Good afternoon. Thank you all for joining us. My name is Brian Nagel. I'm the Senior Equity Research Analyst here at Oppenheimer, covering consumer growth and e-commerce. This is day three of our 25th annual Oppenheimer Consumer Growth and E-commerce Conference. Again, thank you all for joining us. I am very pleased to have with us our next presenting company, Lowe's, and three of the company's executives: CEO Marvin Ellison, CFO Brandon Sink, and Investor Relations Kate Pearlman. Thank you very much for joining us.
Thank you, Brian.
Thanks so much.
We appreciate it.
We're going to discuss, we're going to structure this as an informal fireside chat with me asking questions and Lowe's answering those questions. To the extent there are questions from the audience, just send them through the chat. I'll be happy to work them into our conversation. With that, I'd love to start, Marvin and Brandon, just, you know, before we dive into kind of the Lowe's specific questions for Lowe's, you know, just given your unique position within the consumer landscape, your thoughts on the overall health of the consumer, you know, what you're seeing from kind of a consumer demand perspective and how that may have been shifting lately.
Great. Brian, always great to be with you. I'll take the first part, and Brandon can add any additional comments. I would say overall, the homeowner is really healthy. They have a strong balance sheet, strong wage growth, low unemployment, record equity, and, you know, for the first time in a while, you have personal disposable income growing faster than inflation. We feel really good about the homeowner, which is the general customer that we are targeting in the DIY market. Specific to home improvement, I mean, we still are seeing a bit of headwind, and that headwind is driven almost exclusively by elevated mortgage rates. As you know, I think housing turnover is at its lowest level since the 1990s, and that is almost exclusively driven by these elevated rates.
Also, short-term borrowing rates are up, and that's putting a little bit of a damper on discretionary big-ticket DIY projects. We look at those combinations of things, and it gives us a little bit of a mixed view. When we take a step back and we look at the medium to long-term view of the historic demand drivers in home improvement, we actually remain optimistic. Things like the age of housing stock, which, as you know, is the oldest, you know, since record keeping was maintained. You look at things like equity and the amount of equity available and the, you know, home price appreciation that's occurred, you know, post-pandemic. You look at, you know, things like personal disposable income, as I mentioned, growing faster than inflation.
We look at all of those things, and it gives us a degree of confidence that the medium to long-term view for home improvement, you know, has positive aspects that we remain confident that our strategy and our focus will allow us to take advantage of it as moment as we start to get a bit of tailwind that we're hoping for. We hope that that will occur at some point this year, but man, we're not in the prediction business. I don't know if Brandon has anything else to add.
Yeah, sure, Brian. I would just add, as Marvin said, you know, consumer overall continues to be healthy, but definitely some near-term, you know, affordability challenges just as we look at sentiment, rates, inflation, and so forth. You know, the lock-in effect, you know, for us continues to be real, right? We're looking at overall 3/4 of mortgages are at fixed rate below 5%, I think over 50%, you know, below 4%. When you look at the state of housing and housing turnover, we're roughly, we're still bumping along the trough, roughly 4 million units, you know, turning annually, which if you look back, that's kind of a three-decades low. New home starts continue to be sluggish.
A number of things just in the soup here short-term, we've worked through for the most part, anything COVID reversion related, you know, share of wallet shifts from goods to services. A lot of that has effectively sort of run its course over the last couple of years, and we're dealing with more of these kind of near-term trends and a lot happening just, you know, uncertainty around policy and so forth. A number of challenges, a number of medium to longer-term green shoots and still committed to making investments in the business. You know, we're all about preparing when we get on the backside of this, preparing for, you know, the transition so we can get back in growth mode.
That's very helpful. If I'm hearing you correctly, really the biggest from a macro standpoint, the biggest hindrance at this point is rates, both on the longer term and then maybe the shorter term side affecting both mortgage rates and then, I guess, HELOC rates. That's correct?
Yeah, I'd say that's fair. Yes, Brian.
Correct.
I mean, I know no one has a crystal ball to know when rates are going to lower, but I would love to get your perspectives on, you know, are there levels that, you know, if rates got you, you would see an unlock in your business? The second question I have is, you know, we have seen, you know, this in looking back at your most recent quarterly report, you know, there were some bright spots, you know, with respect to seasonal products and such. How much better can the, from a top-line perspective, can the Lowe's business get if rates were not to move or to stay here?
I'm going to take the rates piece.
Yeah. I mean, Brian, as it relates to, you know, where we would see unlocks, I do not know that, you know, there is sort of an absolute level that we would see. I think coming into the year, and if you were to ask us this kind of this time last year, you know, we would have said, hey, anything kind of closer to six was really where we saw some engagement, where we saw things change. I think the longer that we sit six and a half, 7%, I think you are going to start to get into, you know, new life stages, even if rates do not meaningfully move down. You know, folks are going to have to, you know, get married, buy a house, transition, add more space. I think it is just going to take longer, and you are going to work through that, you know, over time.
I don't know that we're planning for any meaningful step down, you know, in rates. I think the thing that gives us a lot of optimism, Marvin said it, there's $35 trillion of pin-up equity and a third of that roughly tappable. I think when we look at some of these big-ticket discretionary categories, which for us, we've seen a lot of challenge over the last two or three years, a lot of not just reversion, but over-reversion to the extent when we look at home improvement in the industry as a whole, there's about $50 billion now of pin-up demand because, as you know, home improvement, these projects don't get canceled, they just get delayed.
I think we're now officially in that delay phase where you have this pin-up demand that's happening, you have equities that are there, and we just really need that catalyst and that inflection point. That's kind of what we're waiting to see within the business.
Look, on the question about how much better can the business be, I mean, it's really, it's a difficult one to answer, but I'll give you some perspective. I'll be celebrating my seventh year anniversary here in July and just comparing where we are today versus just back then on what I call just the fundamentals of retail, things like being in stock, having the brands that customers desire and that they are attracted to, having robust loyalty programs for both Pro and DNY, having seamless omnichannel experiences so a customer can easily pivot between online store, you know, mobile app, some of the recognition we've received nationally on some of the things we've done from service to IT infrastructure to our digital platform to the major investments we've made in supply chain and our supply chain transformation.
There is no element of our business that we have not been working on and investing capital in for the last 5+ years. We are positioned to really respond well when we see just any moderation in the market. I mean, we are not looking for, you know, the great days of housing or the historic days of home improvement demand, just getting to a normal, you know, market specifically for the DIY customer, the homeowner. We think our business is set up to perform really well, and that really drives our confidence.
Got it. Are you seeing any, just from the demand perspective, you know, the overall health of your business, are you seeing any noticeable geographic differences across the United States?
Not really. What I will tell you this time of the year, particularly the greatest correlating factor to our business performance is weather. As we look geographically, that is almost always the driver of good performance and performance that's under expectation. Other than that, there's nothing really material that we can put our finger on relative to any other factor that's driving overall performance.
Yeah, Brian, I would add, you know, Helene and Milton, you know, late summer, late early fall, late summer last year, you know, drove demand Q3, Q4, and that's turning into the year. There's expectation we're going to continue to see some hurricane recovery demand. That is creating some, you know, regional benefits as we look at Florida and the Carolinas. Outside of that and just normal weather challenges ongoing, nothing really from a macro standpoint to Marvin's point that we're seeing influence the business.
On that seasonal side, you're putting aside the impact as we've discussed, you know, these persistently elevated rates, when the weathers cooperate, either market by market or in markets where weather's generally better, that seasonal demand is meeting your expectations?
Yeah, it has been for really Q1 and Q2. Again, Brian, that to me supports the fact that we feel good about our business strategy. You know, when I think about the pressure that we've experienced really for the last 3+ years with the DIY customer, you know, I feel pretty confident that that is almost exclusively macro-driven. That's that lock-in effect that Brandon talked about with these elevated rates, customers choosing to just stay put while they monitor the rate environment. These short-term rates, again, you know, is delaying, you know, their decision to do some larger discretionary projects. From an execution, strategic positioning, you know, we feel really good about where we are.
Another big topic, another topic that's very much on the mind of investors I'd love to get your perspectives on is tariffs and global trade policy. Obviously, it's fluid, shifting by the day, if not by the hour. Where does Lowe's stand on what you're seeing from a tariff perspective? Maybe you can discuss, you know, the mitigation efforts you've started to put in place.
Yeah, Brian, I'll start just with the fact that the team over the last several years has done a tremendous job merchandising, global merchandising specifically, just as we've looked at exposure, supply chain, diversification, really working across the globe to develop, you know, new opportunities, new efforts, continue to diversify, in particular out of China. As we sit here today, and probably the biggest risk that we're working around continues to be China. We have about 20% of our cost of goods sold or of our purchases are exposed to China. One point of clarification there, that is both direct, so where we have private brands and we're importing directly, as well as purchases from our domestic suppliers that are importing from China. So it's a combination of both of those.
You know, six, eight weeks ago when the tariffs were escalated at 145%, we had essentially shut down, you know, any and all activity out of China, complete pause. We got the 90-day reprieve and really have spent the better part of the last several weeks re-engaging and re-evaluating, you know, what we flow, how we manage the business. I would say multi-pronged efforts across a number of different functions. How can we, for the categories that we want to stay committed to, how can we continue to diversify and see how quickly we can move to other countries of origin in the back half of 2025 and into 2026? I would say there are other categories, maybe slower- moving or where we have longer tail, you know, inventories. Maybe that is a category that we rationalize altogether. We are going through those efforts.
I would tell you negotiation of where we can share, where we can split, and how we can allocate the cost of the tariffs across our supply chain with our vendor base. Lastly, as it relates to price, as we always do, we're taking a portfolio approach. We're going to continue to be competitive. We're going to ensure that we're not losing, you know, market share as we're, you know, continuing to lean into these categories. A lot of efforts, a lot of engagement across the organization. I would say we've proven in the past that we can manage through this. We've, you know, been through tariffs, we've been through other inflationary environments, and we believe we have best-in-class tools, teams, capabilities to manage through this.
You know, it's reflected in our expectations for our guidance, you know, over the balance of the year, and we expect to be able to manage through it successfully.
Brian, also, I know there's been a lot of conversation about competitive positioning and taking market share because certain retailers may be in a more advantageous position. That is just not going to happen in home improvement. There is no special formula for managing this regardless of who you are. If you're a large retailer, we are pretty much dealing with the same set of circumstances. We feel incredibly pleased with the team that Brandon just outlined from finance, global sourcing, supply chain, merchandising, price management systems, all the work we've done, you know, really the last 6+ years has positioned us to manage this as well as any large retailer in the world. We are going to be competitive.
There is no way we're going to sit back and lose market share because there is somebody out there that's going to manage this better than us or going to find a way to have lower prices vis-à-vis us. That's just not a realistic assumption. We are prepared to manage this. Our objective is to give our customers innovation and give them value. To Brandon's point, we'll manage the entire portfolio to make that happen. We are going to just work and we'll make sure that we continue to have this collaboration cross-functionally that has really served us well in the past.
With regard to China, you know, that's probably where we see most headlines today, you know, the trade discussions between the United States and China. We've got some, I guess, maybe some big announcements today. What's a manageable level? I mean, Brian, you mentioned there's 145, you know, that's kind of a no-go. Is there a tariff level that you view as manageable?
Yeah, I don't know that I would put a number on it, Brian. I guess I would say at 30, it's obviously opened, you know, things back up. I would say, you know, still creating challenges at the end of the day, even at that level. We're, you know, we're working across, as Marvin said, within all of this, we're continuing to ensure that we're providing, you know, value to our customers in all directions, innovation, you know, competitiveness, that's through our private brands, through credit, through a number of different avenues, through our loyalty program. You know, undoubtedly a challenge for us, even at 30%. We do have the benefit from FIFO accounting standpoint. I mentioned this on our earnings call. There's roughly a one-quarter delay.
Just as we're looking across managing this for what we are staying committed and what's continuing to flow over from China with the 30%, we're dealing with the majority of that as we get into Q3 and Q4. That has given us some visibility to just how we approach, again, negotiations with our suppliers, our portfolio approach, and the timing in which we can kind of pull and manage these levers.
Marvin, I want to talk about, you know, you mentioned just a moment ago, you're approaching your seventh year anniversary. Congratulations. You know, under your leadership, we've seen the Lowe's model improve significantly, you know, a very successful repositioning over the past several years. The question I want to, and I know we've had this discussion before, but kind of where are we on that repositioning? Maybe talk about some of the big wins you've had, you know, in driving better results for the company and then kind of where we go from here.
You know, I appreciate the question. It is really indicative of just a really great team effort. Some of the great transformation initiatives have been driven by individuals that either joined me, you know, around that seven-year mark or who came in after the fact. You know, Brandon has probably been in five different roles in that seven-year, you know, time span. All of them have delivered significant value in different parts of the finance organization. I think it is appropriate to just kind of go back in time and just talk about what 2018 looked like. You had a company that had an outstanding balance sheet, had great frontline associates in our stores, but really had no modern strategy to grow in a retail landscape that forces you to be omnichannel, that forces you to have seamless interaction between digital and physical.
Just as a reminder for some of the people that may be watching, that is reflective in having a 30-year-old green screen operating system that literally hardwired everything to the store, supply chain, receiving systems, point of sale, e-commerce, everything. It literally took us over five years to retire that system because the risk of some big ERP taking the company physically down to its knees. We did it in phases and a very methodical approach. Now we, for all intents and purposes, we've totally retired that 30-year operating system, which has opened up lots of opportunities for us to do innovative things from an IT standpoint that we literally just couldn't do, you know, as recent as two years ago, you know, modernizing our supply chain. I mean, we were selling appliances from our stockrooms of our stores and from storage containers behind our stores.
We transformed our supply chain into a market delivery system where we are best in class, not only in having appliances delivered next day, two day, and virtually every zip code in the U.S., but best in class in shipping and delivering big and bulky. You know, things like our service initiative where our labor system was literally manual and driven by revenue of sales. Now we can drive it activity-based by day, by hour, by department. We are pleased that we can drive great reduction in expense and great productivity at the same time be recognized from someone like J.D. Power for being, you know, best in customer satisfaction and home improvement. Doing those two things conversely is very difficult, but we are doing it because we are driving productivity the right way.
Some of the great work that we've done in merchandising where in 2018, the previous management had made a decision to go all in on private brands to chase the margin rate and disenfranchising a significant % of our pro customers who are very brand loyal, as you know. We worked really hard, you know, under Bill Boltz's leadership to get a lot of those national brands back into our assortment. Now that's been one of the reasons why we've had such success with our small to medium pro initiative. That entire transformation started with just looking at those retail fundamentals, those things, again, that every retailer has to be good at to just get that foundation shored up. Now our total home strategy is designed to allow us to take market share.
As Brandon mentioned, I mean, we understand that we're in this really difficult growth environment today in home improvement, but we also understand that this is cyclical. When we cycle out of this, specifically for the DIY customer, we believe that we are going to be really well positioned just based on what our total home strategy has allowed us to do, you know, areas like home installation that we know that when the customer starts tapping into that $33 trillion of equity, we know exactly what projects are going to be first in their list. We want to be best in class at that. You know, we want to look at, you know, things like e-commerce and how we continue to serve our customers really well in that regard. You know, our merchandising strategy, you know, our operational excellence in PPI.
All of these things give us confidence, as I said, that we've taken the transformation from foundational to now the building blocks to take a market share. We are positioned really well for growth. As the old saying goes, you know, there is no finish line. The transformation is not completed because as the market continues to evolve, as the competitive landscape continues to change, as the consumer, you know, gives us different demands on how they desire to shop and what they want to buy, then we evolve. Marketplace is a great example of that evolution on e-commerce. Again, I could go on and on and on, but we feel like that we have put ourselves in a great position that when we see recovery in this DIY market, we are very well placed to take advantage of that.
On specific on the, I guess on the DIY side, you know, a topic that we've discussed a lot, but I think it's still one of the more interesting aspects for me is the segmentation. You know, you've been able to look at your different groups of stores and really decipher, you know, the key productivity initiatives for those specific stores. Maybe you can just talk about that and kind of where we are in that effort.
Yeah, I'll give you some thoughts. I'll let Brandon jump in if he has anything to add. Yeah, I think for us, you know, again, if you go back in time, the only segmentation we had was every store looked like it was in North Carolina because we designed everything based on the local market because our systems were so rigid that we couldn't have any localization. We couldn't have, you know, any differentiation from an assortment standpoint, from a store layout, from a pricing perspective. Now that we've modernized our assortment planning, our pricing, et cetera, we're able to take a step back and focus on rural customers in a more specific way, to focus on urban customers in a more specific way, and then be very specific in those categories.
I mean, one of the big successes that we've had with the rural customer is the introduction of workwear. I mean, that's a growth category for us that's performing exceptionally well to the point to where it started in rural America, and now we're expanding it to other markets. As I've said before, one of our best- performing workwear stores in the company is Brooklyn, New York. We never would have known that if not for the continued iteration of the strategy. You know, another one is this Pet that kind of was born out of this segmentation strategy and listening to what the customers are saying that they wish they could buy in one trip from Lowe's versus having to go to multiple locations.
We continue to learn and iterate that as well, as well as many other categories that fall under that rural initiative that we continue to expand. On the urban side, I mean, I'll never forget, you know, walking into, you know, my store in Philadelphia with Joe McFarland, Bill Boltz, and seeing, you know, a patio set with 12 chairs and riding lawnmowers. We can imagine what happened to that product in Brooklyn. I mean, in Philadelphia, it got marked out and basically, you know, clearanced out because we had no ability to sort our urban stores in a way that served those customers. We spent a lot of time working on getting those stores assorted the right way, making sure that we have the right staffing levels. It has been an iterative learning process, but we have gained lots of benefit.
We're so well positioned for the market to turn. The lessons we've learned over the last, you know, five years in this segmentation have given us a lot of confidence. Our loyalty program with the DIY customer, you know, having roughly 30 million members, gives us a whole different level of customer data and customer shopping patterns and customer information that allows us to serve those customers even better beyond just the segmentation in our stores.
Brian, on the localization initiatives in particular, we've been very methodical and disciplined, you know, over time, as you know, as we've rolled these out. Excited to say by the end of this year, roughly 500 stores in total will have the rural set. Marvin mentioned workwear, not just limited to the rural initiative, but, you know, going to be in roughly 1,000 stores. Just financially, as we look at, you know, space productivity, sales per store, sales per sq ft, you know, Gfeller, some of those things, really pleased with the results and what we've seen and excited to be able to get these at scale by the end of the year.
Brandon, on that point, I mean, you know, maybe using the baseball analogy, but what inning are we in here as far as seeing the benefits from segmentation?
Yeah, I would say, you know, just as we assume the rollout is going to be largely complete by the end of the year, just based on what we saw through, you know, the early test stores. I mean, it takes 12 months-24 months, I would say, from rollout, you know, to really so the customer sees, they understand you have a different set, they understand you have a different shopping experience. I think just as we look beyond into 2026 and 2027, I still think there's a decent amount of upside in these new stores where we continue to roll these initiatives out.
I want to jump over to Pro. You know, Marvin, you mentioned a moment ago this, you know, the refocus, if you will, upon having branded products in stores and to the extent that's allowed you to connect much better with your professional customers. Kind of where are we on Pro right now? You know, what are the other big unlocks? Maybe we can discuss the acquisition you recently announced.
Yeah, I mean, we've been really focused on the small to medium customer. That's been our core Pro customer for a couple of reasons. Number one, we believe that we had the capacity to serve that customer really well. We believe that customer was being ignored in the marketplace. That was our focal point. The brand transformation that I talked about, bringing some of those national brands back, you know, an example would be Klein Tools back into the assortment. Those initiatives really started to give us credibility back with the customer. The work we've done on fulfillment and job site delivery has been, you know, significant.
The work we've done, you know, on our loyalty program and the relaunch of it to simplify and give that small to medium customer a way to earn points faster so that we can take advantage of the fact that their spend level may be different from a larger customer and give them the incentive to shop us more frequently. Also, this whole Endless Aisle initiative that we rolled out now gives us the ability to have a seamless digital catalog for some of these really large Pro suppliers. In many cases, not only do they give us great volume pricing that we have access to seven days a week, but they also can deliver directly to the job site of our customers. That small to medium Pro remains our focal point.
We believe that within that $500 billion target market that Pro represents, we still have significant share that we can gain. We took a step back and asked a question, how do we more diversify our portfolio and how do we find a way to start to build a presence in the planned Pro spend? That led us to the ADG acquisition. The analysis we did was pretty straightforward. The real estate market is a little depressed now. I think we've all shared the data. The question is, when this recovery happens, where will it happen? We believe, based on the data that tells us that you're going to need roughly 18 million homes by 2033, we want to be positioned in this planned Pro spend area that we virtually today do $0 in revenue.
That's a $50 billion target market, you know, in residential construction and multifamily. ADG gives us a really nice foothold in that space. We were very diligent in deciding who we would target. We felt like their best-in-class brand position, they're one of the market share leaders as well, gives us a great entry into this planned Pro spend space. I'll let Brandon add any more.
Yeah, Brian, really excited about the transaction. Just closed on it last week. Just now welcoming, you know, ADG into the Lowe's family. As Marvin said, I mean, we're looking at this as a broader, comprehensive, you know, interior solutions platform for us to go after the homebuilders. I think as we look, you know, a number of synergies there, you know, today in roughly 18 states, 60 individual markets, a lot of, you know, parts of the Sunbelt that are high growth, you know, areas and geographies. I think our opportunity is, you know, additional fill-in as we look, you know, more nationally to take the platform. We bring a number of relationships and expertise in other categories as we look to add that potentially to the interior solutions platform.
As we leverage vendor relationships and as we introduce potentially, you know, private brands. New type of customer, $50 billion TAM, you know, able to diversify and potentially get into a larger planned Pro spend. Really excited about what this brings, what we can learn, and how we can grow it going forward.
I know our time is starting to wind down here, but two other, a couple of the comments I want to address. I mean, one, store growth. You know, I mean, how do you think about growth in the United States and elsewhere? And then also maybe I'll tag another question on that. You know, Marvin, you had mentioned the e-commerce strategy and, you know, the improvements Lowe's has made there. How do you, how do we think about growth in terms of stores, growing stores, and then that e-commerce background to serve customers?
Yeah, Brian, I'll speak to new stores. Really excited. You know, we mentioned space productivity initiatives, getting Pro penetration, you know, now to 30%. I think that gives us, you know, renewed focus around just the ability to drive, you know, additional, you know, market share, customer base, sales, ROI through new stores. We've essentially been out of that business for the last five. I think we've opened less than 10 stores in the last five years. You know, we've looked at population shifts, geography shifts, demographic changes over the last five years. And there's a number of strategic markets where we believe, you know, we can add a presence. There's also markets where, you know, we want to continue to protect and defend. You know, we're looking at that as continued opportunity. We have that in our capital plans over the next several years.
We expect to open 10 stores this year. We are on a run rate of 10-15 over the next several years. Excited to see, you know, what we can do in some of these new geographies. Marvin, you can speak to the online piece.
Look, online has been another growth opportunity for us. When I arrived, you know, almost seven years ago, it was about 4% of our revenue. Now we're around 12%. It's been an effort. I mean, just to give you a perspective, one of the first requests I made in 2018 was the need for e-receipts because we couldn't even do e-receipts seven years ago, if you can imagine that. Now, I mean, we have one of the highest regarded online sites, mobile apps, not only in retail, but just industry-wide due to great work by our digital and our IT team.
As we analyze how do you grow online and what are some of the correlating factors just around the globe for retailers that have had exponential online growth, we found the presence of a marketplace was almost exclusively combined to the traditional e-commerce site of a retail company. We felt like that we are now in a position with great performance of our app, great performance of our site, you know, much improved UX, much improved search, you know, functionality that the marketplace would be now the key area to have, you know, accelerated growth. Our recent partnership with Mirakl, you know, the best, you know, online integration system for marketplace sellers. We felt like that this would be a great opportunity for us to create, you know, accelerated growth online. We are eager and happy with where we are.
This partnership with Mirakl was just announced and we're in the early stages of it, but we have high hopes for what our online business will continue to do and how we believe it's going to continue to be a growth vehicle for us in the foreseeable future.
Yeah, Brian, I would also add just heavy investments on the fulfillment side of the house on the online experience as well. Marvin mentioned market delivery. Appliances is our biggest online category. You know, the ability now to have that nationwide and what that's been able to do for that category as well as, you know, big and bulky categories. We've enabled, you know, our gig network to offer same-day delivery. Uber, Instacart, we have our own integrated platform through OneRail. And then, you know, over 50% of our online orders are fulfilled through our stores. We've had our front-end transformation, you know, our ability to offer a unique customer experience to pace and speed in which we can, you know, pull, pick, and stage and enable that experience. That's been a big investment and a big contributor, I think, to the online success.
We continue to be excited about that, looking forward as well.
Last topic, I want to know, and I think really one of the big key positives among many of the Lowe's stories is the capital, you know, capital generation, capital allocation. Any kind of update or, you know, you want to give there?
Yeah, sure. Brian, really no change to the priorities. They've been consistent through the last several years. We're going to continue to invest, you know, in the business organic and inorganic. We're going to continue to target 35% dividend payout ratio. We're going to funnel, you know, remaining excess cash through share repurchases. I think a couple of nuances. You know, we have paused on share repo for this year to finance through cash the ADG transaction. Digesting that, but continue to be focused on our 2.75x leverage target. We're committed to our BBB+ credit rating. You know, we're going to continue to manage the business through that. We have about $2.5 billion of debt that we're going to pay off and is going to come due this year. We're not going to be issuing or refinancing any of that.
Again, those are our priorities and they continue to remain unchanged.
Once again, I very much appreciate the time. Thank you for the participation here. Congrats on the ongoing success.
Awesome. Thanks, Brian.
Thanks so much, Brian.
Thank you.