LOW · Q2 2025 Earnings

Cautious

Lowe's

Reported August 20, 2025

30-second summary

Q2 revenue grew 1.6% YoY to $23.96B on comps of +1.1%, landing below the ~+1.5% to +2.5% Q2 implied range but above the FY flat-to-+1% floor; gross margin expanded to 33.81% (+34bps YoY GAAP). The headline FY revenue raise of $1.0B to $84.5–85.5B is entirely the addition of Artisan Design Group (now closed) — core-business expectations were explicitly reaffirmed as unchanged. The hidden move: GAAP operating margin guide cut 20bps to 12.1–12.2% and GAAP EPS guide cut $0.05 to $12.10–12.35, with a newly-introduced "adjusted" framework conveniently restoring the optics. Layered on top: an $8.8B agreement to acquire Foundation Building Materials, a structural pivot from incremental pro to large-pro distribution platform.

Headline numbers

EPS

Q2 FY2025

$4.33

Revenue

Q2 FY2025

$23.96B

+1.6% YoY

Gross margin

Q2 FY2025

33.8%

Operating margin

Q2 FY2025

14.5%

Key financials

Q2 FY2025

Metric	Q2 FY2025	YoY	Q1 FY2025	QoQ
Revenue	$23.96B	+1.6%	$20.93B	+14.5%
EPS	$4.33	—	$2.92	+48.3%
Gross margin	33.8%	—	33.4%	+43bps
Operating margin	14.5%	—	11.9%	+256bps

Guidance

Full-year revenue raised $1.0B; GAAP operating margin and EPS lowered 20 bps and 5 cents respectively; adjusted EPS raised 5 cents, reflecting net positive operational outlook partially offset by ADG integration headwinds.

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q2 FY2025	implied ~$23.5–$24.0B (from FY guide of $83.5–$84.5B and Q2 comp sales +1.5% to +2.5%)	$23.959B	in-line	Met
Comparable Sales Growth	Q2 FY2025	approximately +1.5% to +2.5% (implied from 150 bps above flat-to-+1% full-year guide)	1.1%	slightly below mid-range but within broader context	Met

New guidance

Metric	Period	Guide	YoY
Adjusted Operating Margin	FY2025	12.2% to 12.3%	—
Comparable Sales Growth	Q3 FY2025	approximately 125 basis points above the bottom end of four-year guide	—
Adjusted Operating Margin Rate	Q3 FY2025	down approximately 20 basis points from prior year	—
ADG Impact on Adjusted Operating Margin	FY2025	negative approximately 15 basis points annualized	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Operating Margin	FY2025	12.3% to 12.4% (GAAP)	12.1% to 12.2% (GAAP)	-20 bps at both ends	Lowered
Diluted EPS (GAAP)	FY2025	$12.15 to $12.40	$12.10 to $12.35	-$0.05 at low end, -$0.05 at high end	Lowered
Adjusted Diluted EPS	FY2025	not explicitly stated in prior quarter	$12.20 to $12.45	implicit comparison: prior FY guide was $12.15–$12.40 GAAP; adjusted now $12.20–$12.45	Raised
Revenue	FY2025	$83.5 to $84.5 billion	$84.5 to $85.5 billion	+$1.0B at low end, +$1.0B at high end	Raised

Platform metrics

Q2 FY2025

Segment	Q2 FY2025
Comparable Sales Growth	1.1%
Store Count	1,753 stores
Retail Selling Space	195.5 million sq ft

Profitability

Q2 FY2025

Segment	Q2 FY2025
Operating Margin	14.48%

Management tone

Q4'24 affirm and execute → Q1'25 defensive macro repositioning → Q2 FY2025 transformational M&A pivot.

Three calls ago the playbook was incremental pro share gains via Total Home strategy and MVPs Pro Rewards. Last quarter introduced the $1.325B ADG acquisition with language suggesting a meaningful but bolt-on move into interior solutions. This quarter management announced an $8.8B FBM acquisition and explicitly reframed pro as a $250B platform opportunity requiring dedicated distribution infrastructure — "This acquisition represents a transformational move when it comes to advancing our total home strategy and enhancing long-term shareholder value." The escalation from $1.3B to $8.8B in a single quarter signals management has concluded organic pro growth cannot close the TAM gap on any tolerable timeframe.

The macro framing flipped from defensive to opportunistic. Q1's commentary emphasized supply chain derisking and tariff mitigation in language consistent with hunkering down. This quarter Ellison and Sink positioned the M&A as forward-positioning: "we are confident that our most recent investments and acquisitions will uniquely position us to accelerate sales growth when the market turns." The market view itself didn't change — management still calls for a "roughly flat home improvement market" — but the response shifted from cost discipline to capital deployment, with leverage rising materially to fund FBM and a de-lever target not reached until Q2 2027.

Weather and seasonal categories moved from being framed as unpredictable risk factors to consistent contributors. Last quarter weather absorbed substantial airtime as the explanation for the Q1 comp miss. This quarter the seasonal commentary is matter-of-fact: "we drove solid performance in both pro and DIY and strengthened seasonal sales as weather improved throughout the quarter." Combined with the assortment-planning tool callout driving "less end-of-season clearance," this is management converting a previously volatile category into a margin contributor.

Interior finishes have escalated from one of several pro opportunities to the strategic anchor of the entire M&A thesis. Q1 introduced ADG as a flooring/cabinet/countertop play. This quarter ADG and FBM are positioned as a single integrated solutions platform: "provide large pro customers with everything from drywall to ceiling systems, insulation to doors, as well as flooring, cabinets, and countertops." The product taxonomy moved from category-by-category to "comprehensive interior solutions" — a different competitive frame.

GAAP-to-adjusted reporting transitioned from a non-issue to a meaningful disclosure shift. Through Q1, Lowe's guided GAAP EPS and operating margin without parallel adjusted figures. This quarter the company introduced separate adjusted operating margin (12.2–12.3%) and adjusted EPS ($12.20–12.45) guides while quietly cutting the GAAP equivalents. This is a deliberate framework change to give the integration cycle headroom in reported results — investors should expect adjusted to become the primary guide line going forward.

Recurring themes management leaned on this quarter:

Pro distribution platform expansion and large-pro market penetrationTransformation from DIY-centric to balanced DIY/pro revenue modelPerpetual Productivity Improvement (PPI) driving margin expansion despite flat compsStrategic geographic fill through acquisitions (ADG, FBM in underserved regions)AI-powered tools enhancing customer and associate experience (MyLo, AI Blueprint takeoff)Pent-up demand thesis ($50B deferred projects, 18M homes needed by 2033)

Risks management surfaced:

Uncertain macro environment and roughly flat home improvement market outlookExecution risk on integrating 60+ acquisitions FBM has completedRegulatory approval required for FBM acquisition closingLeverage increase to fund $8.8B FBM acquisition, targeting de-lever by Q2 2027Single-country sourcing dependencies requiring mitigation

Q&A highlights

Stephen Forbes · Guggenheim Securities

Asked for Foundation's year-to-date 2025 performance details and what percentage of 33,000 SKUs are net new to Lowe's offering

Management deferred detailed FBM performance metrics until after transaction close but emphasized excitement about historical sales/EBITDA trends. On SKUs, declined to provide specifics but highlighted immediate synergy opportunities through ProDesk cross-selling, particularly in core FBM categories (drywall, ceilings, metal framing, insulation) and complementary Lowe's categories (tools, safety equipment, fasteners). Discussed FBM's order management, trade credit, ERP platform consistency, AI-driven blueprint technology, and MyFBM mobile app as key capabilities to integrate across 1,750+ Lowe's stores.

33,000 SKUs from FBM acquisition1,750+ Lowe's stores with ProDesk locationsFBM has dominant presence in California, Northeast, and key Midwest metrosFBM's consistent company-wide ERP platform

Peter Benedict · Baird

Asked about pro sentiment survey findings regarding backlogs and labor availability; followed up on flooring category strength

Management reported stable backlogs with over 75% of pros confident in job prospects. Small-to-medium pro segment showing lock-in effect with low housing turnover and focus on repair/remodel/maintenance projects. Flagged rising labor costs as key concern for pro customers. On flooring, highlighted strength across carpet, soft surface, and tile/adhesives categories, strong blend of DIY and pro sales, and announced addition of Daltile brand. Noted success of centralized flooring selling model in freeing associates to focus on customer and installation LTR.

Over 75% of pros confident in job prospectsLabor costs increasing for pro customersFlooring strength across carpet, soft surface, tile/adhesivesDaltile brand addition to flooring offering

David Bellinger · Mizuho Securities

Asked for customer metrics on FBM (count, size, composition) and which capability (delivery, trade credit) offers most opportunity; followed up on back-half guidance and pricing assumptions

FBM serves approximately 40,000 customers across US and Canada with no concentration risk (no single customer >1% of revenue). Customer mix is 45% residential (single/multifamily) and 55% commercial (new construction, repair/remodel), providing diversification and less cyclicality. Management emphasized vision of combining FBM's building products (drywall, ceilings, insulation) with ADG's countertops/cabinets/flooring/install to serve single-family and multifamily construction. On guidance, reiterated flat home improvement market expectations, acknowledged portion of July comp from seasonal shift, and confirmed portfolio-based pricing approach with dynamic real-time adjustments driven by competitive data and elasticity algorithms, not manual intervention.

FBM: ~40,000 customers across US and CanadaNo single FBM customer >1% of revenue45% residential / 55% commercial customer mixJuly comp included seasonal shift benefit

Christopher Horvitz · JP Morgan

Asked whether the $400M weather shift from Q1 to Q2 fully materialized and if weather was net neutral; followed up on capital investment requirements for pro fulfillment expansion

Management confirmed realized 'large majority' of the $400M weather shift with exception of Memorial Day period which was slower due to wet/cold weather; June/July performed in line with expectations with strong traffic and seasonal category performance. On CapEx, stated no plans for another large acquisition like FBM in current slate but confirmed continuous investment in FBM as a platform. Emphasized FBM's ERP system quality, vertical market positioning, geographic presence, and advanced technology (AI/blueprint takeoff) as rationale for viewing it as sustainable long-term revenue and profit driver. Indicated $2.5B annual CapEx will be leveraged to continue building the platform.

Large majority of $400M weather shift Q1→Q2 realizedMemorial Day period impacted by adverse weatherNo additional large acquisitions planned beyond FBM/ADG$2.5B annual CapEx commitment to platform expansion

Michael Lassert · UBS

Asked whether consolidating FBM and ADG assets is sufficient to harvest suitable returns or if differentiated strategy is needed; followed up on execution risk of integration during potential housing recovery

Management asserted that FBM and ADG combination creates differentiation by enabling end-to-end solutions (drywall, ceiling systems, insulation, doors, flooring, cabinets, countertops) to large single/multifamily builders that no other player can match, particularly with advanced technology integration. Addressed integration execution risk by emphasizing separate dedicated integration teams for ADG and FBM alongside separate strategic teams for synergy realization, while core business teams remain focused on total home strategy and PPI (pro and proprietary initiatives). Committed to avoiding distraction of core Lowe's business during integration period.

$250 billion total addressable market for combined platformUnique ability to provide comprehensive building solutions with advanced technologySeparate integration and strategy teams deployedCore business teams maintain independent focus on total home strategy

Answers to last quarter's watch list

Q2 comp delivery vs the ~+1.5% to +2.5% implied range — Comps landed at +1.1%, below the bottom of the Q2 implied range but above the FY flat-to-+1% floor. The weather narrative is partially salvaged by July's +4.7% comp, but May/June clearly underperformed. Management did not break out the implied $400M weather recapture by month.

Continue monitoring

Gross margin trajectory in 2H — Q2 gross margin came in at 33.81% (+34bps YoY GAAP), above the 33.38% Q1 print, suggesting tariff/FIFO pressure has not yet materialized at the gross line. However, the FY GAAP operating margin guide cut of 20bps implies the pressure shifts to 2H below gross — a deferred rather than resolved concern.

Continue monitoring

ADG close and initial integration disclosures — ADG closed during Q2. Management quantified ADG's annualized drag on adjusted operating margin at ~15bps and embedded ADG's full revenue contribution in the $1.0B FY revenue raise. No standalone ADG revenue or synergy figures disclosed yet; FY2026 EPS accretion timeline reiterated.

Resolved positively

China sourcing percentage — Addressed in Q&A: Ellison stated China is now ~20% of sourcing (down from materially higher seven years ago) with US at ~60%.

Resolved positively

Marketplace GMV or seller-count disclosure — No marketplace metrics disclosed this quarter.

Continue monitoring

Pro comp deceleration risk — Management confirmed pro and DIY both posted positive comps in July with pro outperforming, and >75% of pros report confidence in job prospects. The narrative held, but no segment-level comp figures disclosed to verify the spread vs total.

Continue monitoring

What to watch into next quarter

FBM deal close timing and any regulatory friction — $8.8B is a meaningfully larger transaction than ADG; the deal is subject to "customary closing conditions, including regulatory approvals." Any slippage materially alters the FY2026 accretion narrative and the de-lever-by-Q2-2027 commitment.

GAAP-to-adjusted gap evolution — The newly-introduced ~10bps gap between GAAP (12.1–12.2%) and adjusted (12.2–12.3%) FY operating margin is small at announcement but will widen materially with FBM close. Watch whether 2H 2025 adjusted EPS still lands within $12.20–12.45 once FBM integration costs flow through.

Q3 comp delivery vs ~+1.25% to +2.25% implied — Q3 typically has less weather noise than Q1/Q2. A comp below +1.25% breaks the recovery narrative without the weather alibi.

Pro segment quantification — management has now positioned pro as a strategic pillar tied to a $250B TAM but still does not disclose segment-level revenue or comp. First hard pro penetration number (currently disclosed only qualitatively) would convert the FBM thesis from narrative to model input.

2H gross margin sustainability — Q2's 33.81% needs to hold into Q3 to validate that tariff/FIFO pressure has been absorbed; a step-down toward the Q1 level (33.38%) would imply the FY guide cut is understating the 2H margin compression.

Leverage trajectory and de-lever progress — management committed to de-lever by Q2 2027 post-FBM. First reading on debt paydown pace and any restriction on buybacks during integration is the cleanest read on capital allocation flexibility.

Sources

Lowe's Q2 FY2025 Press Release / 8-K exhibit, filed August 20, 2025 — https://www.sec.gov/Archives/edgar/data/60667/000006066725000161/exhibit991-08012025.htm
Lowe's Q2 FY2025 earnings conference call transcript (management commentary and Q&A)
Lowe's Q1 FY2025 Press Release / 10-Q exhibit, filed May 21, 2025 (for prior guidance baseline)

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