Good morning, everyone, and welcome to Loews Company's 4th Quarter 2010 Fiscal Year Earnings Conference Call. This call is being recorded. 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. 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. Also during this call, management will be using certain non GAAP financial measures. You can
find a reconciliation
to the most directly comparable GAAP financial measures and other information about them posted on Lowe's Investor Relations website under Corporate Information and Investor Documents. Hosting today's conference will be Mr. Robert Kniblock, Chairman and CEO Mr. Larry Stone, President and COO and Mr. Bob Hull, Executive Vice President and CFO.
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. Following my remarks, Larry Stone will review our operational performance and Bob Hull will review our financial results. We delivered solid results for the quarter, including earnings that exceeded our guidance. And I would like to our more than 234,000 employees for their hard work and dedication. Sales for the quarter increased 3.1% and comparable store sales increased 1.1%.
Our domestic comparable store sales increase was 1.3%. Our 4th quarter sales benefited from a strong start to the holiday season, resulting in great sell through of seasonal products. However, difficult winter weather negatively impacted performance in the month of January. Comp average ticket was up 1.9% in the 4th quarter, but comp traffic was down slightly. New store cannibalization reduced comps by approximately 35 basis points in the quarter.
We continue to be pleased with our merchandising strategies and seasonal sell through, which helped 60 basis points of gross margin expansion in the quarter. We also leveraged expenses and delivered earnings per share of $0.21 an increase of 50%, which exceeded our guidance for the quarter. We used 3rd party data to gauge our retail market penetration. On a rolling 4 quarters basis, we maintained our total unit market share with gains in 10 of our 19 product categories, including strong gains in hardware and tools. I'm pleased with our inventory position at the end of the 4th quarter, which was up less than 1% year over year.
Since the end of the Q1, we have carefully managed our purchases, driven exceptional seasonal sell through and rationalized our assortments. Most importantly, we were able to accomplish this without sacrificing in stock levels. Overall, while growth in household spending picked up late in the year, it remained constrained by high unemployment, modest income growth, lower housing wealth and tight credit. And while consumer confidence rose in February to its highest level since February 2008, it remained close to the lows of the prior recession and near historical lows. According to our Q4 consumer survey, fewer homeowners feel the economy will get worse before
it gets better. But the
number of homeowners who feel the recession is not over remains high, and approximately 45% of those homeowners told us that they do not anticipate changing their spending plans as they move into 2011, evidence that consumers at large remain cautious. Now let me address some of the management changes from the past few months. We are proud to have one of the deepest and most experienced leadership teams in retail. But with a long tenured team, there will be retirements and rotations from time to time. In mid November, Nick Kanner, Executive Vice President, Merchandising, announced his retirement after 37 years with the company.
At the end of January, Larry Stone, President and Chief Operating Officer, announced his retirement after 42 years of service. Both have enjoyed long and successful careers at Lowe's, making many important and lasting contributions. But we knew this day would come and our thorough succession planning process had us prepared for the changes. We do not plan to fill the President and Chief Operating Officer position after Larry's retirement. So Larry and I will work together over the coming months to ensure a smooth transition and reporting structure for his direct reports.
Bob Gaffeller, an 11 year veteran of Loews, has assumed the role of Executive Vice President, Merchandising. Mike Brown, a 26 year veteran of Loews, has been appointed Executive Vice President and Chief Information Officer. And Rick Dammer, a 30 year veteran of Lowe's, has assumed the role of Executive Vice President Store Operations. We are fortunate to have a skilled and talented leadership team to make these rotations effective and seamless. At our analyst conference in November, we shared our belief that we can grow by focusing on the opportunity we have with existing customers by garnering a greater share of wallet.
We also reviewed the steps we've taken to begin the transformation from a home improvement retailer to home improvement company. Our commitment is to deliver better customer experiences by pulling together the best combination of possibilities, support and value for customers. But to deliver on this commitment, we must remain focused on cost effective and efficient operations. At the end of January, to further align payroll hours with customer demand, we restructured our store management roles and implemented weekend teams. Larry will provide more details about these changes in a few minutes.
Let me share a few milestones from Q4 that give us confidence that we can deliver better experiences. 1st, to increase our share position in major appliances, we launched repair services at the end of September. The phased rollout was complete in mid November, enhancing our appliance advantage program to provide after sales service for customers. We now own the repair experience, taking the phone calls, troubleshooting the problem and assisting with the resolution. This program will drive incremental repeat customer visits with purchases across the store.
Additional benefits include repair part sales, additional extended protection plan sales and a reduction in applied return rate. We're also able to accumulate data by manufacturer to help identify defects and work with our merchants to resolve quality issues. We will roll out this concept to outdoor power equipment in mid-twenty 11. 2nd, our e commerce team generated significant amount of interest with our social media campaigns during the quarter. On 2 separate occasions, we were recognized as the 2nd and third fastest growing site on Facebook, and we recently surpassed 1,000,000 fans.
We also donated $1,000,000 leveraging Facebook fans to publicize the event and allocate the funds to competing charities. We reached a key customer segment through online media, which allows us to better monitor and influence sentiment from this highly influential and viral group of customers. Through social media and the improvements we've made to our lowes.com platform, such as improved search capabilities, new navigation and expanded marketing reach. We experienced a 32% increase in online conversion rates in the Q4. Lastly, we launched our mobile site in December, building a foundation that will allow customers to continue their shopping experience regardless of their location.
We had over 1,000,000 visits to our mobile site within the 1st month of the launch. And while we're very pleased with customer adoption of the site, we're looking forward to significantly more expansion as we make incremental improvements to the site and as our marketing efforts ramp throughout 2011. We're also excited to launch our first mobile app in early 2011 as well as the foundational release of MyLowe's, our customer focused portal with capabilities that allow customers to more efficiently manage projects and improve their homes. As we look to 2011, it appears that unemployment is stabilizing. And while certain housing market indicators appear to be headed in the right direction, home prices are still a hurdle.
Economists are expecting another 5% to 8% drop in median home prices by the Q4 of 2011 due to an increase in the sales of distressed housing. The result is a housing market that is recovering more slowly than the overall economy. In addition, consumers are increasingly concerned about inflation over the next 12 months as the price of raw materials and oil surge and manufacturing wages in China continue to increase. So while uncertainty in the market remains, the economy is the economic recovery is continuing. And as I've said before, we're prepared to operate effectively in a slow growth environment.
Thanks again for your interest, and I'll now turn it over to Larry Stone to provide more details on the brewer gear.
Larry? Thanks, Robert, and good morning. This morning, I will review our Q4 performance and then provide an update on the operational measures of success I covered during the Analyst and Investor Conference in November. As Robert mentioned, we finished the quarter with positive comps of 1.1%. Performance exceeded the company average in the non coastal regions of the U.
S, particularly the upper Midwest, South Central and Desert Southwest. Comparable stores average ticket increased 1.9%, continuing to stabilize some trend we experienced in the 1st 3 quarters of 2010. It's worth noting that this average ticket growth occurred despite appliances comping just above the company average. Comp transactions decreased 0.8% year over year, declining in January after increasing in November and in December. The largest swings from December January occurred within the lower Midwest and Southern regions affected by January snowstorms.
While we are confident that the disruption from the snowstorm produced our total quarterly comp sales, we did sell a tremendous amount of snow blowers, shovels and ice melt. We were able to meet this demand through the use of our predictive weather analytics combined with our advanced logistics systems, which helped us to product in stock where customers needed it most. Looking forward to the Q1, we expect sales to benefit from post storm repair of roofing, guttering, landscaping and other exterior products.
In addition, we continue to look for ways to drive more transactions in our stores.
As continue to look for ways to drive more transactions in our stores. As we enter spring, we are amplifying the messaging around our low price guarantee and remixing our media spend, and we're also putting more customer facing hours in our during the weekends. From a product category perspective, our strongest comp growth this quarter was in seasonal living, tools, lawn and landscape, rough electrical and millwork. Seasonal living performance was driven by holiday assortments and seasonal heating products. We bought holiday decorated items with wide appeal, placed them in our stores early and drove great sell through, requiring fewer markdowns to move inventory at the end of the season.
Seasonal heating like snow removal products benefited from the harsh winter. Strong tool sales reflected exciting innovation from our vendors and a clear targeted gift under strategy, which drove higher unit growth, especially for hand tools. Snow shells and ice melt drove our lawn and landscape comp growth, while rough electrical growth was mostly due to copper inflation. The strength in millwork was primarily in windows and exterior doors. Our project specialist exteriors, or PSCs, combined with focused SOS promotions, help customers take advantage of the tax credits for energy efficient improvements that expired at year end.
As with cash flow appliances, we see some opportunity to drive additional sales by quickly executing programs to help customers benefit from government incentives. Additionally, the Project Specialist Exteriors program helped us increase our 20 10 installed comp sales by over 10% with the greatest growth occurring in millwork, lumber and building materials. In fact, 4th quarter comparable store sales on tickets less than $50 decreased roughly 0.5 percent, while those over $500 increased roughly 1%. The better comp performance in tickets over $500 was mostly due to strong sales of products handled through our PSC program. We expect to obtain further comp benefit from this program as we anniversaried last year's ramp up.
Our lower comp and product categories include cabinets and countertops, fashion plumbing, outdoor power equipment, home organization and flooring. Within outdoor power equipment, snow blower sales after this year's snowstorms only partially offset lower comps in generators due to last year's severe December ice storm along the East Coast. Home organization sales for garage and kitchen organization products have struggled, but we expect to improve our sales in these categories in 2011. Finally, within our floor department, laminate and wood products have not performed to our expectations, but we do have plans in place to improve the performance of this category in 2011. On the other hand, positive comps in carpet continued as customers responded enthusiastically to our free installation of most recognizable brand of stain resistant carpet, Stainmaster.
4th quarter gross margin improved 60 basis points with margin rate increasing in 12 of our 19 product categories. Gains in many of these categories are attributable to our Patch Area expansion and base price optimization, which are two elements of our go local merchandising strategy. We have better aligned our price with our stores' competitive circumstances, and we have successfully implemented the base price optimization tool to find the best balance of unit volume and margin rate to optimize margin dollars. For seasonal living products, we entered the holiday season early and carefully managed sell through in order to minimize markdowns. There has been concern in the market about potentially negative impact of margin impact of inflation.
In 2010, we experienced cost inflation, rough electrical, rough plumbing, lumber and millwork, and we have been able to pass most of these costs through our retail pricing. However, we're also aware of inflationary pressures on imported products. These pressures are caused by growing wage inflation in overseas markets and increasing costs for fuel and raw materials, such as steel. In fact, we have received requests for price increases from some of our vendors. We believe that we can work with our vendors to minimize these increases and pass along the majority of these costs in our retail pricing.
We leveraged operating expenses in the 4th quarter. Bob will walk you through the details, but one specific source of leverage was payroll. 4th quarter payroll leverage resulted from our decision to freeze hiring in advance of our advanced restructuring of our store organization. Despite this leverage, we are gratified to see ongoing strength in our 4th quarter customer focused scores. Looking forward, I'd like to cover a couple of recent store organization changes that will strengthen our ability to serve customers and operate our stores more efficiently.
First, as we slowed our pace of store openings, we knew it was time to change our store management structure and continue to put more hours on the sales floor in order to better serve customers. Therefore, we have reorganized our store staffing structure by consolidating the zone, operations, sales and administrative management team into a single level assistant store manager structure. This structure full lives to managers to drive the business and allows them to manage all team members in their area of responsibility. On average, this change resulted in a reduction of one management position per store. 2nd, we are implementing a weekend team in each store.
In addition to our seasonal hiring, we will hire part time employees dedicated to Friday, Saturday and Sunday to increase our ability to serve customers on these peak days. Customers will see more employees on the floor and we believe this structure will yield increased sales and improved customer service. Although the primary purpose of these changes to make our store management structure more effective and to deploy more hours to serve customers when they're in our stores, net savings from these changes will largely offset the cost for 2011 wage increases. We have continued strategically to balance our inventory. At the end of the first quarter, inventory was 9.8% above last year, which was due to some opportunistic purchases in appliances and flooring.
Over the last three quarters, we have carefully managed our purchases in these categories and we drove exceptional sell through in the 4th quarter in our seasonal and tool categories. We ended the 4th quarter 0.9% above last year, despite a 2% higher store count in 4th quarter comp sales growth. Even so, we have maintained our service level and as of this call, we are ready for spring across the country with the right items, such as outdoor patio furniture, grills, and lawn and garden products to meet customers' demand. Before I finish, I'd like to update you on how we plan to make progress in 2011 on the measures of success I discussed at our Analyst and Investor Conference. Then Bob will take you through the guidance in more detail.
First, we will grow sales 1% to 2% faster than the market. Our 2011 market share growth will be driven by better alignment of our teams and resources to meet customers' evolving needs. And as already shared with you, we expect sales to benefit from implementing weekend teams, full implementation of our PSC program, adjusting our media mix and more aggressively messaging our low price guarantee. We also expect to drive additional transactions through revamped selling skills and better training for our associates. Further, as Robert discussed, we continue to make great progress in improving our online presence, which should lead to more purchases online and in the store.
This growth in market share in addition to opening highly productive stores with a greater presence in densely populated urban markets should help us make progress towards our second measure of success, growing sales per square foot to $304 in 20.15. 3rd, we expect to grow EBIT 20 basis points to reach 100 basis points above a 1% comp. In 2011, we will obtain most of this growth through expense leverage. SG and A will benefit from the store structure changes we've already announced and through continued efforts of our cost reduction committee, a cross functional team that searches for opportunities across our company to get more value from every dollar we spend. Finally, we set a goal to improve inventory turns by 25% over the next 5 years.
We made solid progress on rightsizing our inventories at the end of 2010, and we expect to continue that progress in 2011 as we review the depth and breadth of our assortments and roll out integrated planning and execution or IP and E. Our enhanced focus on the role each category plays in our mix gives our merchants and logistics teams better context for making inventory decisions. At the end of 2011, we look forward to updating you again on our progress towards our 5 year operational goals. Thanks for your interest in Loews. And I will now turn the call over to Bob Hohl to review our Q4 financial results.
Bob?
Thanks, Larry, and good morning, everyone. Sales the Q4 were $10,500,000,000 which represents a 3.1% increase over last year's Q4. In Q4, total average ticket increased by 2.3% to $61.34 and total customer count increased 0.8 percent. Comp sales were 1.1% for the quarter, which was within our guidance of flat to 2%. Looking at monthly trends, comps were positive percent in November, positive 2.8% in December and negative 2.5% in January.
Our monthly comps in the quarter were impacted by both the holiday shift and weather. This year, New Year's holiday fell on Saturday, which was the 1st day of our fiscal January, where last year it fell on Friday, which is the last day in fiscal December. This shift aided December and January comps. Adjusting for this shift, comps would have been positive 1.7% for December and negative 0.8% in January. As you heard from Larry, the sales of storm related products in January were not sufficient to offset the negative impact to our normal customer traffic patterns.
For the quarter, comp average ticket increased 1.9%, while comp transactions decreased 0.8 percent. With regard to product categories, the categories that performed above average in the 4th quarter included millwork, tools, rough electrical, seasonal living, lawn and landscape and appliances. Rough Plumbing performed at approximately the overall corporate average. For the year, comp sales were 1.3% and total sales increased 3.4% to $48,800,000,000 2010 was our 1st positive comp year since 2,005. For 2010, comp transactions increased 0.9% and comp average ticket increased 1 half of 1%.
For the year, the categories that performed above average included tools, lumber, rough electrical, seasonal living, outdoor power equipment, lawn and landscape and appliances. Millwork and paint performed at the overall corporate average. Gross margin for the Q4 was 35.55 percent of sales and increased 60 basis points from last year's 4th quarter. The primary driver of gross margin expansion in the quarter was base price optimization and patch area expansion and we estimate the favorable impact was approximately 25 basis points. In addition, product inflation, better seasonal sell through, a higher proportion of private label products, less reset activity and lower inventory shrink all aided gross margin in the quarter.
For the year, gross margin of 35.14 percent of sales represents an increase of 28 basis points over fiscal 2,009. SG and A for Q4 was 26.64 percent of sales, which leveraged 65 basis points. The primary driver of SG and A leverage in the quarter was bonus expense. We were cycling against large bonus accruals in last year's Q4 versus more normal trends in this year's Q4. As a result, bonus expense leverage 56 basis points in this year's Q4.
Also in the quarter, we experienced leverage in store payroll, impairment and discontinued projects Store payroll leverage in Q4 despite the $15,000,000 pre tax severance impact associated with the store management structure changes Larry described. Lastly, we experienced deleverage in the quarter associated with private credit, profit taxes, bank card expense and other income. The deleverage and other income relates to our share of the bank card antitrust settlement received in Q4, 2009. For the year, SG and A was 24.6 percent of sales and leverage 25 basis points to 2,009. Depreciation at 3.74 percent of sales totaled $392,000,000 and leverage 21 basis points compared to last year's Q4.
Earnings before interest and taxes increased 146 basis points to 5.17 percent of sales. For the year of 7 0.29% represents an increase of 70 basis points over 2,009. Interest expense at $86,000,000 for the quarter deleveraged 27 basis points as a percentage of sales. The increase in interest is attributable to the $1,500,000,000 increase in net debt at year end relative to last year. For the quarter, total expenses were 31.2 percent of sales and leveraged 59 basis points.
Pre tax earnings for the quarter were 4.35 percent of sales. The effective tax rate for the quarter was 37.5% versus 36.3% for Q4 last year. For year, the effective tax rate was 37.7 percent compared with 36.9 percent for 2,009. Q4 net earnings of $285,000,000 increased 39% versus last year. Earnings per share of $0.21 for the quarter exceeded our guidance of $0.16 to $0.19 and increased 50% versus last year's $0.14 For fiscal 20 10, earnings per share of $1.42 were up 17.4% versus 2,009 and came in at the high end of our original 20.10 guidance of $1.30 to $1.42 provided last February.
Now to a few items in the balance sheet starting with assets. Cash and cash equivalents at the end of the quarter was $652,000,000 Our 4th quarter inventory balance of $8,300,000,000 increased $72,000,000 or 0.9 percent versus Q4 last year. The increase was due to square footage growth of 2% and distribution inventory offset by a comp store inventory reduction of 4.4%. Inventory turnover calculated by taking a trailing 4 quarters cost of sales, but our average inventory for the last 5 quarters was 3.63, a decrease of 2 basis points from Q4, 2,009.
At the end of the
4th quarter, we owned 89 80 9% of our stores. Return on assets determined using a trailing 4 quarters earnings divided by average assets for the last 5 quarters increased 52 basis points to 5.81%. Moving on to the the liability section of the balance sheet, we finished the year with no short term borrowings. We ended the quarter with accounts payable of $4,400,000,000 which was a 1.5% increase over Q4 last year. In the Q4, we issued $1,000,000,000 of unsecured bonds in 2 tranches, dollars 475,000,000 of 5.5 year notes with a 2.18 percent interest rate and $525,000,000 10.5 year issue with 3.75 percent interest rate.
As a result, our total debt balance at the end of the quarter was $6,600,000,000 Our debt to equity ratio was 36.3% compared to 26.6% for the end of 2,009. At the end of the Q4, lease adjusted debt to EBITDAR was 1.7 times. Return on invested capital measured using a trailing 4 quarters earnings plus tax adjusted interest divided by average debt and equity over the last 5 quarters increased 84 basis points for the quarter to 9%. Now looking at the statement of cash flows. For the year, cash flow from operations was almost $3,900,000,000 used in profit acquired was just over $1,300,000,000 resulting in free cash flow of $2,500,000,000 which was 12% higher than 41,400,000 shares at an average price of $24.15 for a total repurchase amount of $1,000,000,000 For the year, we repurchased almost 112,000,000 shares or 7.7 of our beginning share count.
In total, we repurchased $2,600,000,000 in 2010 and have $2,400,000,000 remaining under our share repurchase authorization. Looking ahead, I'd like to address several of the items detailed in Lowe's business outlook. We expect the Q1 total sales increase of approximately 2%, which assumes comp sales to be essentially flat and square footage growth of approximately 2%. In Q1, we faced difficult comparisons associated with last year's cash for appliances program, which we associated with last year's cash for appliances program, which we estimate aided Q1 2019 comps by 65 basis points. Gross margin is expected to be up slightly in Q1 twenty
10 as
a percentage of sales. For SG and A, we anticipate deleverage of 40 to 50 basis points. This deleverage is driven by a number of factors, including insurance, proprietary credit and expenses associated with investments we are making in customer experiences. We are cycling against leverage in our casualty insurance program in last year's Q1 due to a decrease in actuarial projected losses during the period. Depreciation for Q1 is expected to be approximately $360,000,000 and leverage roughly 30 basis points.
As a result, earnings before interest and taxes for the quarter are expected to decrease by 10 to 20 basis points to last year as a percentage of sales. For the quarter, interest expense is expected to be approximately $90,000,000 The income tax rate is forecasted to be 37.7 percent for the quarter and for the year. We expect earnings per share of $0.34 to $0.38 which is flat to last year's $0.34 at the low end and an increase of 12% on the upper end. Prior to getting into our outlook for the year, I wanted to highlight that our fiscal 2011 will include an extra week in the Q4 for a total 14 weeks 53 weeks for the year. Lowe's fiscal year Lowe's fiscal
year end on the Friday closest to the end of January. This means
we have a 53rd week every 5 or 6 years. Our last 53 week year was fiscal 2,005. For the year, we estimate that the 53rd week will increase total sales by approximately 1.6% and earnings per share by approximately $0.02 In 2011, we expect to open 25 to 30 stores resulting in an increase in square footage of approximately 1.5%. We're estimating 2011 comp sales to be positive 1% to 2% and with the impact of the 53rd week, we expect total sales increase of approximately 5%. For the fiscal year, we're anticipating an EBITDA increase of approximately 30 basis points.
For 2011, we expect depreciation expense of about $1,500,000,000 and interest expense of approximately $350,000,000 The sum of these inputs should yield earnings per share of $1.60 to $1.72 which represent an increase of 13% to 21% over 20.10. And looking at our guidance relative to first call, the mean estimate for the year falls within the middle of our guided range. However, Q1 appears to be heavy and Q4 appears to be light by about $0.02 each relative to our expectations. For the year, we are forecasting cash flows from operations to be approximately $4,600,000,000 Our capital plan for 20 11 is approximately $1,800,000,000 with roughly $100,000,000 funded by operating leases, resulting in cash capital expenditures of approximately $1,700,000,000 Our guidance assumes
Our first question comes from the line of Colin McGranahan with Bernstein.
Good morning, guys. Good
morning, Collin.
Just wanted to focus first just on the comp and market share. Can you comment on market share? And it looks like the NAICS 4,441, so excluding the Garden Supply stores was up and we don't have the January yet, but it was up November, December about 5%. So how are you thinking about as it played out in the quarter? Any thoughts on why the NACE numbers look a little bit better than your sales and if you want to comment on the comp spread relative to Home Depot which I think widened out to about 3.7%.
I'll start with general comments, Colin, and then I'll let Greg talk specifically about the NEX 4441. Obviously, December January, we had much better performance I mean, I'm sorry, November December, we had much better performance. As you said, the January isn't out yet. So certainly, I think when you look, that's part of it, would be part of the impact. And I think we would focus on the next 4,441, but we do know we have some work to do certainly.
As we look at the comps versus our overall performance for the quarter, we're pleased with. Obviously, we met our numbers. When we look at some of the items in the quarter and what was discussed yesterday on the competition's call, if we look at Black Friday, we had a great performance on Black Friday, probably one of our best days ever that entire weekend, great receptivity to lowes.com and some of the things we were doing there. We weren't as aggressive as others were with respect to appliances and promotions that took with on appliances around Black Friday. So I think that certainly impacted our numbers.
As you see, we were just slightly above average comps on appliances for the quarter. The other thing is that winter products, we had a great quarter in winter products with double digit comps on top of what was a record year in 2,009, but quite frankly, by the time we got to January, we were out of product for all intents and purposes other than ice melt and the few remaining snow drills and shovels that were around. So we know that we missed some opportunity there because obviously the winter was much harder than we expected even though that we did have great performance. I think Larry talked in his comments a little bit about store staffing and the fact that we part of what we're reacting to with the weekend teams is that we know we haven't had enough hours on the floor of the store on weekends, which is
when we were
short from customer facing time. As Larry mentioned, we had a hiring freeze in places. We were restructuring because we had to get reset for the change that took place. So we were probably a little light in some areas in the quarter as we were setting up to do that, but it sets up in great shape for spring. We've got the plans in place.
The hiring has already started and we think we're going to be in great shape to capitalize on spring sales. If you're going to make a change like that, obviously, the Q4 is the best time of the year to do it because that's our lowest volume part of the year. And then I guess finally, kitchen cabinets was an area that we probably were not as promotional as some of the others during the quarter. And then I think there was also some comments about HVAC installation. We're really not in that business.
So tax credit stuff, we would have had similar results from the Energy Star tax credit stuff, but not in HVAC. So a little bit of thoughts there just kind of overall from market share. We maintained our market share, grew at several categories. So we're pleased with that and we think we're in great shape with the changes we've made for rep from an inventory position, how clean our inventory is and what we're doing from a staffing standpoint as we head into spring. So Greg, I'd ask you to talk about the next numbers.
Sure. Thanks, Robert. Colin, when you break down the subcategories of 4,441, it looks like convenience factors played a pretty strong role in the Q4. When you look at paint and wallpaper stores, their performance in November December strongly exceeded the total category of 4,441, 13.4%, 6.8% for 0.8% for November December and hardware stores performed at 11.7% growth and 4.5% growth in November December, which does actually jive with our feeling about the factors of convenience playing a strong hand in store of choice in the Q4.
Okay. Thanks, guys. I'll cede my follow-up so others can get on the call here.
Great. Thanks.
Our next question comes from the line of Dennis McGill with Zelman and Associates.
Hi. Thanks for taking my question. Just was hoping you could maybe talk to the market share targets that you've set of 1% to 2% and compare that to the comp guidance for this year. It seemed like the overall markets probably got some growth behind it certainly with consumer confidence improving and just wondering how you compare the market share gains versus the guidance in
2011? Dennis, this is Bob. I'll start. So, one of the things that we've gone through the past couple of years when planning the upcoming fiscal year is the comments forecasts are for a soft first half and improving second half. And we've been full a couple of times there.
So, we are actually planning for much more conservative market growth, specifically in the back half of the year. The economies tend
to their forecasts are reversion to
the mean, so everything kind of improves. We expect to be able to take market share when it comes, but we're planning very cautiously at this point in time.
Okay. And then thanks for all the color on the volume market share. Just wondering if you could also tie that to the patch, the price patches that you've talked about and the optimizations gross margins obviously benefiting, but to what extent is that playing into the factors, if at all, on the volume in the quarter?
The base price optimization in the Patch area, as Larry described, is very local in nature. So, the evaluation takes into account our pricing relative to the competition in the market. It does balance the desire to grow unit volume in some categories and gross margin in other categories. So, it's a mixed approach and it's really based on that specific market. I would guess that the local economy and house price impact has a greater impact, a far greater impact than what we've done from a base price standpoint market by market.
Okay. Thank you very much.
The next question comes from the line of Greg Malek with IFI.
Hi, thanks. First before we end the question, I do want to just say, Larry, congrats and thanks for all your help over the years.
Thanks, Greg. I appreciate
that a lot. And we'll be sure to have a big party when sales per foot get back to $300 on May as a new proper retirement party. My question is really about input costs and inflation. You mentioned how it actually helped gross margin a little bit. Could you, Bob, just tell us what it actually did to the comp in the Q4 and what you're using for commodity costs and your comp expectations for this year and also gross margin?
Thanks.
So, the take a look at the inflation categories, principally lumber build materials and copper, those are certainly up. In total, we experienced about 20 basis points of favorable impact on the comp for the Q4. And thinking about 2011, we do recognize that there will be increasing requests for price increases from the vendor community as we think about rising prices of gasoline, clothing, food, etcetera, we are concerned with the impact on the consumer confidence and spending as a result of kind of a mixed bag of potential increase in prices versus potential decrease in purchase trends. We assume no impact on comps or gross margin as it relates to inflation for 2011.
Okay, great. And then second, just a follow-up on the SG and A that you talked about and the deleverage in the Q1. It sounds like most of those things are very Q1 specific, especially the cycle and the insurance. On the credit side, could you give us the update on where credit penetration is? And if that is still sort of a 1 quarter issue or you think that's a new run rate on credit?
I think that's a 1 quarter thing. We had some favorability last year as it relates to losses that we're cycling against insurance is largely related to Q1. So, yes, we do expect some deleverage in SG and A in Q1. The credit as a percent of sales in Q4 was about 17 point 5%, 17.4% specifically that compares to 7% Q4 last year. We have seen some stabilization of late in our credit penetration.
For the year, we do expect some nominal SG and A leverage. So yes, the items I called out
in my comments are specific to Q1. We do expect
to leverage SG and A for the year slightly. Great. Thanks a lot. Thanks, Greg.
Your next question comes from the
line of Deborah
Weinstein with Citigroup. Larry, congratulations. We are going to miss working so closely with you.
Thanks, Deborah. Appreciate that.
And so I'm going to throw out one of our favorite topics, which you and I have talked extensively about, which is flexing the size of your stores based on market opportunities. How should we think about the size of the stores you'll be opening in the future? And in light of that, at the Analyst Meeting, you stated that CapEx should be in the range of $1,600,000,000 between 20 11 and 20 15. And how will that fluctuate over time between IT, new stores, maintenance, CapEx and other? And should we think about there being less than on new stores over time with maybe more new stores in the smaller prototype?
I'll start on the prototypes and let Bob address the capital question there. Standard prototype we're building today is 103,000 square feet and that's down from the 117,000 square foot store that we built for many years. We also have our smaller market store, which is 94,000 square foot store that we use in certain smaller markets and also in some urban areas where that's what we can fit in that particular area. So in terms of square footage, we've dropped it overall about 10% to 15%. We still have our outdoor garden centers in all of our stores and that really varies depending on the piece of property that we can buy and what we've put on the site.
103 ks, I'd say in the last 2 years, that's predominantly what we've built as a company. It's our prototype going forward as we go back in and repurchandize our stores. There's a lot of things that we gained sufficiencies with 103 that could help us go back into our other families of stores and improve the shopping experience for the customer. Just a couple of things on our seasonal side, we're able to better merchandise our patio furniture or our outdoor power equipment or walk behind mowers and things like that. It really create a much improved shopping experience by some of the learnings we got from 103 because we did have that reduced square footage and had to figure out how to make the store work better.
So very pleased with the prototype and 94 ks, we launched that many years ago and that's still been a great small market store for us. And the 94 ks still has 94,000 square feet of interior selling space. So very pleased with those 2 prototypes and I'm sure we'll look at different things in the future depending on how the market shake out, but for now that's where we're going to build the majority of our stores in those two sizes. Hey,
Deb, this is Bob. On the CapEx trends, yes, we do expect it to average roughly $1,600,000,000 for the 5 year period. We did expect a slight uptick in 2011 relative to the other year, specifically to some investments we're making in technology, both in the store and as it relates to CRM tools as we strive to build better customer experiences. Also, as we think about our existing stores, the teams have done a good job over the past couple of years, continue to refine our ongoing maintenance, which has allowed us to extend the useful life of some of our trucks, forklifts, both stores and DCs. We've based on the extension of the life, we've been able to largely postpone purchases of that equipment over the past couple of years.
We're at the point now where we need to repurchase new equipment. So that's causing a bit of an uptick in existing store CapEx relative to last year. So in total, I think we're going to have a higher mix of IT spend in 2011 going forward just based on the way forward and certainly a lower mix of new store as a proportion of total CapEx.
Great. It's
great, Rich. I'd like to comment. Look at the spend that Bob was talking about, it's there is kind of a recognition that we're looking at spend to strengthen all the available channels with our customers in not just stores. And you see that if you listen to the AIC strategy going forward and you understand the composition of the CapEx spend. And I think from the urban markets in the U.
S. Domestically, I still think we are likely penetrated and you'll see a lot of flexibility in terms of footprint moving forward as we attempt to right size the store for the Metro opportunity.
Great. Well, thanks so much. And then one quick question. With Michael Brown stepping into the CIO role, can you update us on your current technology initiatives for the near term and the long term? And how those changed at all?
Based on the components of our whole services platform or repair services, which we launched last year, installed sales of a much improved platform for installed sales, order management, flexible fulfillment, those are the big things of our services platform. And really that's going to help us deliver this better customer experience inside the box and across all the multiple channels where customers like to shop with us going forward. Dotcom, we continue to invest in dotcom and certainly Robert mentioned some numbers on dotcom. We're very pleased with dotcom. It's still a small part of our business, but overall it's a growing part of our business and certainly we think the way customers will shop in the future is going to really tie in how we start thinking out beyond the 4 walls of our stores.
Deb, this is Robert Henblak. Part of putting Mike in that really to one to enhance speed to market from a technology standpoint, but secondly, really to enhance the focus of the technology that's delivered and looking at it from an operations perspective. Because as you know, certainly that's when we roll out technology at the store, it really has to sync up well with what makes sense and what works for the operators out there day to day on the floor of the store. And I think Mike brings a very valuable perspective to that. And he's surrounded himself with the technology expertise he needs on his team to ensure that from a technology standpoint, it works.
But then his perspective that he adds is bringing to market technology that really will resonate well with the field organization when it hits the floor of the store. So that's what we're trying to accomplish and we're very excited about some of the early things that he's already focused on and we'll be rolling out over the next couple of years.
Great. Well, thanks so much. Congratulations on a great quarter and Larry, best of luck.
Thanks, Deborah. Appreciate it a lot.
Your next question comes from the line of Matthew Fassler with Goldman Sachs.
Thanks a lot. Good morning. Larry, obviously best wishes to you as you move forward. Two questions and they both relate to the cost side. When you talked about the SG and A outlook for the Q1, you spoke about investments in customer experience.
I'm not sure if you explicitly cited what those were as part of your broader strategic discussion or if there's things you're doing in Q1 that are specific to Q1? And then I'll ask a follow-up, if I could.
Yes, Matt. So, as it relates to Deb's question, you talked about the increase in CapEx as it relates to some of our initiatives. There's also an expense side of that. That's roughly 10 basis points of deleverage in the Q1, but that's also about 10 basis points for the year as well.
It. And then my second question relates to the weekend teams that you're building out and the change in management structure in essence. If you think about your broader full time, part time payroll mix, if you could give us a sense as to sort of where you began or where you were last year and where you think that mix ends up moving and whether where you see yourselves here at the end of 2011 is likely to be the end game in that process?
It's Larry Stone. We've always tried to be around seventythirty. It was kind of the mix number part time versus full time. And we think that we can team certainly that full time mix will move down some and probably mix out somewhere between 60% 65% going forward on our mix. Problem that and Robert alluded in the first question, where I think we were not doing the job we need to do in the Q4, we just didn't have enough staff in the stores on the weekends.
And certainly, you've part timers, you got to get weekends off and so forth. So we felt like this was a much better way to approach it because there are a lot of people, a lot of very qualified people are looking for weekend shifts, Friday, Saturday Sunday. So we've been able to attract some very talented people. We feel like this will really give us that horsepower we need inside the store with customer facing during those 3 peak days. So I think it's a great trade off and the management decisions we made inside our stores, I noted in my comments, it was equivalent of 1 full time person per store.
So to add 10,000 people, I think is a much better move for the company.
And are you finding lots of these hires from within the current staff, just people looking to change their timing or are you finding new faces from outside the business?
I think you're finding some of both. And certainly, if you think about a lot of people have had work weeks cut 4 days a week and things like that and people need additional second income. So we've been able to line up with all the people, help us with their weekend teams.
Got it.
Thank you so much.
Thank you,
Matt. Regina, I think we've got time
for one more question.
Your final question comes from the line of Eric Bouchard with Cleveland Research.
Good morning. The appliance category, I guess I'm interested strategically how you're thinking about this and also a little more data. I know that you were aggressive and effective with the cash for appliance stimulus in the first half of 'ten and then the second half of 'ten a little bit less aggressive. So I'm wondering
how you're thinking strategically about driving share
and promoting in this category.
This is Robert. I mean, I think overall, we still look to gain share in appliances. We still think there's great opportunity out there. We'll be focused on that throughout 2011 as well. Obviously, we know that there is a hurdle that we're coming up against with the stimulus programs in 2011.
We've got some other promotional things that we think will help offset part of that. We may not offset 100%, but we also recognize quite frankly that last year high in the Q1, even though we had great weather in the month of April and we garnered some great sales, we knew there were some other areas where we probably didn't execute as well as we thought we could have. So even though we've got a hurdle with appliances to go up against in the first quarter, actually first half of twenty eleven. We also recognize that there's some opportunity out there with other categories that we can execute better in and that's really what the team is focused on. We're saying, okay, given the environment, given what we're going up against, how do we execute as well as we can with some of the great promotions that we have out there and some great new ideas in the appliance category, but then really focus on where we didn't get our share of the business last year and go harder after that.
So that's kind of our game plan. But longer term, our goal, we got great relationships with key vendors in the appliance area. We're quickly becoming one of the biggest competitors with the dynamics that have changed overall in the industry. We feel good about our relationship and respect to continue to
grow that. I think it
is, particularly as you think about the environment slowly starting to improve, customers as we go forward are starting to ease more maybe into some home improvement related areas. I think that bodes well for being strong in that category as well. So, it's a key it continues to
be a key focus for us. Was there a
thinking or strategic thinking about sitting out the promotional activity
in November versus in the past? It seems like you've kind of gone along or
participated in that?
We were still had a very we still had an aggressive promotion around Black Friday, but just not as aggressive as others in the marketplace. So comparing on a year over year basis and everything, we still had a good performance, those type of things. We just weren't as aggressive as others in the marketplace. And maybe we didn't respond as quickly as we should have to that. And and maybe we didn't respond as quickly as we should have to that and maybe gave up a little bit of share.
We've taken all that into account. But now we're purposely sitting out. We just we tried to balance it across our promotions across some of the other categories of merchandise that we had in the store and we probably gave up some on appliances
because of that.
And then if I can just one last follow-up on the market share, you commented about putting a little more labor into the store related to perhaps 80 market share improvement or continued market share progress. I'm curious on the price optimization, if you think that is having any influence on the relative market share performance and if there's any different thinking about how aggressive you want to be with price optimization?
On price optimization, Eric, I would say that all of our market shops, everything we do still shows that we're appropriately priced in the marketplace. I think what it does help us with the stuff like the better sell through that you see. So we make sure we're priced right. And that by doing a better sell through on the products, obviously, that helps from a margin standpoint because you don't have those heavy markdowns at the end of the seasonal period. But now everything we've seen from price optimization leads us to believe that we're headed in the right direction and we don't think it is negatively impacting our price image out there in the marketplace.
Thanks again for your continued interest in Loews. We look forward to speaking with you again as we report our Q1 results on May 16.