Good morning, everyone, and welcome to Loews Company's Third Quarter 2017 Earnings Conference Call. This call is being recorded. All supplemental reference slides are available on Loews' Investors 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 to the following 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 of 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 risk, 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 Nablaq, Chairman, President and Chief Executive Officer Mr. Rick Damron, Chief Operating Officer and Mr. Marshall Croome, Chief Financial Officer. Joining during the Q and A session will be Mr. Richard Maltzbarger, Chief Development Officer and President, International and Mike McDermott, Chief Customer Officer.
I will now turn the program over to Mr. Nablaq for opening remarks. Please go ahead, sir.
Good morning and thanks for your interest in Loews. This quarter, our teams were tested by the largest natural disaster response we've ever mounted, and I'm extremely proud of the way they met the challenge. Our merchant, vendor, logistics and storm teams worked together seamlessly to ensure customers had the right products to protect and repair their homes. Following the storms, our operations team worked tirelessly to get our stores up and running quickly and over 3,000 employees generously volunteered to serve on employee relief teams, providing additional support to customers in their time of need and giving employees impacted by the hurricanes a chance to focus on their own recovery efforts. Lowe's has also provided financial support, committing over $2,500,000 in disaster relief through cash and product donations.
And we continue to work closely with our non profit partners to provide both immediate and long term support to impacted areas. I'd like to take a moment to thank our employees for their remarkable efforts to serve their communities, help customers and support their colleagues in the face of numerous natural disasters. Turning now to our Q3 results. We delivered comparable sales growth of 5.7%, driven by a 4.8% increase in comp average ticket and transaction growth of 0.9%. Hurricane related sales contributed 140 basis points to comp growth.
Our U. S. Home improvement comp was 5.1% with positive comps in all regions and all product categories. Lumber Building Materials led product category growth with double digit comps driven by pro demand, hurricane prep and cleanup and inflation. Appliances also posted double digit comps supported by our best in class omnichannel offering and we achieved above average comps in rough plumbing and electrical.
We are pleased with the progress we've made to enhance our product and service offerings for the Pro customer, delivering another quarter of comps above the company average. Our integration of maintenance supply Our integration of maintenance supply headquarters and central wholesalers remains on track and we continue to be excited by the opportunity these acquisitions provide to further expand our products and services to serve the multifamily housing industry. During the quarter, we also advanced the customer experience through our omnichannel assets, driving 33% online comp growth. We're seeing positive customer response to our evolving omnichannel capabilities intended to meet customers at every critical moment whenever, wherever and however they choose to engage with us. In fact, we were recently recognized by Forbes Magazine as one of the top 10 most engaged companies.
This distinction highlights our commitment to engage customers with a purpose, offer consistent experiences and put the customer at the center of everything we do. Internationally, we delivered strong performance, including high single digit comps in Canada and double digit comp growth in Mexico in local currency. We made further progress on the integration of RENA, continuing our rollout of appliances, converting our 2nd Rona big box store to a Lowe's branded store and continue to drive growth with our e commerce platform. We're excited with the momentum in the business and believe we are well positioned for continued success in Canada. We continue to focus on improving our profitability, while investing in key capabilities to drive sales growth.
For the quarter, we drove diluted earnings per share of $1.05 a 19.3% increase over last year's adjusted diluted earnings per share and in line with our expectation. Delivering our commitment to return excess cash to shareholders, in the quarter, we repurchased $500,000,000 of stock under our repurchase program and paid $344,000,000 in dividends. Turning to the economic landscape. The home improvement industry remains poised to see solid growth, with job and income gains supporting consumer spending. We believe that revolving credit usage will continue to supplement the spending power generated by stronger incomes.
Housing is also expected to remain a bright spot. Household formation improvement this year is encouraging and home price appreciation should continue as housing demand outpaces supply, encouraging homeowners to engage in discretionary projects in addition to ongoing maintenance and repair spending. And as we survey consumers, we continue to see favorable trends. Our 3rd quarter consumer sentiment survey highlighted that that consumers have an increasingly positive view of the national economy and continue to view their personal financial situations favorably. Given that over half of homeowners believe their home values are increasing, intent to engage in discretionary home improvement projects remain strong.
Reflecting our 3rd quarter results, we were pleased with our continued traffic growth driven by optimized marketing messaging and the benefits provided by strategic investments in our integrated omni channel experience. We look to further build upon our strong foundation by developing capabilities to anticipate and support customers' evolving needs and improve our operating discipline execution, making productivity a core strength for Lowe's. We remain committed to balancing our promotional strategy with our price optimization efforts to improve profitability. And we will further leverage our new store leadership model, which provides better management and accountability, while optimizing our investments in customer facing associate hours to fully capitalize on strong traffic trends and deliver an improved customer experience. Once again, I would like to thank our employees for their unwavering commitment to serving customers and their communities.
The team faced challenging circumstances this quarter and they delivered, demonstrating our purpose driven mission to serve the communities in which we live and work. And finally, before I turn the call over to Rick, I want to take a moment to thank him for his innumerable contributions to Lowe's. As you know, we announced this morning that Rick will be retiring after 36 years at our company, the last five as our Chief Operating Officer. Rick has worked across every aspect of our operations and has positively impacted Lowe's customers and employees. We wish him all the best in his retirement.
Richard Mosbarger, who currently serves as our Chief Development Officer and President International, will succeed Rick upon his retirement in February. Richard is a proven leader with a keen understanding of our business and industry. He has been instrumental in the development and implementation of our strategy. Rick and Richard have a great working relationship and I expect the transition will be seamless. And with that, I'd like to turn the call over
to Rick. Thanks, Robert. It's been an honor to work beside you and our incredible Loews organization and management team through the various phases of my career. I am thrilled that Richard will be stepping into this role and I'm confident that he will further propel the company's operations and customer experience to new levels of growth and success. I look forward to working closely with Richard over the next few months to ensure a seamless transition and will be cheering Lowe's on from the sidelines in my retirement.
During the quarter, we drove increased traffic in store and online with compelling messaging and integrated omnichannel experiences, capitalizing on a supportive macroeconomic backdrop and customers' continued desire to invest in their homes. We delivered a 5.7% comp, achieving positive comps in all regions and all product categories. We grew double digit comps in appliances, posting our best appliance comp in 7 quarters, leveraging our investment in customer experience both in store and online, our service advantages of same or next day delivery in Holloway and facilitation of repairs and maintenance, our best in class selection of leading brands, and our strong and strategic relationships with partners such as Whirlpool, who we proudly announced as one of our 2017 vendor partners of the year. We also achieved double digit comps in lumber and building materials and above average comps in plumbing and electrical. Lumber and building materials benefited from robust pro growth, inflation and strong hurricane related demand for plywood, pressure treated lumber, fencing, shingles, drywall and insulation.
And as hurricanes Harvey and Irma drove demand, our team sent over 11,000 truckloads of products to impacted areas, supporting both pro and DIY customers as they prepare for the storms and work to repair their properties afterward. For the pro customer, we also added Account Executive Pro Services
or
AEPs to the Texas and Florida markets to support incremental demand. Historically, most storms have 4 distinct phases. 1st, preparation in advance of the storm 2nd, impact when the storm actually causes damage 3rd, cleanup and 4th, recovery, when repairs are made and damaged items are replaced. In the Q3, we experienced preparation, impact and some initial cleanup from hurricanes Harvey and Irma. We expect hurricane recovery to begin in the Q4 and extend into 2018.
Given that Harvey was more of a water event and Irma was more of a wind event, we expect that the magnitude of benefit and the recovery period for Houston will surpass that of Florida. Rough Plumbing and Electrical performance this quarter is evidence of the power of destination brands as our evolving brand portfolio continued to capture pro sales and drive above average comps in the category. Our pro business continues to thrive with comps above the company average, driven by a favorable macro backdrop as well as our continued efforts to optimize our product and service offering to better serve the Pro customer. In addition to our outstanding portfolio of brands, we're also expanding our relationship with the Pro customer across all categories with our strong value proposition, including our 5 ways to save, as well as advancing our capabilities to connect with the pros seamlessly across channels through lowes and pros.com and our growing pro services team. The addition of maintenance supply headquarters and central wholesalers further expands our capabilities to serve multifamily property management customers throughout the country with enhanced product and service offerings, while strengthening our platform for future growth with this important customer.
In fact, we are pleased with the early results of the MSH and central integration efforts. The teams are leveraging best practices to build a new product catalog with an expanded offering for the maintenance, repair and operations professional, which will roll out this spring. And we're working with our suppliers to improve turns and pricing. Finally, our Pro Services teams are collaborating to serve customer needs, including serving multifamily property managers in the hurricane impacted areas. We continue to build pro awareness with targeting marketing as well as pro exclusive offers to grow our share of wallet with existing pros, while also expanding our base of pro customers.
We continue to execute on our strategic priorities, including leveraging our omni channel capabilities to help customers achieve great project results. Customers can engage with our associates in store for expert advice, our content on lowes.com for inspiration, our contact centers for ongoing support and our project specialists to work with them in their homes to design, plan and manage their home improvement projects. We are leveraging our investments in lowes.com, providing an upgraded online shopping experience with enhanced functionality and display for touchscreen devices to deliver an optimized mobile experience, improved product and content recommendations, refined search algorithms, optimized assortments informed by digital line reviews and expanded product views, including video content. Along with our flexible fulfillment options of buy online pickup in store and buy online deliver from store and our enhanced digital marketing, our efforts combine to drive online comp growth of 33%. We will continue to advance our online platform, adding more functionality such as inventory and order status visibility to improve the customer experience.
Our interior and exterior project specialists are another important element of our omnichannel strategy and a differentiated capability in capturing and serving project demand for the DI film customer who needs a bit more help navigating their projects. We're making it even easier for customers to engage with our in home project and request services on lowes.com. And we're working to centralize our process providing installation quotes, allowing for greater efficiency and more consistent customer experiences. We're rolling out this capability in the flooring category over the remainder of the year, with all U. S.
Markets expected to be online by Q1 2018 and expanding to other categories throughout 2018. We're also driving brand loyalty through our MyLow's platform. Our simplified military recognition program allows active duty personnel and veterans to register through MyLow's and receive 10% of their purchases every day. We're also offering free parcel shipping exclusively for Milo's members. We've seen great customer response with 1,500,000 new memberships since we offered the expanded benefits in Q1.
And we've seen those customers increase their spend by 15% after registering for MyLowe's. We continue to focus on driving productivity and profitability and drove 27 basis points of leverage in store payroll in the quarter. This leverage was primarily the result of our new store leadership model, which streamlined management hours to provide better oversight and accountability. As we discussed on our Q2 call, to more fully capitalize on our strong traffic trends and ensure we're delivering an excellent customer experience, we began adding incremental associate hours this quarter and continue to provide the necessary training and resources to all associates. We worked through the quarter to increase hours and we'll continue to optimize our labor allocation to ensure resources are utilized in the areas of greatest need in order to improve traffic conversion.
We also made progress in centralizing indirect spend, leveraging our scale to drive efficiencies in procurement. We have now centralized 60% of indirect spend compared to 30% at the end of 2016. Our supply chain is another productivity focus area, offering opportunities to streamline cost even as we improve fulfillment options for customers. For example, we are working to consolidate freight shipments for both import and domestic freight to drive greater efficiency and optimize the flow of inventory, significantly reducing the number of trucks arriving at our distribution centers and stores, allowing us to reinvest labor in other areas. As we look forward to the Q4, we are enthusiastic about our plans for an integrated omni channel holiday experience, including exciting Black Friday and Cyber Monday events.
We'll continue to highlight our project expertise and our best in class kitchen and appliance offerings. And we'll leverage our in store and online assets to create unique holiday decor experiences, capitalizing on the nostalgia of the holiday season and providing cohesive decorating solutions, as well as compelling gift ideas across all of our assortments. We are excited to announce the introduction of Craftsman products in store and online in the second half of twenty eighteen. We're committed to offering a wide selection of brands, DIY and Pro customers trust, and Craftsman strengthens our ability to deliver on customer expectations across many product categories. The partnership between Stanley Black and Decker and Lowe's will bring some of the most innovative products into our omni channel home improvement shopping experience, allowing both DIY and Pro customers even greater access to high quality, value oriented product offerings for the next home improvement project.
We are proud to be the partner of choice in the home center channel for the Craftsman's brand and look forward to sharing additional information with you in 2018. Thank you for your interest in Loews. And I will now turn the call over to Marshall.
Thanks, Rick, and good morning, everyone. Sales for the Q3 increased 6.5 percent to $16,800,000,000 supported by total customer transaction growth of 0.7 percent and total average ticket growth of 5.8 percent to $72.63 The acquisitions of MSH and Central contributed 70 basis points of the growth in the quarter, while new stores contributed 50 basis points. The calendar shift from the 53rd week in fiscal 2016 had no impact on comp sales, but it did decrease 3rd quarter total sales growth by approximately $60,000,000 or 40 basis points. Comp sales were 5.7%, driven by an average ticket increase of 4.8% and transaction growth of 0.9%. Looking at monthly trends, comps were 3.9% in August, 8.2% in September, and 4.5% in October.
And as Rick indicated, we drove traffic in store and online with optimized messaging and our strategic investments in integrated omni channel experiences, capitalizing on customers' continued desire to invest in their homes. Our teams also responded to the demand generated by hurricanes Harvey and Irma this quarter, and we estimate that the storms positively impacted comp sales by approximately 140 basis points. Gross margin for the Q3 was 34.07 percent to sales, a decrease of 28 basis points from the Q3 of last year. As we've grown our market share in appliances, gross margin has been impacted from both a mix and rate perspective. Additionally, there was a mix impact from hurricane related demand.
And lastly, we continue to take competitive actions, which were partially offset by benefits from volume improvement, as well as early results from pricing optimization efforts. SG and A for the quarter was 22.71 percent of sales, which leveraged 323 basis points. In last year's Q3, we recorded $462,000,000 in non cash charges, which drove 2.93 basis points of the leverage for this year. Please refer to Page 14 on our supplemental slides for a summary of those charges. The main driver of the remaining 30 basis points of leverage was 27 basis points of payroll leverage, primarily the result of our new store leadership model.
Depreciation and amortization for the quarter was $358,000,000 which leveraged 31 basis points. Operating income increased to 3 26 basis points to 9.23 percent of sales. Prior year non cash charges accounted for 2.93 basis points of the increase in operating income. Interest expense for the quarter was $160,000,000 which leveraged 8 basis points. Effective tax rate for the quarter was 37.1 percent compared to 51.2% in the Q3 of fiscal 2016.
The higher rate last year was driven by the joint venture non cash charge, which was a long term capital loss. And earnings per share was $1.05 for the Q3, a 19.3% increase over last year's adjusted earnings per share of $0.88 This is in line with our expectation. Now turning to the balance sheet. Cash and cash equivalents at the end of the quarter was $743,000,000 Inventory at $12,400,000,000 increased $1,400,000,000 or 12.8 percent versus the Q3 last year. This is primarily driven by investments in key categories such as appliances and tools, as well as investments across probe categories.
Part of the increase is also attributable to the addition and acquisitions of MSH and Central. Inventory turnover was 3.94, an increase of 5 basis points over the Q3 of last year. Asset turnover increased 12 basis points to 1.91. Accounts payable of $8,900,000,000 represented a $1,100,000,000 or 13.6 percent increase over the Q3 of last year due to the timing of purchases and terms improvement. At the end of the 3rd quarter, lease adjusted debt to EBITDAR was 2.16 times and return on invested capital was 19.5%.
Now looking at the statement of cash flows. We generated strong operating and free cash flow in the quarter of $5,400,000,000 $4,600,000,000 respectively. Our capital allocation strategy first focuses on investments that align with our strategic priorities to expand our home improvement reach, develop capabilities to anticipate and support customer needs, and generate profitable growth and substantial returns. For example, our acquisition of Maintenance Supply Headquarters is a strategic investment to further grow our Pro business by expanding our ability to serve the multifamily housing industry. The transaction is expected to be slightly accretive to earnings this year.
And after strategic investments, we look to return excess cash to shareholders. In the quarter, we paid $344,000,000 in dividends. In August, we entered into a $250,000,000 accelerated share repurchase agreement, which settled in the quarter for approximately 3,200,000 shares. We also repurchased approximately 3,200,000 shares or $250,000,000 through the open market. In total, we repurchased $500,000,000 of stock in the quarter.
We have approximately $2,100,000,000 remaining on our share repurchase authorization. Looking ahead, I'd like to address several of the items detailed in Lowe's business outlook. We are reaffirming our guidance for the year. While we expect incremental hurricane related sales in the Q4, we continue to optimize our investments in customer facing associate hours to fully capitalize on the strong traffic trends generated by our enhanced marketing efforts. We are also facing a tough prior year comparison, and as you know, weather in the 4th quarter is unpredictable.
Also, earnings per share of $1.05 in the 3rd quarter was again in line with our expectations. With that backdrop, for the year, we expect a total sales increase of approximately 5%, driven by a number of factors. First, we are forecasting comp sales increase of approximately 3.5%.
2nd, the
Rona acquisition is expected to drive about 2% growth due to a full year of Rona results versus roughly 7 months from 2016. Also, we expect new stores and acquisitions of MSH and Central to add approximately 1%. Also keep in mind, total sales growth will be reduced by roughly 1.5% related to the comparison of 52 weeks in 2017 to 53 weeks in 2016. On a GAAP basis, we are anticipating an operating margin increase of 80 to 100 basis points. Remember, a full year of RONA results versus roughly 7 months last year will pressure operating margin by an estimated 15 to 20 basis points for 2017.
Effective tax rate is expected to be approximately 37% for 2017. For the year, on a GAAP basis, we expect earnings per share of $4.20
to $4.30
Again, please refer to Page 14 in our supplemental slides for a summary of adjustments as you compare 2017 to 2016. We are forecasting cash flows from operations to be approximately $5,400,000,000 and capital expenditures of approximately $1,200,000,000 This results in estimated free cash flow of approximately $4,200,000,000 for 20.17. Our guidance assumes approximately $3,500,000,000 in share repurchases for 2017. Christie, we're now ready for questions.
Your first question comes from Peter Benedict with Baird. Please go ahead.
Hey guys, thanks for taking the question. First is around the efforts to drive better conversion. Can you maybe help us with the key actions you're taking here in that area? How did the Q3 do relative to your expectations there? That's my first question.
Sure, Peter. Several actions that we're taking as we think about conversion, as you know, we have been able to begin tracking our traffic inside the stores. So it's the first time we've got real solid data on a year over year comparison, which allows
us to really understand what's happening inside the stores. We're working through
the understand what's happening inside the stores. We're working through the optimization of our hours. As we talked about in Q3 or Q2, we invested incremental hours to really be able to maximize the opportunity to convert our traffic that we're seeing from the marketing spend investment and the traffic that it's generating. During Q3, we worked to fully deploy those hours and we're able to achieve that by the end of the quarter as we added the incremental hours throughout the quarter. And now we continue to work on better utilization of those hours and deploying those during peak traffic times when we see the opportunity to increase our conversion more holistically.
And as always, we continue to work on the training and development of our employees to meet the demands of our customers. So if I'm looking at it from that perspective, we've done a solid job in adding the hours that we committed to. Now we're working to continue to optimize those hours to customer traffic and continue to work on training and development of all of our employees to meet the needs of the customer.
And Peter, this is Robert. The only thing I would add is as highlighted in my comments and progress that Rick took you through with that we're making on this effort was somewhat impacted by our need to redeploy resources into the hurricane affected areas as we spoke about. So kind of got that behind us. And so it's like I said, made progress and continue to be focused on it throughout the Q4.
Okay. That's helpful. Thanks. And then just shifting over to some of your omnichannel stuff. Maybe talk about your delivery capabilities today, where they stand, where you think you need to take these?
And also, I mean, and you just updated commentary around buy online, pickup in store and deliver from store, where you sit with those and where you see those going? Thank you.
Yes, Peter. As it relates to I'll start with buy online pickup and delivery from store. Those two aspects of omni channel delivery have been part of our lowes.com platform since its original launch in 1999. So it's something that we're very familiar with. From an execution standpoint, 60% of our dotcom sales are currently picked up in store with 40% of those customers buying incremental product when they arrive to pick up their item.
Another 10% to 15% is delivered from store with the remaining 25% to 30% being parcel. So
for
us that tells a great story of the role of the store in the omnichannel environment and how our customers continue to utilize our stores for fulfillment options in our omni channel strategy. As it relates to delivery holistically, as you know, we operate both in house deliveries and a third party model in order to continue to drive the capacity that we want to be able to be nimble enough to meet the changing needs of our customers. We are very pleased with our delivery programs and how our teams continue to execute against those offerings, which is evidenced by I think our growth in appliances as we highlighted, which is a strong delivered category and our teams are able to continue to meet the demands of that business and be able to drive that drive those sales. So we're comfortable with where we are. We continue to look at options for fulfillment.
If you look at parcel, we'll be opening our 1st direct fulfillment center in Q3 of this year in 2018 in Nashville. And we continue to ship parcel from our stores from a fulfillment perspective.
And anything that's great. And then just about how about delivery to the pros? What how are we thinking about that?
Sure. Delivery from the pros has been part of our ongoing programs since we've been executing against the pro initiative. We feel very comfortable with our ability to meet the needs of the pros through various different fulfillment options. We are able to narrow delivery windows to a 2 hour timeframe for our Pros when we run through the process and the program. So we feel confident that we're able to meet their needs on an ongoing basis both within our in house model and the 3rd party models.
My Camilo and the Pro team continue to work on options to continue to improve that from a fulfillment perspective. So we feel good about our existing ability to execute versus the probe as well as our ongoing strategic options that we're building out to continue to meet their needs in a dynamic marketplace.
Okay. That's helpful. Thanks very much guys.
Thanks, Peter.
Your next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Good morning. This is David Bellinger on for Brian. So a couple of questions from us. First one on the progression of comps throughout the quarter. You're coming off the strong 7.9% gain in July and that slowed to 3.9% in August.
Can you give us more detail on what drove that? Was it more traffic versus ticket? And also what led to the improvements in September October? Was there some type of internal change you made or in addition to the $200,000,000 lift from the hurricanes?
I'll take the first part. I mean, we were actually pleased with what we were seeing from in store and online traffic in August. And as Rick mentioned, we were working on investing in increasing our associate hours for customer facing in the areas where we needed them most to ultimately help us drive better conversion. So as that played out in the quarter, we began to see that pick up in September, but a little bit soft in August.
Okay. And then just looking at the comp guidance for the year and sticking with the 3.5%, it looks like comps year to date are up about 4% and that implies Q4 slowing to something below 2%. Should we read anything into that or is it simply conservatism in your forecast? And can you comment on the early trends into November and how that compares to what's implied in your outlook?
Okay. Certainly, we think that our guidance for the quarter and for the year is appropriate and balanced as we look to invest in running the business and continuing to invest in our ongoing capabilities. We are confident in our ability to drive traffic in Q4. We do expect some benefit from the hurricanes as we move into Q4 and into 2018. But one of the things again, we've been optimizing our selling hours in the stores, and still tweaking that like where we are today.
But again, recognize Q4, we have tough comparisons to last year. As we mentioned, weather can be kind of a wildcard in the Q4. So I'll just keep those in mind as we head into Q4. As far as where we are quarter to date, we're just slightly ahead of our expectations for the quarter.
David, this is Robert. I would layer on this. As Marshall talks about tough comparisons to the prior year, keep in mind that we're also cycling in the Q4 of last year, the benefit of Hurricane Matthew and the Louisiana flooding. So we've tried to take all that into our guidance. And just to reiterate, we're seeing approximately 3.5% comps for the year is what we're looking at.
Got it. Thank you very much.
Your next question comes from Kate McShane with Citi. Please go ahead.
Thank you. Good morning. Thanks for taking my question. My question is centered around the multifamily acquisitions that you made. It was helpful for you to break out the contribution of that business going forward.
But I wondered if you could walk through how the integration is going and how much of
a lift do you
expect in your stores once it rolls out to all the Lowe's stores?
Sure, Kate. The integration as I talked about in the opening comments is going extremely well. The organizational aspects of the design have been implemented as we continue to work to integrate the 2 companies. And we're seeing some strong leverage from our initial business case through working to continue to harmonize our pricing and our terms with our merchants and working with Mike's organization to make sure that we're able to leverage that and continue to move forward. Our existing focus currently is to continue to work on the integration of both companies into one operating model.
As I highlighted, we are the teams are building out a new product catalog, which will effectively improve the customer experience across both verticals. And then as we continue to move forward, we will continue to work for the in store integration, but that is further out in the current integration plans than today. Currently, it's really focused heavily on the integration of the 2.
Okay, great. Thank you. And my second question was just on the growth that you saw for ticket above $500 Was the majority of that driven by appliances? Or can you help us break down some of the bigger categories that drove that growth?
Sure, Kate. This is Mike McDermott. We continue to see great progress in the appliance business, obviously, leveraging our number one share position and the great brand portfolio and values that we're communicating to our customers. We also continue to see Pro outpace the company average and Pro certainly is also driving significant growth in big ticket. So our project specialists interior and exterior continue to drive remodel and refresh business across a number of different categories and we continue to see momentum really across the business in regard to tickets above $500
Thank you.
Your next question comes from Christopher Horvers with JPMorgan. Please go ahead.
Thanks and good morning. Can you talk about the comp trends in Canada and Mexico? It seems like they did improve from the last quarter. Did RONA contribute to that comp? I think it was only in the quarter for a partial period.
And can you talk about how much the FX lifted the reported total comps as well?
Yes. Christopher, this is Richard. We had a very strong quarter up in Canada. As Robert noted in his comments, we had a high single digit comp within Canada and there's a very strong contribution to that across all of the different banners. Just a small point, we actually had RONA in our comp for the entire quarter this quarter.
So this will be the Q1 where all of their sales are rolled into our comp comparison. And as Robert said, we have very strong we're very pleased with the progress that we're making there. We have brought our first two big box evolutions live from the Rona brand into the Lowe's brand out in Western Canada. We're underway with several more now. We have expanded our appliance mix to more than 70 stores on track and above our plan in terms of rollout given the opportunity for share in the appliance market in Canada.
And we're seeing really good strong pro results in our business in Canada given our higher mix of Pro across our different banners, including those specifically focused on the Pro in both Quebec and out west. Similarly, very strong, as Robert noted, double digit comps in Mexico. Very proud of the team there. The team has also, to the plan that we laid out last year, has begun down the path of expansion again, having recently opened 2 new stores in the Monterrey, Mexico market and putting us well on path to our goal to double that business across 3 years.
And then the FX contribution and then I had a follow-up.
That was fairly minor for the quarter. It was largely driven by operational results from Canada and Mexico.
Okay, understood. And then how do you I was curious how you thought about the market growth rate in the U. S. The census category show about a 7% -ish type growth year to date. You're running year to date about 5%.
And in 3Q, that gap persisted. Do you think the census is a fair estimation of the market growth rate? Do you have insights into sort of market share trends in the key categories? I think because one of the questions that we get from investors is not per se the comp gap, but just trying to understand how your share is playing out in the United States relative to the Census benchmark?
Chris, certainly, I mean, it's an indicator
of the health of the overall market. It's not a perfect match. When we look more specifically at just the leading indicators from housing, from home improvement, we feel really good about that. We think the leading indicators certainly remain supportive. You think a job and income gains driving strong growth in both disposable income and consumer spending, revolving credit usage continuing to be favorable as we mentioned and then probably most important home price appreciation, which is driving increased housing well.
So as we look at that, we feel good about the macro environment. We feel good about housing. We feel good about from looking at things like our consumer sentiment survey, homeowners willingness and intention to engage in projects around the home driven by one their views of the overall housing market as well as views about the increasing values of their homes. So overall, we feel good about it. And like I said, when we look at our trajectory of comp growth, as we look at the quarterly progression that we've had through the year, the focus the team has put behind improving our execution.
We're pleased with our performance and excited about the opportunity ahead of us.
Thanks very much.
Your next question comes from Charles Grom with Gordon Haskett. Please go ahead.
Hi, good morning. This is Andrew Menorah on for Chuck. I had one question on hurricane impacts. Can you guys quantify the impact on gross profit margin and SG and A from the hurricanes? Then I have one follow-up.
So ultimately, the gross margin impact obviously hurt our mix because it is below average company rate on the gross margin. So that certainly had an impact. We did have incremental SG and A expenses, but all told net net while it was slightly positive, it wasn't a driver to our earnings for the quarter.
Okay. Thank you. That's helpful. And then just on the pro comments, I mean, it's a little bit nippy, but you guys went from saying the growth is well above the company average to above the company average last two quarters. Is that more a function of the overall comp doing better last 2 quarters?
Are you seeing any slowdown in the pro business? Any color there would be helpful. Thank you.
Yes. This is Mike. What I'd highlight is we continue to see positive strength in our DIY business, which maybe tightens the balance between Pro Performance and DIY. I still feel very good about our Pro Performance. Team is doing a great job engaging the customer in a variety of different segments across that marketplace.
Pro represents about 30% of our business and we continue to see expanded penetration.
Thank you very much.
Your next question comes from Michael Lasser with UBS. Please go ahead.
Good morning. Thanks a lot for taking my question. Can you give us some quantification of how far along you are into the competitive pricing actions you've been taking? Are you close to being done?
Michael, this is Mike McDermott again. Obviously, we're going to continue to react to the competitive intensity of the marketplace. I feel good about the actions we took coming out of the Q1 when when we recognized an opportunity to improve our value perception. Team has done a great job on both base price, stock and SOS as well as our promotional pricing strategy to make sure that we are delivering those great values in the market to our customers. I also feel good about the actions the team is taking around leveraging new pricing and analytics tools and refine our pricing strategy across categories to make sure we're optimizing our effectiveness.
Recognize that in the May timeframe, we also drove 2 loyalty actions, which are having a positive impact. The first was our simplified approach to military recognition, offering both active and veteran military personnel the ability to enjoy 10% discounts every day. And on top of that, we launched free parcel delivery for MyLowe's members. So we're seeing both customer growth and loyalty from those actions and but they will have some impact as to our gross margin performance.
And are you seeing competitors respond as you take these price actions?
Yes. I think the marketplace remains competitive. And what I would tell you as I look at Q3 versus Q2, it's consistent with our expectations. And as we go into the Q4, again, I think consistent with where we were in 3Q.
Thank you very much.
Your next question comes from Simeon Gutman with Morgan Stanley. Please go ahead. Your line is open.
Hello. Can you hear me?
We can hear you now.
Sorry. Okay. I was on a different line. A follow-up to Michael's question, it's around gross margin. And in this quarter, in the slide deck, the gross margin headwind was described, one of them was described as competitive actions.
If in the Q1, you called out pricing investments and Q2, you called it promotional activity. Can we discuss what these descriptions are they just different ways to say the same thing? And then Mike, if you just a follow-up on that, can you describe what's going on in the marketplace broadly?
Yes, Suneen, what I would tell you is that you should translate both of those descriptions as the same. When we think about promotional activity, I actually think about advertising and promoting value with a customer as well as some of the actions I highlighted around loyalty. So they would be in the same bucket. And as it relates to, again, the competitive environment, consistent with our expectations.
Okay. And then regarding execution, we've talked over the past 12 months, there's been some management change. There was we talked about some inconsistency between merchants and some of the marketing and then you've added some labor hours back to stores. If you think about how you performed in Q3 and going forward, are the bumps more or less ironed out? And can you talk about where you could be or where you should still be getting better?
Yes, Sumeet, I'll start and let the others jump in. Certainly, yes, we've made a lot of changes to set us up for the future. I said, we're pleased with our new store leadership model and what we're seeing out of that. I'm pleased with the work that's being done to try and add hours back into the stores. As Rick indicated, we'll continue to focus on getting those hours in the right kind of daypart if you want to focus on the high traffic, high times to better match with customer demand.
There was certainly a little bit of an impact as we had to redeploy people to the hurricane affected areas in the quarter. In addition to that, we've as we indicated earlier, we made some changes to the organizational structure here at our corporate office to kind of flatten the organizational structure, improve our span of control. And we're pleased with the way the team has responded and working together to focus on driving the business forward.
Okay. Thank you.
Your next question comes from Eric Boffard with Cleveland Research. Please go ahead.
Good morning. Two things for you. First of all, the step up in online growth the past two quarters, I know a component of that is easier compares to some changes you were making a year ago. But just curious if you could give us a little bit more color of what's driving that? And also, if there are categories that are leading that improvement, some insight on that would be helpful.
Yes, Eric, I'll take that. We continue to see great progress as it relates to our digital performance with the 33% comp we saw for the quarter, continue to optimize our online platform, continue to add and invest in additional functionality, improving everything from content to our checkout process, adding visibility for the customer around inventory and order status and essentially driving more of a simple and seamless approach online. When I think about the categories that continue to perform well, appliances, fashion fixtures and seasonal outdoor living led the way as it relates to our online performance.
So the team is doing
a great job bringing that experience to life and connecting it to our overall omnichannel platform and driving additional traffic into our stores.
Secondly, it was roughly a year ago that you all started to talk about productivity. And I'm curious now coming up on a year later within this, what the emphasis is within this now? It seems like it started with a little bit more focus on profitability. It feels like you're trying to shift to a little bit more balanced or focused on sales. But I'm just curious how you're thinking about the productivity initiative, especially with the 2% comp in 4Q and the 3.5% in a year where the market feels like it's stronger, which way are you leaning and focusing on with the productivity in that initiative?
Eric, this is Marshall. We actually yes and yes, we want both sales productivity and SG and A productivity cost out. So those will continue to be focus areas. So you think about some of the investments we're making from the omni channel capabilities, we want those to be sales drivers. You think about processes within the stores from this customer experience to services, again trying to eliminate employee and customer pain points.
But we've got good line of sight into actions, one that we took this year. Rick highlighted a couple of those with indirect spend, moving the needle on how much we centralize indirect spend along with some of the changes we've made to the payroll staffing model, the leadership changes that we made earlier in the year along with things that we're doing from supply chain efforts to drive better productivity, reduce burden for the distribution center and stores. So all of that wrapped up into the amount of investments we've made in 2017 to be able to drive a flat operating margin on an adjusted basis for 2017 and knowing that we've got future opportunity to keep getting after it from a productivity standpoint as we move into 2018 2019 beyond.
Great. Thank you.
Chris, do you think we have time for one more question?
Your next question comes from David Sheik with Consumer Edge Research. Please go ahead.
Hi, good morning. Thanks for taking the question. On you talked about Craftsman and I know there's been work on merchandising around Pro. Is there any metric you can give to the amount of SKU or category newness that you're introducing now versus the past?
Yes, Dave, we don't really look at it that way as it relates to new assortment. But what I can tell you is the merchants continue to work with our strategic partners across every category to make sure that we refine our assortments and expand value. Obviously, we're very excited to welcome the Craftsman brand to the Lowe's portfolio, iconic brand that customers know with innovation and high quality at a value. So if you think about all the brand work that we've done over the last 4 years, adding more than 25 brands back to the portfolio, brands that DIY and Pro customers know and trust. I really think Craftsman, when it launches in 2018, will continue to propel us forward with customers in both of those segments.
Great. And then any comment on the how you're thinking about the wage potential wage pressures on your business, just that we're observing in the economy, whether nationally or regionally, would be helpful.
Again, as we think about that, obviously, there's been some wage pressure. Just one of the things that our productivity efforts are designed to help offset along with continuing to challenge, are we rightsizing staffing in the stores and the DCs and corporate offices and always looking to balance again how we're getting better productivity in our processes throughout supply chain and then the appropriate mix of hours in the stores from selling and non selling to make sure that we're appropriately flowing freight, taking care of our customers and providing the best experience that we can.
And David, I would just add that based on the model and the experiences we try to create and the product knowledge required of our associates, we pay a higher average hourly rate already than the marketplace. So that helps us also mitigate that. Just understanding the fact that because of the model itself, we do have a higher rate than the industry as well.
And we take a look at it not only just on the base rate, but all in from incentives and benefits to be competitive in the marketplace.
Okay. Thank you.
Thanks. And as always, thanks for your continued interest in Lowe's. We look forward to speaking with you again when we report our 4th quarter results on Wednesday, February 28. Have a
great day.
This concludes today's conference call. You may now disconnect.