morning, everyone, and welcome to Loews Company's First Quarter 2017 Earnings Conference Call. This call is being recorded. 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 Kniblock, Chairman, President and Chief Executive Officer Mr. Mike McDermott, Chief Customer Officer and Mr. Marshall Croom, Chief Financial Officer. Joining during the Q and A session will be Mr. Rick Damron, Chief Operating Officer and Mr.
Richard Maltzberger, Chief Development Officer and President, International. I will now turn the program over to Mr. Knobloch for opening remarks. Please go ahead, sir.
Good morning, and thanks for your interest in Loews. This quarter, we delivered comparable sales growth of 1.9%, driven by 3.5% increase in average ticket, partially offset by 1.5% decline in transactions stemming from weaker outdoor performance. We posted positive comps in 8 of 11 product categories with 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 to PROS customers, driving outperformance in rough plumbing and electrical, lumber 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 their 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've entered into a definitive agreement to acquire Maintenance Supply Headquarters, a leading distributor of maintenance repair and operations or MRO products to the multifamily housing industry in the Southeast, South Central and West.
This is an important step in our strategy to deepen and broaden our relationship with Pro customers and better serve their needs. When combined with our November 2016 acquisition of Central Wholesalers, a prominent MR distributor in the Mid Atlantic and Northeast, this acquisition will substantially expand our ability to serve the multifamily housing industry as both the primary 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 $400,000,000 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 of 14 regions. And internationally, we delivered double digit comps in Mexico, while comps in Canada were flat in local currency. Trading comps were pressured by unusually high snowfall in addition to 4 years of high single to double digit comps. Last week marked an important milestone, the 1 year anniversary of our acquisition of Raman. This acquisition has fortified our presence in Canada with a market proven asset.
We remain excited by the compelling opportunity to bring together Loews global scale and resources with Rona's local expertise, and we're well positioned to capitalize on the market's strong long term fundamentals. We're pleased with early wins in key synergy areas such as introducing our best in class appliance offering in Rona branded stores, serving a new portion of the market and positioning us to capture additional market share. Building out our e commerce capabilities, which are already delivering strong growth above initial expectations. Converting as many as 6 rona big box stores to Lowe's branded stores in fiscal 2017 and driving improved profitability by leveraging our shared supplier relationships. Through the great work of our Lowe's Canada team,
we have 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 earnings per share of $0.70 These results included a $464,000,000 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 $1,200,000,000 of stock under our share repurchase program and paid $304,000,000 in dividends. Turning to the economic landscape for the balance of the year, home improvement industry should continue to see solid gains.
Job and income growth to drive 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 amid steady job gains. Home price 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 survey believe their home values will continue to increase. Also, nearly half of homeowners we survey indicated that they intend to engage in a home improvement project in the next 6 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 invest in capabilities that will add the most value for customers and shareholders. We're focused on omnichannel project experiences and expanding the reach of home improvement, ultimately serving more customers more effectively. We're developing capabilities to anticipate and support customers' evolving needs.
We're also focused on improving operating discipline and execution and are committed to making productivity core strength for 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. Thanks, Robert, and good morning, everyone. In the Q1, 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 has 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 tough comparison to Q1 last year, we designed a spring strategy intended to balance indoor and outdoor projects. However, as the quarter unfolded, we found we weighted 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' continued desire to invest in their homes with our project 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 suites 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 to make it easy for customers to select their products. Our omnichannel customer experience together with leading brands, breadth of assortment, competitive pricing, knowledgeable sales specialists as well as delivery and hallway service continues to drive our performance in appliances. Kitchens also benefited from our omnichannel customer experience. In order to provide a holistic project solution to a simple kitchen refresh for a full remodel, We display our kitchen solutions, including cabinets and countertops, immediately adjacent to our appliance offering, so customers can both envision and design their dream kitchens.
Following the trend from last quarter, we again drove above average comps in kitchens through a combination of project inspiration and expertise, our investment in project specialists and targeted events. We also drove above average comps in flooring, 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 achieved 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 assortment with exclusives like Hitachi and Bostitch, the number 1 and number 2 brands in Pneumatic's, and the extension of brands like VON, Owens Corning and GAF. We continue to be excited about the effectiveness of destination brands in attracting pro customers. This strength is evidenced with the addition of Marshalltown, a trusted pro brand and the 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 capabilities 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 omnichannel 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 specialists to bring their solutions to life.
As customers engaged in both indoor and outdoor projects, we leveraged our omnichannel capabilities to help them throughout their project journey, driving 27% comp growth on lowes.com and above average comps for in home sales. Our interior and exterior project specialists represent another important element of our omnichannel strategy
as they
serve the do it for me customer who needs a bit more help navigating their project. 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 model and we've seen a very strong response to these enhancements with increased leads and appointment requests. For the quarter, gross margin contracted 64 basis points.
We had 35 basis points of impact from product mix and 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 to 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 store staffing model.
We took decisive action to design and implement a new structure that provides better leadership and accountability, allowing us to grow sales with more efficient staffing. We're also working to drive productivity in our supply chain by introducing new international carriers into our system and realigning our network to balance our volumes against 3 new shipping alliances in Southeast Asia. As these improvements are implemented, they're expected to benefit gross margin in the back half of the year. As we look forward to the remainder of 2017, we're proud to welcome 2 new additions to our outstanding portfolio of brands that appeal specifically to Pro customers. SharkBite, the industry leader in plumbing fittings and A.
O. Smith, the leading brand of residential water heaters. And for DIY customers, we're leveraging our Milo's platform to drive additional brand loyalty. We're proud to announce that we've simplified our military discount program by allowing active duty and 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's Day and July 4 events, as well as our outdoor entertaining event featuring unique omnichannel experiences such as online tools to build the ideal backyard retreat. We are 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 further progress with you over the course of the year. Thank you for your interest in Loews, and I'll now turn the call over to Marshall.
Thanks, Mike, and good morning, everyone. Sales for the Q1 were $16,900,000,000 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 $630,000,000 or 4.2 percent of sales growth. As a reminder, RONA is not included on our comp calculations until the Q2 of this year.
As a result of the calendar shift from the 53rd week of fiscal 20 16, this year's Q1 included 1 less week of winter and 1 more week of spring than last year. While this had no impact on comp sales, it did benefit 1st quarter total sales by approximately $500,000,000 contributing 3.6 percent to sales growth. Comp sales were 1.9% driven by an average ticket increase of 3.5%, partially offset by a transaction decline of 1.5%. Looking at monthly trends, comps were positive 3.8% in February, negative 1.2% in March and a positive 4.0 in April. Lastly, new stores drove 100 basis points of comp growth of total growth, excuse me.
Gross margin for the Q1 was 34.4 percent of sales and as Mike mentioned, decreased 64 basis points from the Q1 of last year. We had a combined 35 basis points of impact from product mix and RONA combined. The remainder of the decline was primarily the result of promotional activity match the intensity of the marketplace, inflation primarily driven by lumber and pricing investments in key product categories. SG and A for the quarter was 22.99 percent of sales, which deleveraged 73 basis points. The deleverage was driven by the comparison to an unrealized gain in last year's Q1 when we recorded $160,000,000 associated with the foreign currency hedge we entered into in advance of the Roan acquisition.
This year over year comparison drove 105 basis points of expense deleverage. And in the Q1 of this year, we experienced 40 basis points of payroll leverage in the stores, so we realized the benefits of our new store staffing model. We also experienced 37 basis points of leverage and incentive compensation due to lower payment levels relative to last year. Somewhat offsetting these items was deleverage from our private label credit portfolio due to an 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 $365,000,000 which was 2.1 percent of sales and leveraged 20 basis points.
Operating income decreased 117 basis points to 9.25 percent of sales. The RONA impacts 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 gain with the foreign currency hedge negatively impacted operating income by 105 basis points. This quarter, we completed a cash tender offer for 1.6 $1,000,000,000 of our higher coupon bonds. And as a result, we recognized a $464,000,000 loss on the early extinguishment of debt.
To fund the tender offer and finance current year maturities, we issued $3,000,000,000 of unsecured bonds in April. The issuance consisted of 10 30 year notes with a weighted average interest rate of 3.58%. For the quarter, interest expense was $161,000,000 Effective tax rate for the quarter was 35.5% compared to 38.2% in the Q1 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 Q1, including a benefit of approximately 0 point 0 $6 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 $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 $1,960,000,000 The lower cash balance this year is a result of a larger April 2016 bond issuance in anticipation of the Roan acquisition. Inventory was at nearly $12,300,000,000 at the end of the quarter and increased $1,200,000,000 or 10.8 percent versus the Q1 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 Q1 of last year.
Asset turnover increased 5 basis points to 1.83. Moving on to the liabilities section of the balance sheet. Accounts payable of $9,900,000,000 representing a $1,100,000,000 or 12.3 percent increase over the Q1 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 Q1, lease adjusted debt to EBITDAR was 12.27x. Return on invested 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 return on invested capital by 2 25 basis points. Now looking at the statement of cash flows. Operating cash flow was $3,300,000,000 and capital expenditures were $202,000,000 resulting in free cash flow of nearly $3,100,000,000 which was up 2.7% to last year. In March, we entered into a $500,000,000 accelerated share repurchase agreement, which settled in the quarter for approximately 6,100,000 shares. We also repurchased approximately 9,200,000 shares or $750,000,000 through the open market.
As Robert mentioned, in total, we repurchased 1,200,000,000 of stock in the quarter. We have approximately $3,800,000,000 remaining on our share repurchase authorization. Looking ahead, I'd like to address several of the items detailed in our Lowe's business outlook. We expect to recover our Q1 sales miss over the next 2 quarters by increasing our media weight with a focus on value, improving our promotional effectiveness and rebalancing our indooroutdoor strategy. And as a result, we are reaffirming our operating outlook for the year.
We expect a total sales increase of approximately 5%, and this sales increase is driven by a number of factors. First, we are forecasting comp sales increase of approximately 3.5%. 2nd, 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 roughly by 1.5% to the comparison of 52 weeks in 2017 versus 53 weeks in 2016.
Now on a GAAP basis, we are anticipating an operating margin increase of approximately 120 basis points. Regarding operating margin, 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. The 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 in our supplemental reference slides for a summary of adjustments as you compare 2017 to 2016. We are forecasting cash flows from operations to be approximately $5,900,000,000 and capital expenditures of approximately 1,400,000,000 dollars This results in estimated free cash flow of approximately $4,500,000,000 for 2017.
Our guidance assumes approximately $3,500,000,000 in share repurchases for this year. Regina, we're now ready for questions.
Our first question will come from the line of Michael Lasser with UBS. Please go ahead.
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?
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. But we've 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.
So it seems like you're maybe making some changes in response to the market. Are you seeing pressure from more of your big box competitors or is it coming from the online channel?
I think we'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.
Okay. And my follow-up question is on the outlook for the year. So the Q1 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 the sales will come in better than what you previously thought?
Or you're going to find other ways to offset some of the cost pressure, some of the margin pressure you might feel from the price investments?
It's really the latter. We're looking at geography shift with the gross margin pressure we experienced in the Q1. We're going to expect to see the trend for the year in total, and we're anticipating roughly 20 basis points. But we do expect to be able to offset that on the SG and A line as we get some visibility and traction to our productivity efforts.
Thank you so much.
Thanks, Mike.
Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.
Thanks. Good morning. Maybe a question for Mike on the marketing. I think over the summer or maybe post mortem 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 were more indoor oriented.
And maybe this quarter was just a tactical change in how the seasons and sales were playing out. But how do you feel about the marketing plan the rest of the year? And I'm sure you want to avoid these type of missteps if you characterize on that. And how do you do that?
Yes. I'll tell you, we continue, Simeon, to optimize our media and improve our flexibility and responsiveness to the market opportunity and the weather, ultimately driving improved productivity as we spend on the spend and as we continue to drive traffic. We tried to toggle in and out of weather opportunities throughout the quarter and found that we suboptimize. Our objective obviously is to better connect with our customers through more personalized messaging tailored to their specific needs, and we continue to build capabilities to do that. We'll also continue to look for the most effective and efficient ways to drive traffic and build our brand across all of our assets.
So that continues to be something that we fine tune over time.
Okay. And my follow-up is on RONA. Can you talk about when I think you said after Q2 that comes into the comp base, is there what kind of comp lift should we assume and then the timing and magnitude of synergies as they flow through?
So Simeon, this is Marshall. I'll address the run question. Basically, it will come in towards the tail end of the Q2, then we'll be able to roll that into our comp numbers for the company. So once we do that, we've already baked that into our guidance
for the year. And this is also Richard to play off 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.
Okay. Thanks.
Your next question comes from the line of Dan Bender with Jefferies. Please go ahead.
Hi. This is Dolph 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 bps above the average pro category pro sales grew?
This is Robert. I'll just say overall the as Mike alluded to in his comments, we have been investing heavily in the pro recently, addition of things like Marshalltown, Sharkbite more recently and A. O. Smith, as well as the other initiatives we've had over the past few years, the launch of loads for pros.com. Are things.
So I would just say that we saw significant growth in the Pro customer more than 2x our overall comp. And then we take and then as I said in my comments and highlighted the acquisition of maintenance supply headquarters, the definitive agreement and we'll get that acquisition closed combining that with Central. I think it's just going to give us opportunity to continue to perpetuate the perpetuate the great momentum that we had with the Pro customer. So really pleased with what the team delivered in the Q1 and also really excited about the opportunity that lies ahead as we continue to deepen our relationship, particularly with the opportunity we see in the MRO business.
Okay. Thank you. And if I could just ask one last question. I think you mentioned some deleverage on some credit costs. Can you give us an idea of where credit low card penetration is now?
And does the deleverage this quarter have you rethinking any terms or standards for that card? Thank you.
I'll just say that our credit card penetration for private label brand is roughly 28%. So we've seen that steadily grow over time. So we look at the overall portfolio, just keep in mind that we are coming off of historically low delinquency rates and loss rates. So we're beginning to see a little bit of inflection there. We believe that our portfolio is performing relatively well versus others in the marketplace, but something we will keep an eye on.
You have to be sensitive to how you adjust those terms for your customers, because we do see those as a sales driver and a tool that they will want and the use of revolving credit we see as a strength to the consumer as they spend in 2017.
Thank you for taking my question.
Your next question comes from the line of Eric Bouchard with Cleveland Research. Please go ahead.
Thanks. You all talked 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 and A and sales? Just curious what's at the top of the list when you think about productivity as you define it? What's the metric that you're most focused on achieving or improving?
Yes. As we talked about on the Q4 call and at our Analyst Day in December, we are increasing our operating discipline and our focus on productivity across the business to drive a core strength and a core mindset. The big thing we want to make sure 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 them as complementary. We believe this will continue to allow us to invest and grow in those key areas as the consumer continues to shift.
In the quarter, we really focused on 2 key areas. First, that was the rollout and the change of our store stacking models, which was in place to help us drive improved leadership across the store, improved training and oversight to drive a better customer experience across the store. And we also changed our management complement here at the CFC to drive a leaner organization to become more nimble and drive more speed of decision making. So we're very pleased with 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 are strictly productivity initiatives, others which we believe will have consumer experience impact as well.
1st, expand intercity production offices. We'll continue to be a focus as we look to expand that into our 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 and connectivity to the customer during that complex installed process. We're also optimizing our freight flow from our distribution centers. Mike spoke about that earlier as we look to optimize lanes and flow as well as how we flow the product to the customer as this is a single biggest utilization of non selling labor in the stores. So the teams are continuing to focus on how to get more effective and more efficient there.
3rd, we continue to test alternate delivery options. We have simplified delivery tests ongoing in 4 markets currently, both small, medium and large to understand how we optimize our delivery networks more effectively, more efficiently. And then we'll continue to leverage our indirect sourcing opportunities across enterprise to get stronger. So the core aspects of productivity we think will continue to drive the organization and help us deliver against our targets for the second half of the year. And we're pleased with the outcomes that's been implemented today.
I guess just one follow-up. When you talk about the outcomes and great job in leveraging payroll and leveraging SG and 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 2?
Yes. Eric, the big things that we look at when we're looking at it from a store standpoint is a holistic measures of success from efficiency of process through our customer service metrics. So we're measuring our close rate performances. We're measuring our customer satisfaction scores. I would say are the 2 dominant drivers of our overall measurement of success.
And then we'll continue to measure it against the anticipated benefits that we had lined out. So we're pleased with what we saw across both those attributes in the quarter. As a matter of fact, we saw increases in our overall customer satisfaction scores compared to Q1, twenty scores compared to Q1 2016. So really proud of the way the teams in the field have rallied around this, responded and continue to work to meet the needs of our customers in the office every day.
And Eric, this is Marshall. I'll just pile on just real briefly that we're looking for ways to drive sales productivity. So anything through process and capabilities that we need to deliver to drive better sales productivity, as long as keeping an eye on our expenses eliminating waste and other more effective ways and to utilize our spend. So I hope that helps. And if I could just inject one clarification, I just received a note that the lease adjusted debt to EBITDAR, it's 2 point 27 times.
I think I said 12.27 times. So if the rating agencies are on the line, don't want to get them too excited, but it's 2.27 times and we anticipate getting to 2.21 by the end of the year.
Thank you.
Thanks, Eric.
Your next question comes from the line of Seth Sigman with Credit Suisse. Please go ahead.
Thanks. Good morning. 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?
Seth, this is Rob Knibbock. 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 were going up against last year from a seasonal standpoint.
So as Mike indicated, part of what was done with the heavy reliance on seasonal was to try and pursue some opportunity that we saw in indoor categories as we toggled between those 2, we recognized that we probably had some opportunity to continue to improve our messaging around seasonal categories, value driving and traffic driving items. So Mike and his team started making those necessary adjustments. But when you look at for the when we look at the quarter with as we look at our 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 against our plan. As we said, we're making adjustments to continue to capitalize on opportunity we see in the market.
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 could just give us a general sense of how you're feeling about MABES, it does seem like there's some confidence that the business is going to reaccelerate. Thanks. We did see the most significant pressure in our lawn and garden and seasonal and outdoor living business.
From a lawn and garden perspective, 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 and weather stabilizes, we are seeing improvement in those categories.
From a geographical standpoint, we had negative comp performance in 2 regions our Boston or most Northeast region, primarily driven to the changes in weather from last year. We saw a big 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, as these the product categories have performed better, those regions have also improved from a performance
standpoint as well. 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.
Okay, great. Thanks very much.
Your next question comes from the line of Matt Pfaffner with Goldman Sachs. Please go ahead.
Thanks so much and good morning. I want to dig a bit deeper into the promotional and pricing actions. If you could just reiterate, were these focused in seasonal? Were you seeing some of the challenges? Were they focused in some historically promotional categories like appliances?
And where else might you have undertaken them? And were they pretty much directly connected to the some of the changes in marketing? Or should we think about these as 2 separate efforts?
Yes, Matt, this is Mike. I would tell you that some of the select pricing investments that we made were really tied to seasonal products. And we executed those 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 omnichannel to engage customers both pro and DIY as they build out their projects and leverage our extended line design through our digital properties. So they're the areas of most significant focus in regard to those investments.
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 takes, whether or not? Or did you feel like there's more of a share issue in that category for you?
It was really designed with the market adjustments we made to try and capitalize on seasonal traffic, recognizing that both in the first and the 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 adjustments and revert on the traffic.
And to the extent that
the full year gross margin outlook seems to be better than what you showed in Q1, presumably a 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?
Yes. For the remainder of the year, Matt, we expect to partially offset the impact of some of those promotions and pricing investments with cost improvements from our line review process as well as 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 results 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. So that process is managed daily and we do think we'll see improvement.
Thank you so much.
Thanks, Matt.
Your next question comes from the line of Dennis McGill with Zelman and Associates. Please go ahead.
Hey, good morning. Just to clarify a couple of those statements earlier. Could you specify which categories were negative in the quarter? And then also any impact from Easter as you would estimate it on the monthly comps March April?
Yes. I can talk to the categories of negative comps. They were the lawn and garden category and seasonal and outdoor living categories.
And on the Easter shift, Dennis, it was a negative 0.5% in March versus the 1.2 stated earlier. And then it was 3.2 on an adjusted basis for the Easter shift in April versus the 4 that I highlighted earlier.
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 give us a sense on what that would how that is impacting the comp when it does come in?
Dennis, this is Robert. As we this comps, as you know, that we mentioned are for that I mentioned in my comments are for the legacy Lowe's business that we have in Canada. The RONA business that we acquired, as Marshall said, it won't roll into comps into late in Q2.
You understand it's not in the comp base, but can you give us a sense of what it is comping at today?
So this is Richard Malsberg. 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 snowfall that we experienced especially across Quebec.
And those expectations were consistent with the domestic business or plus or minus?
They're consistent with the domestic business.
Thank you, guys.
Your next question comes from the line of Chris Horvers with JPMorgan. Please go ahead.
Thanks. Good morning, guys. So I wanted to get your thoughts. I've been asking some companies. As you look at the business, do you think compares really matter from a same store sales perspective as you think about the cadence of the quarters for the year?
In other words, at this point in cycle outside of the weather variability that obviously shifts demand, is your comp trend the comp trend or do you look at the next two quarters and think there were specific items that impacted the business last year that would suggest we should think more about comp stacks versus the overall trend in the industry?
Well, certainly, Chris, when we look at comps, as we said, Q1 of this year, we were going up against tougher compares from a year ago. And that's why I think we had previously indicated on our Q4 call that we expected the best comps in our 2nd to 3rd quarter of the year were going up against our weakest compare. So if you take the combination of being up against the tougher compares, weather challenges and how they hit in the quarter. They were thinking you make a good point that you have to kind of look and bring all those factors to bear when you look at the performance. As we said, overall, when we look at the business in the Q1, even with the weather, we delivered sales that were just slightly below our plan.
And with the actions that Mike and his team are taking, we think we have good line of sight to being able to recover that top line as well as being able to continue to mitigate some of the margin impact we had for the Q1 when we get past the acquisition of the anniversary of the Rona acquisition and those things.
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 is that included in the outlook? And if it's not, can or either way, can you give us some understanding on how that might impact gross margin and SG and A when it comes in?
Will we see any impact at all? Is it just too small relative to the total?
I would just say, 1, it's still a pending acquisition. We haven't received any final regulatory approval for that. We did not bake that into our guidance.
And so once we get through the acquisition, then we would roll any impact that we see from that into our guidance, first time we update after the acquisition.
Okay. But in the you mentioned that you do expect it will
be accretive this year, any indication on what it might be?
Yes, we do expect it to be
We have time for one more question.
Your final question will come from the line of Greg Melich with Evercore ISI. Please go ahead.
Hi, thanks. I wanted to follow-up on 2 things. One, housekeeping. What was inflation in the comp? I think you mentioned the gross margin but not the comp.
Yes, we had about 50 basis points again primarily driven by lumber in the Q1.
Great. And then it sounds like, I don't want to put words in your mouth, the comp trend through the quarter that 450 bps deceleration from February into March and then coming back in April, but that change was entirely traffic driven and the ticket was pretty steady. Is that a fair assumption?
Yes, it is.
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 and A or does some of it show up in gross margin? And could you remind us roughly how much of SG and A is a profit share from the credit card? Thanks.
Well, I will disclose that it does show up in SG and A. So the whole program income and cost flow through below the margin line. But it is in our operating margin.
So the costs are in gross margin, but the profits are the lack of The entire portfolio is SG and A?
Yes. Greg, the entire program runs through our SG and A line.
Okay. Entire program. All right. Thanks a lot. Good luck, guys.
Thanks, Greg. And as always, thanks for your continued interest in Loews. We look forward to speaking to you again and report our Q2 results on Wednesday, August 23. Have a great day.
Ladies and gentlemen, this concludes today's meeting. Thank you all for joining and you may now disconnect.