.
Simeon Gutman
Okay and my follow-up is on RONA, can you about when -- I think you said after Q2, it comes another comp based. Is there what kind of comp lift should we assume and then the timing and magnitude of synergies as they flow through?
Marshall Croom
So, Simeon, this is Marshall. I’ll address the burning question.
Basically, it will come in towards the tailwind of the second quarter then we will be able to roll that into our comp numbers for the Company. So almost we do that, we’ve already baked that into our guidance for the year.
Richard Maltsbarger
This is Richard to play up what Marshall said there, as well as the comp guidance, all the synergies that we have for the year have also been baked into the guidance that was provided for the year.
Operator
Your next question comes from the line of Dan Binder with Jefferies. Please go ahead.
Unidentified Analyst
Hi, this is Dolve on for Dan. Thank you for taking my question.
Around the outperformance of the Pro category, are you able to quantify how much faster Pro grew or how many bits about the average Pro category, per sales group?
Robert Niblock
This is Robert, I will just say overall as Mike eluded to in his comments, we've been investing heavily in the Pro recently, certainly with the additional things like Marshalltown, SharkBite more recently and AO Smith, as well as the other initiatives we’ve had over the past few years, the launch lowesforpro.com. So, I would just say that we saw a significant growth in Pro customer more than 2x our overall comp.
And then we take as I said in my comments and highlighted the acquisition of Maintenance Supply Headquarters, the definitive agreement, we will get that acquisition closed, combining that with Central. I think it’s just going to give us opportunity to continue to perpetuate the great momentum that we had with the Pro customers.
So, really pleased with what the team delivered in the first quarter and also really excited about the opportunity that lies ahead as we continue to deepen our relationships particularly with the opportunities we see in the MRO business.
Unidentified Analyst
Thank you and if I could ask one last question, I think you’ve mentioned since you leverage on some credit cost. Can you give us an idea where credit, little card penetration is now?
And does deleverage of this quarter have you rethinking any terms or standards for that card? Thank you.
Mike McDermott
I'll just say that our credit card penetration for private label brand is roughly is 28%, so we’ve seen that steadily grow overtime. So, we look at their overall portfolio just keep in mind that we're coming off of historically low delinquency rates and Lowe’s rates, so we’re beginning to see a little bit of inflection there.
I believe that our portfolio is performing relatively well versus others in the market place. But something we will keep an eye on, have to be sensitive to what are you just these terms for your customers, as you do see this is a sales driver and a tool that they will want and use of revolving credit that we see as a strength to the consumer as they spend in 2017.
Operator
Your next question comes from the line of Eric Bosshard with Cleveland Research. Please go ahead.
Eric Bosshard
Thanks. You want to talk about in 4Q a big focus on productivity in the business.
I'm curious as you look at 1Q and as you look out through the balance of the year. What ranks kind of first on the emphasis in that area looking at this quarter with gross margin and SG&A and sales, just curious what's at the top of the list when you think about productivity as you define it with the metric that you're most focused on achieving or improving?
Marshall Croom
Eric, as we talked about on the fourth quarter call and our Analyst Day in December, we are increasing our operating discipline and our focus on productivity across the business throughout a core steam and a core mindset. The big thing we want to make sure is that we get across is this laser focus on productivity, doesn't deflect or detract from our efforts to continue to drive our customer centric omni-channel strategic initiatives.
In fact, we see that they're complementary. We believe this will continue to allow us to invest and grow in those key areas that our consumers continue to shift.
In the quarter, we really focus on two key areas. First, that was the rollout and the change of our store stacking models, which was in place to help us throughout the improved leadership across the store, improved training and oversight to drive a better customer experience across the store.
And we also changed our management component here at CSD to draft a lean organization to become more nimble and drive more speed of decision making, so we're briefly on how both those initiatives are going and how the organization has responded to those actions. As we think broader about productivity, we're really focused on a few key areas as we continue to move forward.
Some that you know are strictly product initiatives others which we believe will have consumer experience impact as well. First is [indiscernible] production offices will continue to be above this as we look to expand that into a southern division during the second half of the year, which really improves the communication of our installed sales business, drives it into our contact centers from a store model, improving our communication and efficiency in connectivity to the customer during that complex seems to have a process.
We're also optimizing our freight flow from a distribution centers as Mike spoke about that earlier as we look to optimize lanes and flow as well as how we flow the product to the customer and this is the single biggest utilization of non-selling labor in stores, and the teams are continuing to focus on how to get more effective, more efficient there. Third, we continue to add alternate delivery options, we have supervised delivery test ongoing in four markets certainly both small, medium and large to understand how we optimize our delivery networks more effectively and more efficiently.
And then we'll continue to leverage or redirect sourcing opportunities across enterprise to get stronger. So, the core aspect of productivity we think will continue to drive the organization and help us deliver against our target for the second half of the year and we're pleased with the outcomes that's been implemented today.
Eric Bosshard
I guess just one follow up, when you talk about you know the outcomes and great job in leveraging payroll and leveraging SG&A is that the scoreboard you're focused on, how are you balancing that relative to growing sales and sales productivity and market share? How are you thinking about balancing those two?
Mike McDermott
Eric, the big thing that we look at and we’re looking at from a store standpoint is a holistic measures of success from efficiency of process through our customer service metrics. So, we're measuring there close rate performances, we're measuring our customer satisfaction scores.
I would say are the two dominant drivers of our overall measurement of success, and they will continue to measure against the anticipated benefits that we have around. So, we're pleased with what we saw our cost both those attributes in the quarter.
As a matter of fact, we saw increases in our overall customer satisfaction stores compared to Q1 2016. So, really proud of by the teams in the field are probably aware of this, we responded and continue work to meet the needs of our customers in there out every day.
Marshall Croom
And Eric, this is Marshall. Just real briefly, that you’re looking for ways to drive sales productivity, so anything through process and capabilities that we need to deliver throughout better sales productivity as long as keeping an eye on our expenses, eliminating waste and other most effective ways and to utilize our spend.
So, I hope that helps. And if I could just inject one clarification, just received the note that, the least adjusted debt to EBITDAR is 2.27 times, I think I said 12.27 times, that the rating agencies are on the line, don’t want to get them, too excited where it’s 2.27 times, and we anticipate getting the 2.21 by the end of the year.
Operator
Your next question comes from the line of Seth Sigman with Credit Suisse. Please go ahead.
Seth Sigman
I just want to follow up on the sales performance in the quarter, being a little bit lighter than you expected. Can you just clarify, do you think that was driven by some seasonal factors or was there more of a share loss component here and that's why you’re making some of the promotional changes?
Robert Niblock
Yes, Seth, this is Robert Niblock. I’ll start.
As we look at the quarter and as we indicated, there were certainly some weather challenges that impacted our seasonal performance. As you know, seasonal is a big category for us.
We had strong comps that we’re going up against last year from a seasonal stand point. So, as Mike indicated, part of what was done, it was a heavy reliance on seasonal was to prior and persistent opportunity that we saw in indoor categories as we toggled between those that we recognized that we probably add some opportunity to continue to improve our messaging around seasonal categories driving and traffic driving items.
So, Mike and his team start making those necessary adjustments, but when you look at the quarter with as we look at the balance even with weather challenges, we were only slightly below our plan for the quarter. So all in all considering weather, we ended up with a good performance again in our plan as we said we're making adjustments to continue to capitalize in opportunity we see in the market.
Seth Sigman
Got it. And then the regions and the categories that did underperform in the quarter, did you see signs of improvement late in the quarter in April?
And if you can just give us a general sense of how you're feeling about made? Does it seem like there is some confidence that the business is going to reaccelerate?
Thanks.
Mike McDermott
We did see the most significant pressure in our lawn garden and seasonal and outdoor living business. From a lawn garden prospective, we saw some inconsistent performance throughout the quarter really aligned with that weather that Robert just talked about, leading to a slightly negative comp.
We weren’t able to offset the underperformance in live goods with some of the positive performance in other areas in that division. But certainly as weather has improved, we have seen improvement there as well as our seasonal and outdoor living categories particularly in patio.
So, as time moves on weather stabilizes, we are seeing improvement in those categories.
Rick Damron
From a geographical standpoint, we had negative comp performance in two regions, our Boston or our Northeast region, primarily driven to the changes in weather from last year. We saw the biggest impact there, and then in our St.
Louis region which we saw with the significant flooding events that took place during the quarter. So, both those regions as Mike said at least as the product categories have performed better those regions have also improved from a performance standpoint as well.
Marshall Croom
This is Marshall. I'll just say that from March to April, we like that trajectory so thus far in May we're pleased with what we're seeing.
Operator
Your next question comes from the line of Matt Fassler with Goldman Sachs. Please go ahead.
Matt Fassler
Thanks so much and good morning. I want to dig a bit deeper into the promotional and pricing actions.
If you can just reiterate, were these focused in seasonal where you're seeing some of the challenges? Were they focused in some historical promotional categories like appliances and where else might you have undertaken them or were they pretty much directly connected to some of the changes in marketing?
Or should we think about these as two separate efforts?
Mike McDermott
Matt, this is Mike, I would tell you that from the select pricing investments that we made were really tied to seasonal products, and we executed mid-quarter and certainly saw some improvement as I just mentioned. The other area of focus has been an investment in special order products really across our digital assortment, supporting our omni-channel to engage customers both pro and DIY as they built out their projects and leverage our extended line design through our digital properties.
So, they are the areas of most significant focus in regard of those investments.
Matt Fassler
And just to think for a second about that seasonal business you spoke about the weather which clearly was an impediment. So, was this an effort to try to overcome that impact?
Or were you simply saying, hey whatever it take, whether or not or did you say like there's more of a share issue in that category for you?
Mike McDermott
It was really designed with the market adjustments we made to try and capitalize on seasonal traffic, recognizing they're both in the first and second quarter seasonal traffic is a significant driver of the traffic that engages with the portfolio so that's why we did it to really complement the marketing adjustment and revert on the traffic.
Matt Fassler
And to the extent that the full year gross margin outlook seems to be better than what you showed in Q1 presumably little bit less of a drag from RONA as you cycle the acquisition, but would you expect some of those investments in pricing and promotion to subside?
Mike McDermott
For the remainder of the year Matt, we expect to partially offset the impact of some of those promotions in pricing investments. We have cost improvements from our line review process as well refining that promotional strategy and eliminating the less effective promotions as the year unfolds as well as fine tuning our pricing actions based on the result that we're seeing.
As you know we constantly adjust our approach to optimize gross margin, making sure we deliver value to our customers while balancing the traffic and ticket equation. That process is managed daily and we do think we'll see improvement.
Operator
Your next question comes from the line of Dennis McGill with Zelman & Associates. Please go ahead.
Dennis McGill
Just to clarify a couple of statements earlier, can you specify which categories were negative in the quarter and then also any impact from Easters, you would estimated on the monthly comps in March and April?
Mike McDermott
I can talk for the categories of negative comp. They were at the lawn and garden category and seasonal and out to a living category.
Marshall Croom
On the Easter shift, Dennis, it was a negative 0.5 in March versus the 1.2 stated earlier then it was 3.2 on adjusted basis for the Easter shift in April versus the 4 that I’ve highlighted earlier.
Dennis McGill
Okay and then, can you also clarify when you talked about the Canadian pressure in the quarter, I think that was on the core business but more broadly, can you just talk about what RONA is comping at today, just to get a sense on what that would? How that is impacting the comp when it does come in?
Robert Niblock
Dennis, this is Robert. As this comp as you know that we mentioned for initially in my comments are for the legacy Lowe’s business that we have in Canada.
The RONA business that we acquired as Marshall stated, it won’t roll in the comps into late in the second quarter.
Dennis McGill
Understand that in the companies, but can you give a sense of what it is comping at today?
Richard Maltsbarger
So, this is Richard Maltsbarger. The current RONA business is comping at the expectations that we had for Q1 with the exception very similar to what we're seeing in the U.S.
to the pressures that Robert mentioned in his remarks regarding the unseasonable late spring, snow fall we've experienced across back.
Dennis McGill
And those expectations were consistent with the plastic business or plus or minus.
Richard Maltsbarger
There are just there to help the domestic business.
Operator
The next question comes from the line of Chris Horvers with JP Morgan. Please go ahead.
Chris Horvers
So wanted to get your thoughts and then asking some companies, as you look at the business, do you think comparison really matter from the same-store sales prospective? As you think about the cadence the quarters for the year, in other words at this point in cycle outside of weather variability that obviously shifts demand, is you comp trend or do you look at the next two quarters and think there were specific items that impacted the business last year that was to just we should think more about comp stocks versus the overall trend in the industry?
Robert Niblock
Well, certainly, Chris, when we look at comps as we said, first quarter of this year we were going up against tougher compare as from a year ago and that’s why we think it proves the indicator on our fourth quarter call that we expected the best comps in our second third quarter of the year we're going up against our weakest comparison. You take domination of being that against tougher compares, weather challenges and how they get in the quarter.
There I think we like a good point that, you have to kind of look and bring all those factors to there when you look at the performance. And as we said overall when we look at the business in the first quarter even with the weather, we delivered sales that we're just slightly below our plan and the actions that Mike and his team are taking, we think we have good line of sight to been able to recover that top line as well as being able to continue to mitigate some of the margin impact we had in the first quarter when we get past the acquisition of the -- the anniversary of the RONA acquisition and those things.
Chris Horvers
Understood and then two quick follow-ups, first on Maintenance Supply Headquarters, is that -- have you included that in the outlook? I know it hasn't closed quite yet, but isn't that included in the outlook?
And if it's not either way, can you give us some understanding on how that might impact gross margin and SG&A when it comes in will we see any impact at all or is it just too small amount total?
Marshall Croom
I would say one it's still a pending acquisition, we haven't received final regulatory approval for that, we did not bake that into our guidance.
Robert Niblock
And so once we get through the acquisition we would roll any impact that we see from that into our guidance, first time we update after the acquisition.
Chris Horvers
Okay, but in the -- you mentioned that you do expect it will be accretive this year any indication on what it might be?
Marshall Croom
Yes we do expect it to be slightly accretive this year.
Robert Niblock
Think we have time for one more question.
Operator
Your final question will come from the line of Greg Melich with Evercore ISI. Please go ahead.
Greg Melich
I wanted to follow up on two things. One, housekeeping, what was inflation in the comp?
I think you mentioned the gross margins but not the comp.
Marshall Croom
We had about 50 basis points again primarily driven by lumber in first quarter.
Greg Melich
Great, and then it sounds like -- don’t want to put words in your mouth, the comp trend through the quarter that 450 bps deceleration acceleration from February into March and then coming back in April, but that change was entirely traffic driven and the ticket was pretty stead, is that a fair assumption?
Marshall Croom
Yes it is.
Greg Melich
Great and then finally maybe just to help frame it a little bit as we think about flow through the rest of the year. Credit profits remind us, that shows up entirely in SG&A or does some of it show up in gross margin?
And could you remind us roughly how much of SG&A is a profit share from the credit card?
Marshall Croom
We'll disclose that show up in SG&A so the whole program income cost flow through below the margin line, but it is in our operating margins.
Greg Melich
So, the costs are in gross margin, but the profits are the…
Marshall Croom
Greg, the entire program runs through our SG&A line.
Robert Niblock
Thanks, Greg, and as always thanks for your continued interest in Lowe’s. We look forward to speaking to you again when we report our second quarter results on Wednesday August 23rd.
Have a great day.
Operator
Ladies and gentlemen this concludes today's meeting. Thank you all for joining and you may now disconnect.