Good morning, everyone, and welcome to Loews Company's First Quarter 2015 Earnings Conference Call. This call is being recorded. 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 Mibloc, 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. Nibloc for opening remarks. Please go ahead, sir.
Good morning and thanks for your interest in Loews. 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 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, and 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, and I'm pleased with the team's diligent effort customers. Comparable sales growth for our U. S. Home improvement business was 5.3% for the quarter. And 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 8th consecutive quarter of double digit comps in local currency and their highest quarterly comp performance since we entered the market in 2,007. 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. And we delivered earnings per share of 0 point 15% increase over last year's Q1, which was in line with our expectations.
Delivering our commitment to return excess cash to shareholders, in the quarter, we repurchased $1,000,000,000 of stock under our share repurchase program and paid $222,000,000 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 Q1 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 intention is to begin a home improvement project in the next 6 months were the highest in 6 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 omnichannel 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.
And with that, let me turn the call over to Mike.
Thanks, Robert, and good morning, everyone. We executed well in the Q1, 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. And 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 Q1 results, notwithstanding some weather driven softness. Keep in mind that the outdoor selling season extends well past Memorial Day. To this point, in the Q2, sales have exceeded our expectations.
So 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 and we continue to provide compelling and exclusive innovations like our home channel exclusive Hausplana all wheel drive mower and our recently launched Troy Built 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 largest 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 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 2nd consecutive quarter. Lowe's offers leading appliance brands such as Whirlpool, KitchenAid, Bosch, Samsung, LG, Electrolux, Frigidaire and GE. And we further strengthened 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, In addition to great brands, we provide service advantages of next day delivery and hallway as well as in house facilitation of repairs and maintenance.
To further enhance our appliance shopping experience towards the end of last year, we work with our vendor partners to introduce 17 kitchen suites to each store. Each suite includes 4 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 and 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 omnichannel approach to retailing, we are cross merchandising the Cheryl Wiggins brand in key areas throughout the store like kitchen vignettes, bath vignettes and home decor, while also leveraging a color visualizer on lowes.com. This visualizer helps customers find the perfect color for the walls by virtually painting their own home or experimenting with the simple room. Then 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 the 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 Goblott Masonry Tools, JF Roofing and Owens Corning Insulation. And 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 5 ways to save value proposition. And 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 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 accomplished this by continuing to partner with our vendors to drive innovation and improve first cost and by leveraging supply chain fixed cost. Our stores once again effectively managed 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 and marketing by increasing our presence in targeted digital media and leveraging our investment in MILOs. And we'll continue to identify and implement additional expense efficiencies throughout the year by consolidating 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 Q1 results and the progress we're making on our initiatives to drive top line growth, productivity and profitability.
And we look forward to sharing further progress with you over the course of the year. Thank you for your interest in Loews and I will now turn the call over to Bob.
Thanks Mike and good morning everyone. Sales for the Q1 were $14,100,000,000 an increase of 5.4%. Total average ticket increased 3% to $66.63 and total transaction count increased 2.3%. As discussed on our Q4 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, but we're still confident in our outlook for the year. Comp sales increased 5.2 percent 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 Q1 was 35.47 percent of sales, essentially flat to last year and in line with our expectations.
We had positive rate movement from value improvement, which was offset by 15 basis points of pressure from the mix of products sold. SG and A for Q1 was 24.16 percent 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 $8,000,000 of long lived asset impairment compared to $23,000,000 in last year's Q1, resulting in 11 basis points of leverage. Also, there were numerous expenses that leveraged between 5 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 Q1 last year resulted in higher bonus expense and therefore deleverage year over year.
Depreciation for the quarter was $365,000,000 which was 2.59 percent of sales and leveraged 19 basis points compared to last year's Q1 as a result of higher sales and assets becoming fully depreciated. Earnings before interest and taxes increased 76 basis points to 8.72 percent of sales. On our Q4 call, we discussed the pressure that gross margin and bonus expense would have on 1st 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 was modestly better than our expectations coming into the quarter. Interest expense at $134,000,000 for the quarter deleveraged 2 basis points to last year as total debt increased $1,200,000,000 versus Q1 of 2014.
The effective tax rate for the quarter was 38.7%, which was higher than the 4th 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 Q1 earnings per share comparisons to last year by approximately 0 point represented a 14.8% increase over last year's $0.61 Now to a few items on the balance sheet starting with assets. Cash and cash equivalents at the end of the quarter was 1.4 $1,000,000,000 Our first quarter inventory balance of $10,600,000,000 increased $99,000,000 or 0.09 percent 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 liability section of the balance sheet. Accounts payable of 8,000,000,000 dollars increased $972,000,000 or 13.8 percent 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 Q1, lease adjusted debt to EBITDAR was 2 point one one. Return on invested capital increased 232 basis points for the quarter to 14.34%.
Now looking at the statement of cash flows. Operating cash flow was almost $2,500,000,000 capital expenditures were $232,000,000 resulting in free cash flow of over $2,200,000,000 Free cash flow was $446,000,000 or 24.8 percent over the same period last year. In the quarter, we repurchased 13,600,000 shares for $1,000,000,000 Our Board also approved a new $5,000,000,000 share repurchase authorization. At quarter end, we had approximately $6,400,000,000 remaining on our share repurchase authorization. The remaining $109,000,000 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 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% to 5%, driven by a comp sales increase of 4% to 4.5% and the opening of 15 to 20 stores, which includes 6 Orchard and 2 City Center locations. We're anticipating an EBIT increase of 80 to 100 basis points and are targeting 25 to 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 Q2, there will be some gross margin pressure associated with the additional cost related to the Westco ports issue as well as one more quarter of impact from an increased promotional intensity that began Labor Day last year. For the year, we expect that most of the EBIT improvement will come from SG and 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 year 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 point $2.9 which represents an increase of 21.4 percent over 2014. We are forecasting cash flows from operations to be approximately $5,100,000,000 Our capital forecast for 20.15 is now 15 is now approximately $1,400,000,000 which is roughly $200,000,000 higher than planned as a result of acquiring certain target assets in Canada.
This results in estimated free cash flow of $3,700,000,000 for 20 15. We expect to issue incremental debt during the year as we manage to the 2.25 times lease adjusted debt to EBITDAR target. Our guidance assumes approximately $3,800,000,000 in share repurchases for 20 15. Regina, we're now ready
for questions. Our first question will come from the line of Brian Nagel with Oppenheimer.
Hi, good morning.
Good 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, because that was at odds with what your competitors said yesterday about their trends. So maybe just maybe some color more color there, please.
So a couple of things, Brian. First, as we think about the 3.8% for April relative to the 5.2% for the quarter. We did see some softness, weather related softness in some areas of the country for our seasonal categories. But as Mike said in his comments, we're exceeding expectations in May. So we're comfortable with what we're seeing regarding those seasonal categories in those parts of the country where weather has improved.
As it relates to what our competitor reported yesterday, if we take a look at so 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 April of this year, we would have reported essentially a 5% comp for all 3 months of Q1.
Got it. Okay. It's very helpful. And the second question I have, news that there was a news out over the past few weeks or months 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?
Yes. Brian, this is Robert. I don't think we have the impact on the Q1 results, but I'll get Mike to address the details of what we're doing with Fluorine category. Mike?
Yes, sure, Keith. There were a couple of articles. There were some articles out around 2 issues. 1 was relating to formaldehyde in particular with one particular partner. What we did in essence was we took we put the products from that particular partner on hold.
And we'll go ahead and we'll review the certifications. All of our partners are required to give us certifications, reviewing the certification and making sure that there aren't any issues. And so 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. So we're very, very comfortable that we're in a pretty good place on this. And 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. And again, we're comfortable that there's no big issues. And as we work with our vendor partners and we continue to scrub this, they're not finding any issues as well. So we don't see any impact from the quarter. And frankly, our flowing business continues to do well.
And our views with our vendor partners continues to give us the kind of expected results that we expect.
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 introductions in the appliance category, but can 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 of things. We talked towards the middle of last year of making sure our promotional cadence was aligned with what we saw in the market. In addition to that, we have more space dedicated to the appliance category than certainly most, if not all of our competitors. And we offer the full way of brands.
And so we like how we're positioned to go after market share in appliances. We've done a couple of things. We continue to launch exclusive innovative products like the Frigidaire Pro series that we've talked about. That's a home channel exclusive. And 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 the how a kitchen would look, be it a recently remodeled kitchen or an existing kitchen with full vignettes.
And we've seen a couple of 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. And so we feel real good about our position in the appliance business. We 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 Lowe's for pros now that it's open to everyone?
Yes, Jason, this is Rick. Very young, we continue to get good feedback on the site. We've gone through the actual soft launch of that site on May 5. Currently, we have done no incremental marketing to the site. So what we're seeing is the gravitation of normal traffic to it.
But we've been very pleased with the organic search and the organic growth of the site. And we'll continue to generate more awareness and more traffic as we continue to move throughout Q2. But so far, we've been extremely pleased with the interaction to the site, the number of registrations to the site and the activity.
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 and as well as the new efforts that you're implementing within online?
Yeah, Eric, this is Rick. A couple of things. As we looked at .com sales for the quarter, they grew 25.5 percent 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 3 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 2 14 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.
And then 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. So 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.
And then a follow-up. Mike, I'd be interested in the magnitude of changes that you're making within merchandising, within Lowe's for Pros. It 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 have been a number of changes over the last, I'd say, 2 years. I think the team is working through them well. Think 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 review process, some of the improvements in pricing tools that get to markdown optimization and promotional management, the efficient item assortment tools. I mean, 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. When 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 on 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.
I think they like the success that we see in growth. And 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.
Yes. 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 3 years. And 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 2 years on the utilization of these tools and what these sets mean to our stores. So you mentioned lowes for pros.com.
You think about the pro, it's really been a 3 year journey of implementing brands, implementing inventory levels, implementing processes and organizational design. And then the addition of Lowe's Pro's was just the last component of that. So 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 rolled out.
And Eric, this is Robert. We think about everything that Mike and Rick just described, including the product resets to come with the Pro Focus brands, like Mike talked about in his comments in the Q1 when we brought in Sherwin Williams, significant reset to take place in the stores. It was done over the Q1 layered on top of that the training that Rick just mentioned for all the associates at the Pro desk those type of things and then be able to deliver the results that we've done 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. So I'm pretty proud of what the team has been able to execute.
Perfect. Thank you.
Your next question comes from the line of Greg Melich with ISI.
Hi, thanks. A couple of questions. I want to follow-up a little bit on the trend through the quarter and where we are into the Q2. 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. So we talked about the first half being stronger than the second half, but we also talked about as the year progresses our 2 year comparisons 2 year stack progressively increasing. So you heard
the guys just talk about a lot of
work the team is doing to improve our offering and our execution to the customer. Robert talked about the modestly improving environment for home improvement. So we do recognize that we are going against tougher comparisons. But on balance, the macro should be more constructive as the year progresses relative to 2014. So we're still confident with our plan for 2015 our ability to execute against that plan.
And it sounds like you think the Q2, Q3 and Q4 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 Q2 to Q3 to Q4. And that somewhat reflects the tougher comparisons from last year. But as I said, we do expect the 2 year stack to modestly improve as we progress throughout the year as well.
That's great. And if I could have a follow-up question, just to understand a little bit on SG and A, the bonus expense deleverage. So 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? Like why do we delever if we were below plan?
So a couple of 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 approved the only aspect of plan that was above only aspect of bonus that was above plan was the customer focus program for the store associates. The majority of the leverage came because of the softness last year, because of the dramatic performance below plan last year caused us to unwind some bonus accruals. So coming into the year, we had anticipated having deleverage in Q1. That's 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. And just quickly paint was a below average category. Now that you're through that transition, any estimates to how much that could have hurt the quarter? And how just give us remind us how big paint is a category for you guys? And what could that be going forward?
Yes. I'll have the guys jump in. But 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 Q2. 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 Q1. So 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. So I don't know that we quantified that.
But certainly, I think we've got the ability to show great strength as we now are backing up the national launch of advertising. Mike, is there anything you want to talk about?
Yes. 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. We the national advertising campaign is kicking in.
We're actually very optimistic about it in the back half of the year.
Got it. Thanks. Good luck, guys.
Thanks, Craig.
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 plan other than paint?
Okay. Yes, 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're 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 record customer satisfaction scores across our stores during that timeframe. 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. And through the scheduling processes, we continue to match our customer hour our employee hours to customer traffic. So 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 rates during those peak times a day. So 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, very strong. We had a couple that we felt real good about that don't show up in the above average, tools and hardware, flooring, mill work, kitchens as an example were great, great performers. I think where we saw pressure was primarily in paint and lumber and building material.
And so 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 work through the transition.
And then just Robert, just a reminder, all categories were positive in the quarter.
Absolutely. Great. Thank you.
Your next question comes from the line of Seth Basham with Wedbush Securities.
Good morning. My question is around the sales trends again. Just making sure I understand this a little bit better because even on a 2 year stack basis, Bob, we saw a pretty market 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?
So Seth, as I said to the earlier question, a lot of it was driven to 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. So no real concern from opportunity to hit the Q2 in the 2015 outlook.
Yes. And Seth, I'd 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. So our Black Friday events in the North and Upper North actually moved into Q2 this year, not Q1. So that's some of the things that we're realizing as well in Q1.
And Seth, just to bring it into perspective here, this is Robert. If you think about looking out over the balance of the year, when 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 Q1, we had a 0.9 comps. We had a big deficit to make up going over the balance of the year. Obviously, Q1 this year, we got a 5.2 comp in the Q1.
So we're running ahead of or what our guidance is for the entire year. So obviously coming out of Q1 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. And 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?
So we did see a pretty strong performance of 7.7% comp is good performance, big ticket. We're big ticket that were driven by OPE and appliances. We also saw some good movement across all moving up across all categories in ticket size. So we're really not disappointed at all with the big ticket performance in the Q1. Obviously, there's a lot more momentum in Q4 last year that drove all categories higher, but 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. And just as you're looking at your 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 talked about relaying the existing space that we had in the department and the way that we're arranging our offering of appliances in the more of a suite versus an individual, all washers together, dryers, those type of things. So 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. So in that respect, you shouldn't see more space allocation impact on other categories.
Okay.
And then
just as an example, 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. The by having a 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 kitchen, it's easy for them to shop our stores and pull that project together. We saw strengths in areas of flooring as well. And so we're pretty optimistic on how the customer is engaging with us to continue to execute through those kitchen projects.
I think and I don't know if you want
to talk to the project specialists performance as well, Rick, which is also a good indicator. Yes. As we say, Judy, the interiors are our services business grew above the company average for the quarter. So 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.
And 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 Jamie Katz with Morningstar.
Hi, good morning. Can you guys just clarify the $3,800,000,000 of share repurchases? Is that with the debt issuance? Or could there be some incremental repurchases with additional leverage?
So the we do plan to issue incremental debt during the course
of the year as we manage
to the 2.25 times target. So our outlook does contemplate managing up to that target relative to the 2.11 we finished 1st quarter to achieve $3,800,000,000 That was our guiding target. We'll continue to assess that as the year progresses, but that's where we sit today.
Okay. And then 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?
I don't want to talk to a competitor. What I would say is that our flooring business performed very well. And 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. And 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.
Okay. And then 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?
Yes. So we're targeting roughly similar growth for the year. We saw Q1 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 and 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. And 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 3 of the above average areas. Is there any reason to be concerned about that performance and help us maybe understand that? Yes, I
can talk to that. But the appliances outdoor it's a simple math. The appliances outdoor power equipment seasonal living are up extremely strong compared to the where the average is. And we looked at this a couple of times as well. If the appliance, outdoor, power equipment, seasonal living weren't in strong, 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, extremely well. And then where we saw real pressure was in paint and lumber and building materials specifically. So 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. And 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 for Pro's is doing well, but I'm not sure I heard anything about the Pro penetration or what if you made it and if you heard or quantified any of that? Pro penetration or what if you made it if you heard or quantified any of that anyway towards sales or how do we look at that?
Yes, Budd. This is Rick. We continue to be very pleased with our performance in Pro as the Pros continue to respond to our value statements or 5 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. So 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. So we continue to be very pleased with the performance of Pro, especially as they continue to respond to our initiatives and our brand offering. But overall, it was still in line with the company performance.
And Rick, penetration then as a percentage of sales, I think you quantified it last quarter?
Stay the same at 30%.
Yes, right at 30%, Bud.
Still at 30%. Okay. That was what I was trying to get to. And Bob inflation deflation, I'm not sure I heard that quantified on the comp?
Negatable, Budd. Had about 10 basis points negative impact.
All right. Thank you very much. Great luck on the Q2 and the rest of the year. Thank you very much.
Thanks, Budd. And as always, thanks for your continued interest in Loews. We look forward to speaking with you again when we report our Q2 results on Wednesday, August 19. Have a great day.
Ladies and gentlemen, this does conclude today's conference. Thank you all for joining. You may now