Morning, everyone, welcome to Lowe's Companies first quarter 2015 earnings conference call. This call is being recorded. Please note if you pressed star one to enter the question queue prior to the start of today's call, your signal did not register. You will need to press star one again to enter the queue. 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, the company can give no assurance that they will prove to be correct. Those risks are described in the company's earnings release and in its filings with the Securities and Exchange Commission. Hosting today's conference will be Mr. Robert Niblock, Chairman, President, and Chief Executive Officer, Mr. Mike Jones, Chief Customer Officer, and Mr. Bob Hull, Chief Financial Officer. I will now turn the program over to Mr. Niblock for opening remarks. Please go ahead, sir.
Good morning, thanks for your interest in Lowe's. I am pleased that we delivered another strong quarter with comparable sales growth of 5.2%. Comp growth was driven by a 2.9% increase in comp average ticket and a 2.2% increase in comp transactions. The team executed our plan and collaborated across the organization to respond to challenges. We employed a coordinated effort to stagger our Spring Black Friday events with a controlled cadence, as Mike will describe further, we were well prepared to meet customers' needs for the season. Our ability to adapt to difficult operating conditions was tested by the prolonged labor dispute at West Coast ports, I'm pleased with the team's diligent effort to minimize the impact these challenges created.
I would like to thank our more than 265,000 employees in the field and at our support centers for their hard work and dedication to serving customers. Comparable sales growth for our U.S. home improvement business was 5.3% for the quarter. While we saw stronger performance in areas of the country where weather was more favorable, specifically in the West and in Florida, all 14 regions generated positive comps. Additionally, our team in Canada delivered their eighth consecutive quarter of double-digit comps in local currency and their highest quarterly comp performance since we entered the market in 2007. We recorded positive comps in all 13 product categories, with particular strength in appliances as well as seasonal categories, including outdoor power equipment and Seasonal Living. We remain focused on improving our profitability, even while investing in key capabilities to drive our sales growth.
For the quarter, we drove 76 basis points of operating margin expansion despite experiencing some discrete pressures, as Bob will detail. We delivered earnings per share of $0.70, a 15% increase over last year's first quarter, which was in line with our expectations. Delivering our commitment to return excess cash to shareholders, in the quarter, we repurchased $1 billion of stock under our share repurchase program and paid $222 million in dividends. Looking at the balance of the year from an economic perspective, key drivers of home improvement industry growth, job and income growth, home buying, and home price appreciation remain aligned for modestly stronger industry growth. At the same time, lower energy prices should fuel stronger consumer spending in 2015.
We continue to see steady recovery within the housing market, including positive trends in turnover and moderate home price appreciation as measured by the FHFA, the broadest measure of home price growth, which is more in line with our store footprint. We're also encouraged by the results of our first quarter consumer sentiment survey, where we continue to see homeowners' views around personal finances and home values improve. According to the survey, homeowners are shifting more of their spending to home improvement. As a result, their intentions to begin a home improvement project in the next six months were the highest in six years, and these planned projects are now almost evenly split between discretionary and non-discretionary. Our key priorities in 2015 should allow us to capitalize on opportunities within an improving economy.
We are pursuing further top-line growth by differentiating ourselves with better customer experiences and improving our product and service offering for the pro customer. We also remain committed to improving our productivity and profitability with opportunities in a few specific areas, including store payroll, marketing, and leveraging our scale to get cost savings on indirect spend. In addition, we continue developing omni-channel capabilities as part of our long-term commitment to meet customers on their terms whenever and wherever they choose to engage with us. The execution of our strategic priorities, alongside an improving macroeconomic backdrop, together with our keen focus on productivity and profitability, give us confidence in our business outlook for 2015. Thanks again for your interest. With that, let me turn the call over to Mike.
Thanks, Robert. Good morning, everyone. We executed well in the first quarter, growing both average ticket and transactions. We drove traffic to our stores through our spring Black Friday event, aligned to the expected arrival of spring from the Deep South to the North. To ensure our stores are ready to provide inspiration, information, and products to customers, we use our enhanced sales and operations planning process to coordinate inventory flow, advertising, product displays, and training. While the situation at the West Coast ports add a complexity to our spring preparation, our transportation and logistics teams successfully collaborated to reroute product to other ports. As a result, our in-stock levels remain high. In fact, sales in our Seasonal Living category, which includes our highest concentration of imported products such as patios and grills, exceeded our expectations. We're pleased with our first quarter results, notwithstanding some weather-driven softness.
Keep in mind that the outdoor selling season extends well past Memorial Day. To this point, in the second quarter, sales have exceeded our expectations, we remain confident in the full year guidance we provided last quarter. Looking at category performance, we recorded above company average comps in appliances, outdoor power equipment, and Seasonal Living. We achieved double-digit comps in outdoor power equipment, as walk behind and riding mowers drove strong performance in the West and South. We offer a wide range of mowers to help customers maintain their yards, we continue to provide compelling and exclusive innovations, like our home channel exclusive Husqvarna all-wheel drive mower and our recently launched Troy-Bilt FLEX product. The outdoor living experience we introduced last year drove high single-digit comps in our Seasonal Living product category and across all three geographical divisions.
This particular customer experience most benefits our patio and outdoor fashion areas, which recorded strong comps again this quarter over double-digit comps last year. We continue to see strong sales of patio furniture and robust attachment of replacement cushions and other outdoor accessories. As a reminder, to create our outdoor living experience, we took advantage of our larger store format to produce a showroom feel, which included removing 15 bays of steel racking and opening up 35% more space for curated style. To help customers envision and create the outdoor space, we display patio sets with coordinating rugs, umbrellas, and accessories like pillows and planters, along with grills and other outdoor products, just as you would expect to see in your own backyard. We're very pleased with the continued performance of our outdoor living experience. In appliances, we drove double-digit comps for the second consecutive quarter.
Lowe's offers leading appliance brands such as Whirlpool, KitchenAid, Bosch, Samsung, LG, Electrolux, Frigidaire, and GE. We further strengthen our offering with the home channel exclusive launch of the Frigidaire Pro appliance series. For customers who aspire to have a look and feel of commercial-grade appliances in their home, this exciting launch provides great value with high-end commercial-like aesthetics and quality at an accessible price point. In addition to great brands, we provide service advantages of next-day delivery and haul away, as well as in-house facilitation of repairs and maintenance. To further enhance on appliance shopping experience, towards the end of last year, we worked with our vendor partners to introduce 17 kitchen suites to each store. Each suite includes four coordinated appliances, a refrigerator, a range, a microwave, and a dishwasher.
These suites help customers quickly visualize how a full set of new appliances will look in their existing or remodeled kitchen. We're also excited about HGTV Home by Sherwin-Williams, an exclusive for Lowe's in the home channel. This is the first time in more than 40 years that Sherwin-Williams-branded products are available through another retailer. Brand is the number one purchase driver in paint, Sherwin-Williams is the most recognized brand. We expect the addition of HGTV Home by Sherwin-Williams to appeal to both DIY and pro customers. Its long-standing reputation for quality, as well as the color expertise of HGTV, allows Lowe's to offer customers the top brands they trust for their next paint project. We announced this exciting addition in December and set product in all stores by the end of April.
Earlier this month, we launched a full national advertising campaign in conjunction with Sherwin-Williams in digital, TV, and print. Early customer response to this home channel exclusive brand and to the HGTV curated color set has been positive. Supporting our omni-channel approach to retailing, we are cross-merchandising the Sherwin-Williams brand in key areas throughout the store, like kitchen vignettes, bath vignettes, and home decor, while also leveraging our color visualizer on lowes.com. This visualizer helps customers find the perfect color for their walls by virtually painting their own home or experimenting with the sample room. They can come order a paint sample for shipment directly to the home or come into our stores for help pulling the project together with our specialists. Combined with our outstanding Valspar and PPG Olympic brand partnerships, we expect to grow traffic to our stores and increase overall market share in paint.
We also continue to strengthen our portfolio of pro-focused brands. We recently finished rolling out brands such as Goldblatt Masonry Tools, GAF Roofing, and Owens Corning Insulation. We continue to collect feedback from our pro customers and store employees to identify other local and national brands that best meet the needs of pro customers. Along with strengthening our brand portfolio, we recently made the new lowesforpros.com site available to all pro customers. Our focus on brands, as well as our recent relaunch of lowesforpros.com, are part of a broader commitment to build on our strong foundation for the pro. This foundation includes dedicated service in our stores, inventory depth aligned with the needs of the pro, and our five ways to save value proposition.
Our field-based pro account executives and national accounts team make it easy for medium to large-sized companies and government entities to do business with us. In addition to our efforts to drive top-line growth, we continue to focus on driving productivity and profitability. For the quarter, even with double-digit growth in categories like appliances and outdoor products, we maintain a flat gross margin rate, demonstrating our ability to drive profitability while capitalizing on big-ticket market share opportunities. We accomplish this by continuing to partner with our vendors to drive innovation and improve first costs and by leveraging supply chain fixed costs. Our stores once again effectively manage payroll hours on solid comp sales growth, increasing sales per hour by approximately 4% and driving 13 basis points of payroll expense leverage. They drove this while achieving record customer satisfaction scores and best-in-class inventory shrink performance.
We also drove productivity in marketing by increasing our presence in targeted digital media and leveraging our investment in MyLowe's. We'll continue to identify and implement additional expense efficiencies throughout the year by consolidating the procurement of similar types of goods and services across our corporate and store functions. Likewise, with solid depth of high-velocity items and job lot quantities in place, and through continued application of improved analytics to a thoughtful line review process, we're able to hold inventory per store roughly flat and increase inventory turns by 17 basis points. As you can see, we are pleased with our first quarter results and the progress we're making on our initiatives to drive top-line growth, productivity, and profitability, and look forward to sharing further progress with you over the course of the year.
Thank you for your interest in Lowe's, I will now turn the call over to Bob.
Thanks, Mike, good morning, everyone. Sales for the first quarter were $14.1 billion, an increase of 5.4%. Total average ticket increased 3% to $66.63, and total transaction count increased 2.3%. As discussed on our fourth-quarter call, we had planned for normal weather and thus for Q1 to be our highest comping quarter of the year. In fact, weather in the Northeast was colder than normal and colder than last year, while the West and Florida experienced the opposite. Therefore, the net impact of weather year-over-year was not the tailwind we expected. As a result, our sales for the quarter were slightly below our expectations, we're still confident in our outlook for the year. Comp sales increased 5.2% as comp average ticket grew by 2.9% and comp transactions were up 2.2%. Looking at monthly trends, comps were 5.1% in February, 6.6% in March, and 3.8% in April.
Gross margin for the first quarter was 35.47% of sales, essentially flat to last year and in line with our expectations. We had positive rate movement from value improvement, which is offset by 15 basis points of pressure from the mix of products sold. SG&A for Q1 is 24.16% of sales, which leveraged 60 basis points. The expense leverage was driven by advertising, store payroll, and impairment. Advertising leveraged 25 basis points driven by the efforts to improve productivity that Mike shared. Store payroll leveraged 13 basis points as we continue to optimize our staffing model. In the quarter, we had $8 million of long-lived asset impairment compared to $23 million in last year's first quarter, resulting in 11 basis points of leverage. Also, there were numerous expenses that leveraged between 5 and 10 basis points in Q1. These items were somewhat offset by bonus, which deleveraged 35 basis points.
Our bonus accruals are based on actual performance to date relative to plan. Record customer satisfaction scores coupled with solid Q1 performance this year relative to a tough first quarter last year resulted in higher bonus expense and therefore deleverage year-over-year. Depreciation for the quarter was $365 million, which was 2.59% of sales and leveraged 19 basis points compared to last year's first quarter as a result of higher sales and assets becoming fully depreciated. Earnings before interest and taxes increased 76 basis points to 8.72% of sales. On our Q4 call, we discussed the pressure that gross margin and bonus expense would have on first quarter's flow-through. The 18 basis points of flow-through per point of comp above 1% in Q1 was modestly better than our expectations coming into the quarter.
Interest expense at $134 million for the quarter deleveraged two basis points to last year as total debt increased to $1.2 billion versus the first quarter of 2014. The effective tax rate for the quarter was 38.7%, which was higher than the fourth quarter due to the expiration of certain tax provisions. The higher rate relative to last year was primarily due to a tax settlement in Q1 2014 and negatively impacted first-quarter earnings per share comparisons to last year by approximately $0.06. Earnings per share of $0.70 for the quarter was in line with our expectations and represented a 14.8% increase over last year's $0.61. To a few items on the balance sheet, starting with assets. Cash and cash equivalents at the end of the quarter was $1.4 billion. Our first quarter inventory balance of $10.6 billion increased $99 million or 0.9% over Q1 last year.
Inventory turnover was 3.78, an increase of 17 basis points over Q1 2014. Asset turnover increased 11 basis points to 1.7. Moving on to the liability section of the balance sheet, accounts payable of $8 billion increased $972 million or 13.8% over Q1 last year. The increase in accounts payable is due to the timing of purchases in the quarter versus last year. At the end of the first quarter, lease-adjusted debt-EBITDA was 2.11. Return on invested capital increased 232 basis points for the quarter to 14.34%. Looking at the statement of cash flows. Operating cash flow was almost $2.5 billion. Capital expenditures were $232 million, resulting in free cash flow of over $2.2 billion. Free cash flow was $446 million, or 24.8% over the same period last year. In the quarter, we repurchased 13.6 million shares for $1 billion.
Our board also approved a new $5 billion share repurchase authorization. At quarter end, we had approximately $6.4 billion remaining on our share repurchase authorization. The remaining $109 million of share repurchases shown on the statement of cash flows relates to shares withheld from employees to satisfy statutory tax withholding liabilities, as well as the timing of share repurchase settlement across quarters. Looking ahead, I'd like to address several of the items detailed in Lowe's business outlook. As Robert noted, economic forecasts remain aligned for modestly stronger home improvement industry growth in 2015. While we're optimistic about both the macro forecast and our improving execution, we continue to take a prudent approach to our 2015 outlook.
For the year, we expect a total sales increase of approximately 4.5%-5%, driven by comp sales increase of 4%-4.5% and the opening of 15-20 stores, which includes six Orchard and two city center locations. We're anticipating an EBIT increase of 80-100 basis points and are targeting 25-30 basis points of EBIT expansion per point of comp above 1%. While this is our expectation for the year, there will be some choppiness quarter to quarter. Specific to the second quarter, there'll be some gross margin pressure associated with the additional cost related to the West Coast ports issue, as well as one more quarter of impact from the increased promotional intensity that began Labor Day last year. For the year, we expect that most of the EBIT improvement will come from SG&A.
Expense leverage will come from store payroll, marketing, bonus, and leveraging our scale to achieve cost savings on indirect spend. In addition, we expect fixed cost leverage associated with sales growth. The effective tax rate is expected to be 38.1%. The higher rate relative to 2014 is a result of the settlement of prior tax matters recognized in Q1 2014. The higher tax rate impacts earnings growth by roughly $0.06 per share. For the year, we expect earnings per share of approximately $3.29, which represents an increase of 21.4% over 2014. We are forecasting cash flows from operations to be approximately $5.1 billion. Our capital forecast for 2015 is now approximately $1.4 billion, which is roughly $200 million higher than planned as a result of acquiring certain target assets in Canada. This results in estimated free cash flow of $3.7 billion for 2015.
We expect to issue incremental debt during the year as we manage to the 2.25 times we suggested that EBITDA target. Our guidance assumes approximately $3.8 billion in share repurchases for 2015. Regina, we're now ready for questions.
To ask a question, press star one on your telephone keypad. To withdraw your question, press the pound key. In order to allow questions from as many individuals as possible, please limit yourself to one question and one follow-up. Our first question will come from the line of Brian Nagel with Oppenheimer.
Hi, good morning.
Morning, Brian.
First question. I know you just spent a lot of time discussing sales trends, but maybe if you could just help us understand better the sales deceleration in the month of April, so the final month of your quarter. That was at odds with what your competitors said yesterday about their trends. Maybe just some more color there, please.
A two things, Brian. First, as we think about the 3.8% for April relative to the 5.2% for the quarter, we did see some weather-related softness in some areas of the country for our seasonal categories. As Mike said in his comments, we're exceeding expectations in May. We're comfortable with what we're seeing regarding those seasonal categories in those parts of the country where weather's improved. As it relates to what our competitor reported yesterday, we're on a 4-5-4 calendar. If we take a look at our performance on a 4-4-5, which takes out some of the Easter shift noise that would have crossed our fiscal March and April of this year, we would have reported essentially a 5% comp for all three months of the Q1.
Got it. Okay, that's very helpful. The second question I have, there was news out over the past few weeks or month or so about the flooring category and some of the actions you've taken. Maybe just update us there on kind of what Lowe's is doing in the flooring category, and if that had any impact upon the Q1 results.
Yeah. Brian, this is Rob. I don't think we had any impact on the Q1 results. I'll get Mike to address the details of what we're doing in the flooring category. Mike?
Yeah, sure. There were a couple articles out around two issues. One was relating to formaldehyde. In particular, with one particular partner, what we did, in essence, was we put the products from that particular partner on hold. We'll go ahead and we'll review the certifications. All of our partners are required to give us certifications. We're reviewing the certification and making sure that there aren't any issues. We'll work through that. As we look at our portfolio, we're very comfortable that we don't have issues. Our vendors are largely U.S. They've all certified with us that there are no issues. We're very, very comfortable that we're in a pretty good place on this. As we said, there was no issues relative to flooring going in the quarter.
With respect to phthalates, the other concern that was raised on vinyl flooring specifically, more than 90% of our virgin vinyl flooring today is phthalate-free. We'll move that to 100% by year-end. Again, we're comfortable that there's no big issues. As we work with our vendor partners, and we continue to scrub this, they're not finding any issues as well. We don't see any impact from the quarter. Frankly, our flooring business continues to do well. Our reviews with our vendor partners continues to give us the kind of expected results that we expect.
Great. Thanks, Mike. Very helpful. Appreciate it.
The next question comes from the line of Laura Champine with Cantor Fitzgerald.
Hi, guys. This is Jason Smith on for Laura. Thanks for taking my question. I know you guys touched upon some of the new products or introductions in the appliance category, but could you kind of give us a better sense as to just overall what drove the double-digit performance in the quarter and what you're seeing in the competitive environment?
Sure. A couple things. We talked towards the middle of last year of making sure that our promotional cadence was aligned with what we saw on the market. In addition to that, we have more space dedicated to the appliance category than certainly most, if not all, of our competitors. We offer the full array of brands. So we like how we're positioned to go after market share and appliances. We've done a couple things. We continue to launch exclusive and innovative products like the Frigidaire Professional series that we've talked about. That's a home channel exclusive. We also put in kitchen vignettes so that customers can walk in and see full vignettes of appliances and shop the different brands, looking at how a kitchen would look, be it a recently remodeled kitchen or an existing kitchen with full vignettes.
We've seen a couple things coming from that. First, our appliance sales remain strong, double-digit both this quarter and last quarter. We've also seen an expansion of number of appliances per ticket. So we feel real good about our position in the appliance business, feel real good about our initiatives, and we feel real good about the support our vendor partners continues to give us.
To ensure that we retain the number one position in appliances.
Okay, great. If I could just add one quick follow-up. Any early feedback from the lowesforpros.com now that it's open to everyone?
Yeah, Jason, this is Rick. Very well, we continue to get good feedback on the site. We've gone through the actual soft launch of that site on May 5th. Currently, we have done no incremental marketing to the site. What we're seeing is the gravitation of normal traffic to it. We've been very pleased with the organic search and the organic growth of the site. We'll continue to generate more awareness and more traffic as we continue to move throughout Q2. So far, we've been extremely pleased with the interaction to the site, the number of registrations to the site, and the activity.
Okay, great. Thank you.
Your next question comes from the line of Eric Bosshard with Cleveland Research Company.
Two things. First of all, could you give us an update in terms of the online, the results, the growth you're seeing in that, as well as the new efforts that you're implementing with the online?
Yeah, Eric, this is Rick. A couple of things. As we looked at dot-com sales for the quarter, they grew 25.5% on a comp basis. Q1 traffic was up double digits to the site, and our conversion rate improved as well from an overall perspective for the quarter. The great thing was we saw both traffic at double-digit rates every month of the quarter and improvement in conversion for every month of the quarter. A few things that we continue to do. Mike talked about the new paint configuration tool that was launched to help customers visualize paint in their home. We made several other strategic changes to the site throughout the quarter as we continue to look for ways to improve the site, along with the filtering process, improving better filtering and better search terms. We also introduced three other aspects to the site.
We introduced new 360 product views to about 11,500 of our highest viewed items, which gives customers the complete view of the item across all aspects. We also introduced product videos to 214 different items that enhance the video capabilities of the customer to actually see the site, see the item, and actually interact with it to a greater degree. We also enhanced the images to 9,400 items on the site in the quarter as well to make sure that we did showcase the product in a much better way to the customer. Extremely pleased with the growth that we saw during the quarter. Most pleased with the improvement in conversion, which I believe is the result of the improved search terms filtering and the incremental ads to product content that we made to the site during the quarter.
A follow-up. Mike, I'd be interested in the magnitude of changes that you're making within merchandising, within Lowe's for Pros. Seems like a number of things going on at the store level. Curious how the organization is digesting that. If this is net benefiting the business, if there are periods where there's some disruption as you implement these, how would you evaluate the pace of digesting the changes that you're implementing?
There's been a number of changes over the last, I'd say, two years. I think the team is working through them well. We don't spend a lot of time talking about some of the new tools that have been deployed, like space planning, some of the workflow tools for our design review process, some of the improvements in pricing tools that get to markdown optimization and promotional management, the efficient item assortment tools. We've rolled out a number of tools in the merchandising space to make the merchants certainly more data-driven as well as more effective. You couple that with our approach to go after more of that pro business, that's also facilitated the need for the merchants to do some things very different. A different look at how we approach brands, relative to national brands versus private label brands in those categories that lean very heavy to pro.
We're doing a lot of things very different. Here's how I answer that. I think you see a difference in our stores. I think our merchants and our vendor partners are excited about the changes that we've made. They like the success that we see in growth, I think they're working through it well. I'm very proud of how the merchants have digested this. I'm equally as proud at how much support we've gotten from our vendor partners as we continue to work through these changes.
Yeah, Eric, this is Rick. I would just add from a store perspective that you look at many of these initiatives, they've been ongoing for some time now over the last three years. I give Dennis Knowles and the store teams a tremendous amount of credit for the number of hours that we've invested in training our associates over the past two years on the utilization of these tools and what these sets mean to our stores. You mentioned lowesforpros.com. You think about the pro, it's really been a three-year journey of implementing brands, implementing inventory levels, implementing processes and organizational design. The addition of Lowe's for Pros was just the last component of that. From a store perspective, there's been a tremendous investment in training, communication, and dialogue to make sure that we're able to execute these programs as they roll out.
Eric, this is Robert. We think about everything that Mike and Rick just described, including the product resets to come with the pro-focused brands, like Mike talked about in his comments in the first quarter when we brought in Sherwin-Williams, a significant reset to take place in the stores that was done over the first quarter. Layered on top of that, the training that Rick just mentioned for all the associates at the pro desk, those type of things.
Then be able to deliver the results that we did in the quarter. We're investing a lot for the future, but we're also doing it with a cadence that allows us to deliver great results like we did for the quarter. I'm pretty proud of what the team's been able to execute.
Perfect. Thank you.
Your next question comes from the line of Greg Melich with ISI.
Hi, thanks. I have a couple of questions. I wanted to follow up a little bit on the trend through the quarter and where we are into the second quarter. I think, Bob, if you look at your presentation, you can just see how the comps get more difficult all year. Help us understand how you see the year playing out in terms of what might be your hardest comp the rest of the way or your easiest comp to build up to your full year plan.
Sure. We talked about the first half being stronger than the second half. We also talked about as the year progresses, our two-year stack progressively increasing. You heard the guys just talk about a lot of work the team's doing to improve our offering and our execution to the customer. Robert talked about the modestly improving environment for home improvement. We do recognize that we are going against tougher comparisons. On balance, the macro should be more constructive as the year progresses relative to 2014. We're still confident with our plan for 2015 and our ability to execute against that plan.
It sounds like you think the second quarter, third quarter, and fourth quarter, given all those things wrapped together, is actually reasonably even. Is that fair?
Not quite fair. I think I would say that our outlook has modestly decelerating comps, Q1 to two to three to four. That somewhat reflects the tougher comparisons from last year. As I said, we do expect the two-year stack to modestly improve as we progress throughout the year as well.
That's great. If I could have a follow-up question, just to understand a little bit on SG&A, the bonus expense deleverage. We were below plan, but we deleveraged bonus. Could you help us understand that a little bit better as to how the absolute level versus the plan? Why do we delever if we were below plan?
A couple things, Greg. First, we were modestly below our sales plan. We improved flow through relative to our expectations, so the earnings came in on plan. Still, we accrued, generally speaking, on target for bonus for Q1. However, as Mike indicated, we had record performance from our customer satisfaction scores, so the only aspect of bonus that was above plan was the Customer Focus Program for the store associates. The majority of deleverage came because of the softness last year because of the dramatic performance below plan last year caused us to unwind some bonus accruals. Coming into the year, we had anticipated having deleverage in Q1. That was one of the pressures I talked about on the Q4 call is we would have some bonus deleverage in Q1. It was a little bit higher than expected because of the record customer service scores that were recorded.
Great. Then just quickly, paint was a below average category. Now that you're through that transition, any estimate as to how much that could have hurt the quarter and just remind us how big paint is as a category for you guys and what could that mean going forward?
Yeah. I'll have the guys jump in. As I said, we're through with the transition, Greg. We basically had the national launch of Sherwin-Williams basically right at the beginning of second quarter. We've got all the products in place, everyone trained. It was a below average category, which I think is also what we saw from an industry standpoint, that paint was a little bit below average in the first quarter. We probably had some disruption. I don't know that we've got an amount quantified because it was out of the reset as we went through the quarter. I don't know that we've quantified that. Certainly, I think we've got the ability to show great strength as we now are backing up the national launch with advertising. Mike, was there anything you want to talk about?
Yeah. I'd just add that we're really not disappointed in Q1. We knew that we had to get through a transition. We're through the transition. The national advertising campaign's kicking in. We're actually very optimistic about it in the back half of the year.
Got it. Thanks. Good luck, guys.
Thanks, Greg.
Thank you.
Your next question comes from the line of Dan Binder with Jefferies.
Hi. Good morning. I was wondering if you could talk a little bit more about the staff optimization work that you're doing, and then if there were any other notable categories that were softer than planned other than paint.
Okay. Dan, this is Rick. I'll start. As we look at the quarter, we continue to optimize our labor to our customer traffic. Extremely pleased with the stores and what they were able to do in the quarter. We hired approximately 51,000 employees in the quarter, and during that transition, we were also, as Bob said, able to record customer satisfaction scores across our stores during that time frame. Productivity increased from a sales per hour perspective, increased 4%, driving the 10 basis points of leverage. We continue to look for ways to optimize the store labor model to traffic, as well as to maximize any of our non-selling areas and make sure that we're doing everything we can to drive productivity from those areas and put those hours back to the sales floor. We looked at, of course, our delivery productivities. We're seeing improvement there.
We're seeing improvement in capability builds, the technologies that we're deploying. Through the scheduling processes, we continue to match our employee hours to customer traffic. Those things, I think, are really helping us from a productivity standpoint, a staffing optimization standpoint, continue to maximize hours on the sales floor to meet the customer traffic to drive continued improvement in close rate during those peak times of day.
I'll just talk to the merchandising divisional performance. If you think about the ones that were above the average, appliances, outdoor power equipment, Seasonal Living, they were extremely strong. I mean, well into double digits. Very strong. We had a couple that we felt real good about that don't show up in the above average.
Tools.
Tools and hardware, flooring, millwork, kitchens, for example, were great performers. I think where we saw pressure was primarily in paint and lumber and building material. Lumber and building material, we understand that there certainly was a bit of a weather impact. We can track that one back. Paint, we saw pressure, but we expected it as we worked through the transition.
This is Robert, just a reminder, all categories were positive in the quarter.
Absolutely.
Great. Thank you.
The next question comes from the line of Seth Basham with Wedbush Securities.
Good morning.
Go ahead.
My question's around the sales trends again, just making sure I understand this a little bit better, because even on a two-year stack basis, Bob, we saw a pretty marked deceleration in trend in April relative to earlier in the quarter. Is there anything about that month that you can speak to, particularly given the fact that weather in the Northeast started to improve significantly then?
Seth, as I said to the earlier question, a lot of it was driven by discrete weather across the country, not just Northeast, where we saw some seasonal pressure. That was for a couple of weeks towards the end of the month. However, we have seen trends improve in the seasonal categories in those geographies. No real concern from opportunity to hit the Q2 in the 2015 outlook.
Seth, I'll just add one thing too. As we continue to look at the quarter, especially for the North, as Mike said in his opening comments, we stagger our Black Friday events. Our Black Friday events in the North and the Upper North actually moved into Q2 this year, not Q1. That's some of the things that we're realizing as well in Q1.
Seth, just to bring it into perspective here, this is Robert. If you think about looking out over the balance of the year, as you look at our comp guidance for this year, our comp guidance is basically in line with the comps we delivered last year. If you think about last year coming out of the first quarter, we had a 0.9 comps. We had a big deficit to make up going over the balance of the year. Obviously, the first quarter of this year, we got a 5.2 comp in the first quarter. We're running ahead of what our trajectory or what our guidance is for the entire year.
Obviously, coming out of the first quarter, we feel much better about being ahead of what we guide to for the year than the position we were in last year, where we had a large deficit to make up. Great. That's helpful. Then, a follow-up question is just around big-ticket sales. Pretty big deceleration in big ticket comps despite double-digit comps in OPE, appliances, Seasonal Living. Were there categories that you can point to that drove the deceleration?
We did see a pretty strong performance of 7.7% comp is good performance for big ticket that were driven by OPE and appliances. We also saw some good movement up across all categories in ticket size. We are really not disappointed at all with the big ticket performance in the first quarter. Obviously, there is a lot more momentum in Q4 last year that drove all categories higher. Certainly not disappointed in the big ticket performance in Q1.
Got it. Thank you.
Thank you.
Your next question comes from the line of Judy Merrick with SunTrust.
Great. Thank you. Just to expand, as you're dedicating more-
Judy, your line is open.
Thank you. Just as you're looking, as you're dedicating more space to these kitchen suites, have you seen any more strength across categories aside from appliances?
I'll start, Judy, and then I'll let Mike jump in on top of that. When Mike talked about the kitchen suites, he's really talking about relaying the existing space that we had in the department and the way that we're arranging our offering of appliances into more of a suite versus an individual all washers together, dryers, those type of things. We haven't really dedicated more space from an overall appliance standpoint. It's just the way that we're going to market with those appliance categories. In that respect, you shouldn't see a space allocation impact on other categories.
Okay.
Just as an example of some of the categories where we're seeing strength, we certainly saw it in the appliance business, as I mentioned. We see it in cabinets as an example. By having the kitchen suites that are now in the store sitting next to cabinets, as customers start to engage in some of those remodel projects in the kitchens, it's easy for them to shop our stores and pull that project together. We saw strengths in areas of flooring as well. We're pretty optimistic on how the customer is engaging with us to continue to execute through those kitchen projects. I think, I don't know if you want to talk to the Project Specialists, performance as well, Rick, which is also a good indicator.
Yeah. As we say, Judy, the interiors or services business grew above the company average for the quarter. We still see continued strength across our services business. In particular, we continue to see our Exteriors and Interiors Programs work extremely well, which benefits from the experience creation that we're doing across categories. I think one of the big things that Mike and Robert highlighted is, again, it's important to understand, as we talk about suites, we're not talking about extended cabinet space. We're talking about how we display the appliances together in the appliance department and pulling together the appliance, the range, the dishwasher, the microwave into a set where they're actually showcased together versus being spread across the appliance department, which makes it easier for the customer to visualize that set in their home.
Okay, great. Thank you.
Your next question comes from the line of Jaime Katz with Morningstar.
Hi, good morning. Can you guys just clarify the $3.8 billion of share repurchases, is that with the debt issuance, or could there be some incremental repurchases with additional leverage?
We do plan to issue incremental debt during the course of the year as we manage to the 2.25 times target. Our outlook does contemplate managing up to that target relative to the 2.11 we finished first quarter to achieve $3.8 billion. That was our guided target, and we'll continue to assess that as the year progresses, but that's where we sit today.
Okay. I know that it was commented that flooring was slightly below average, but I'm curious if you guys saw any benefit from the brand equity at Lumber Liquidators falling a little bit. Was there any sort of traffic uptick in the category that you guys saw as negative publicity surrounded sort of your peer?
Well, I don't want to talk to a competitor. What I would say is that our flooring business performed very well. When we look at the categories under flooring, we did see strength in laminate. We saw good performance in tile, and there was a little bit of pressure that we saw in carpet. We're always sensitive to watching carpet because we have a very strong carpet offering, in particular with our STAINMASTER, which is an exclusive brand.
Lastly, with inventory turns, they were able to tick up despite West Coast port issues. Do you guys have any thoughts on where you think that metric could go, maybe closer to the end of the year?
Yeah. We're targeting roughly similar growth for the year. We saw, if you want, 15 to 20 basis points improvement for the year in inventory turn improvement.
Okay, thank you.
Thank you. Regina, we've got time for one more question.
Our final question will come from the line of Budd Bugatch with Raymond James.
Good morning, thank you for taking my question. I guess I'm still confused a little bit about the merchandising performance because I don't ever remember seeing it so lopsided with above average and below average categories. Maybe you can just shed me a little bit of light because I know we had strong performance, I think we'll call that, in all three of the above-average areas. Is there any reason to be concerned about that performance, and help us maybe understand that?
I can talk to that, Budd. It's simple math. The appliances, outdoor power equipment, and seasonal living are up extremely strong compared to where the average is. We looked at this a couple times as well. If the appliance, outdoor power equipment, and seasonal living weren't in strong double-digit like we have, then the spread wouldn't be as broad as it is. When we go through each of the divisional performances and we look at which ones fell just below the average as a result of the strength that we saw and the above average, as I said earlier, tools and hardware, flooring, kitchens, and millwork did extremely well. Extremely well. Where we saw real pressure was in paint and lumber and building materials specifically. I wouldn't be worried about the spread.
I think for us, the bigger question was, could we take in this much of the appliance business and outdoor power equipment business and still manage to a flat gross margin? We're very comfortable that we're able to take in that much market share and hold gross margin about flat.
Okay. All right. That's helpful. Also, I heard Lowe's Pros is doing well, but I'm not sure I heard anything about the Pro penetration or if you heard or quantified any of that, in any way towards sales, or how do we look at that?
Yeah, Budd, this is Rick. We continue to be very pleased with our performance in Pro as Pros continue to respond to our value statements, our Five Ways to Save, as we continue to get the correct brands into our stores and continue to get those areas working for us. We still see great performance. When you look at Pro, it was in line with the company from a total sales perspective. We still see solid growth in applications for credit, which to me is a leading indicator of the strength of the category and what we're doing. We still saw solid growth from that. As well as when you look at both ticket ranges as well as comps by ticket size, the Pro categories grew at positive performance across all ticket sizes and all ticket ranges.
We continue to be very pleased with the performance of Pro, especially as they continue to respond to our initiatives and our brand offering. Overall, it was still in line with the company performance.
Rick, the penetration then as a percentage of sales? I think you quantified it last quarter.
Stayed the same at 30.
Yeah, right at 30, Budd.
Still at 30%. Okay, that was what I was trying to get to. Bob, inflation, deflation? I'm not sure I heard that quantified on the comp.
Negligible, Budd. Had about 10 basis points negative impact.
All right. Thank you very much. Great luck on the second quarter and the rest of the year. Thank you very much.
Thanks, Budd. As always, thanks for your continued interest in Lowe's. We look forward to speaking with you again when we report our second quarter results on Wednesday, August 19th. Have a great day.
Ladies and gentlemen, this does conclude today's conference. Thank you all for joining. You may now disconnect.