Michael Lasser: My follow-up question is at the risk of pulling forward a little bit of your messaging from a couple of weeks now. Your SG&A dollars have been very well contained over the last few quarters, leading to the idea that maybe Lowe’s doesn’t have as much cushion in its cost structure in the event that there could be a downturn in home improvement demand, either because of housing or just a weakening labor market. Why is that wrong?
Marvin Ellison: Well, I would say, it’s wrong based on the performance in Q1, you use that as your data point, the season broke late top line was not what we anticipated, yet, we still leverage operating margin for the quarter. We see that as an example of the levers that we now have in place to be agile. As I said in my prepared comments, we’ve got a lot of experience sitting around this table. There’s very few things that we have not seen. We have a really strong playbook developed. And we think that if the market turns more negative than we may anticipate, then we have the ability to pull those levers and perform really well. As a matter of fact, we’re not giving you the details, Brandon is going to spend a bit of time next month at the investor conference outlined some of those levers and the agility we built so that we can be really, really swift to react to any market conditions.
Operator: Your next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Brian Nagel: Congrats. Nice quarter again. My first question, again, I don’t want to have the risk of a nitpick I mean given the strength in the business, and as Michael just pointed out in his question, the — basically the accelerating trends through Q3, and then you talked about the initial strength in seasonal with the mummy sales. Why not lift sales guidance for the year, especially when you’re lifting earnings guidance?
Marvin Ellison: So, I’ll give you the philosophical perspective, and I’ll let Brandon give you the financial perspective. As you know, Brian, there’s a lot of unknown out there. And so, we’re not going to be overly bullish for no reason. You had a midterm election that still candidly hadn’t been quite determined. You have aggressive action from the Fed. You have global geopolitical events happening. And so, we’re just being, what I’ll describe as appropriately conservative. Do we have confidence in our business, absolutely. Do we have confidence in what we’re going to deliver for the holiday season — you bet we do. And we think we have a great plan for the balance of this quarter and going into next year. But in an environment where there’s so much concern in the macro.
We just felt it was appropriate to just be conservative. So our decision not to live guidance has nothing to do with our lack of confidence. It’s just more about being prudent and not being overly aggressive in an environment where there’s a lot of on asset micro questions. So I’ll let Brandon add some additional detail.
Brandon Sink: Yes, Brian, this is Brandon. As I indicated in my prepared remarks, we looked at three-year comps did see sequential improvement as we moved across the quarter. The Q3 exit rates were strong. Bill mentioned the improvement specifically in the interior DIY-related categories. The midpoint of our full year guide is flat to down one, which implies a slightly positive comp for Q4. And if you recall back in August, we were guiding actually to the bottom end of that range of flat to down 1%. I will cite the commodity volatility and the impact Q3 to Q4. With lumber where it is, we’ve actually seen a benefit of 80 basis points to the pricing runs out into Q4, we’re expecting that to actually flip to a 90 basis point drag.
So that’s about 170 basis point swing. Again, that’s taken where we are from a benchmark perspective of below about $500 and running that out and comparing that to where lumber prices inflated round two of last year. So all in, excluding lumber, and the differences I just cited, the Pro comp momentum is expected to continue and the DIY trends that Bill mentioned are expected to continue through Q4.
Brian Nagel: That’s very helpful. I appreciate the color there. Then my follow-up question, separate topic. Just with regard to supply chain. So Marvin, you keep talk — you highlighted that there’s a lot of success that you’ve had in improving the low supply chain internally. By most measures, now the external environment for supply chain is getting better with shipping costs and such. So I guess the question, are you seeing that? And then recognizing you haven’t given guidance yet for 2023, but to the extent these external supply chain issues continue to correct. Could that be a tailwind of some sort as we hit over the next several quarters?
Marvin Ellison: Yes. Look, it’s a great question, Brian. And without getting in front of what we’re going to discuss next month, I would say that the short answer is, yes, there are elements of the supply chain that definitely will give us some cost advantages next year. Brandon is going to be very transparent and very detailed on kind of what we see going into next year. And obviously, supply chain is going to be a big component of that. In addition to just the overall cost environment for supply chain, we’re going to talk about strategic initiatives as well that we’re excited about because as far as much work as we’ve done in supply chain, as I mentioned earlier, we still see it as one of our key opportunities to improve. There’s not a great retailer in the world that doesn’t have a great supply chain, and we’re committed to having a great supply chain.
Operator: Our next question comes from the line of Liz Suzuki with Bank of America. Please proceed with your question.
Liz Suzuki: Just as you think about the makeup of comp going forward between transactions and average ticket. You mentioned that in some categories where you saw inflation moderate. You saw subsequent increase in transactions. Does that give you confidence going forward that as inflation does start to moderate it will be — that average ticket decline or lower growth rate would be offset by a pickup in transactions?
Brandon Sink: Yes, Liz, this is Brandon. I think on the inflation front, we do continue to see high single-digit inflation this quarter, inclusive of about 80 basis points that I mentioned earlier of commodity inflation. Our consumer does continue to be resilient. We haven’t seen any significant trade down. In fact, we’ve actually seen trade up in place across a number of categories. And our Q4 forecast, which we’re focused on at this point, we’re expecting that to continue at the high single-digit mark. We are going to get some relief related to lumber pricing that I mentioned earlier, so that net 170 basis point swing. But for Q4, that’s the forecast that the inflation is going to continue to lift our ticket, which is going to be the primary driver of our comp and it’s going to be offset by transactions being down in Q4.
Liz Suzuki: And then just looking out beyond Q4, as you think about the potential outlook for comps going forward and how that ticket versus transactions could play out. I mean, one of the push backs that we get is that if ticket remains — ticket starts to come down, but transactions remain negative, that would be a severe headwind to comp. I’m just curious how you’re thinking about that outlook going forward.
Brandon Sink: Yes, Liz, we’re going to hold until December to really give you a deep view there. We’ll have an updated view of the macro, the comp scenarios within that and specifically the makeup of our comp and we’ll plan to go into details there on December 7.
Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question.
