Lowe’s Eyes Wholesale Recovery as Housing Macro Stays Stubbornly Flat

A cautious outlook wrapped in solid execution

Lowe’s ended fiscal 2025 not with a flourish but with a controlled, almost metronomic beat. Sales for the year edged up to $86.3bn, comparable sales crept 0.2% higher, and adjusted EPS advanced 2% to $12.28. Adjusted operating margin for the year held at 12.1%, flat on the core business once the impact of recent acquisitions is stripped out.

Beneath those modest headline numbers, the retailer continued to outpace a sluggish home improvement backdrop. Fourth-quarter sales reached $20.6bn, with comps up 1.3%, driven by Pro customers, online growth and home services, plus a lift from winter storms Fern and Gianna. Management estimates storms added roughly 50 basis points to Q4 comps, or about 200 basis points in January alone.

The tone from chief executive Marvin Ellison was characteristically disciplined but wary. Housing turnover remains constrained by elevated mortgage rates and what he called a “persistent lock-in effect,” keeping a cap on big-ticket discretionary DIY projects. Lowe’s base case for 2026 is a home improvement market that is “roughly flat,” in a range of down 1% to up 1%.

Against that, the guidance is quietly ambitious. For fiscal 2026, Lowe’s is forecasting:

• Sales of $92–94bn, with comps flat to up 2%.
• Operating margin of 11.2–11.4%, and adjusted operating margin of 11.6–11.8%.
• Adjusted EPS of $12.25–12.75, with acquisitions accretive to EPS but dilutive to margin.

In other words, management is promising share gains and earnings stability in a sector it expects to go sideways.

The balance sheet’s new wholesale muscle

The story that will matter most to long-term investors is no longer just the blue big-box footprint but the emerging wholesale spine underneath it.

Lowe’s closed the acquisitions of Foundation Building Materials (FBM) and Artisan Design Group (ADG) in 2025, paying about $3bn in cash and borrowing a further $7bn. At year-end, adjusted debt-to-EBITDA stood at 3.31x, and the company had $982m of cash on hand. Free cash flow was a robust $7.7bn, capital expenditures were $2.2bn, and return on invested capital was a striking 26.1%.

FBM and ADG change the shape of the P&L. They:

• Contribute roughly $8bn of sales in 2026.
• Are accretive to adjusted EPS.
• Dilute operating margin by about 50 basis points on an annualized basis, including 30 basis points of additional dilution in 2026 as they “wrap” into the base.

The optics, then, are of lower gross margin but better SG&A leverage. CFO Brandon Sink guided to an approximately 75 basis point decline in gross margin in 2026, largely due to the mix shift into the lower-margin distribution businesses. Yet he stressed that the acquisitions are “accretive to consolidated SG&A as a percent of sales,” thanks to scale benefits in logistics, back office and vendor terms.

Strategically, Ellison cast FBM and ADG as the keystone of an “interior solutions platform” aimed at homebuilders: doors, windows, ceiling systems, insulation, appliances, cabinets and countertops under one corporate roof. About half of FBM’s revenue comes from commercial customers, with notable wins in data center construction – a diversifier that may prove valuable if residential construction remains soft.

Integration is still in its early innings, but the teams are already pursuing tuck-in deals, cost synergies and cross-selling. For now, investors will need to accept a modest margin give-up in exchange for a bigger, more diversified Pro and builder franchise.

Pro, online and services: the growth engines

If the housing macro is a drag, Lowe’s answer is to lean harder into the pieces of the business that are structurally growing – and structurally more defensible.

On the Pro side, the company delivered another quarter of growth, supported by expanded assortments, job-site delivery, inventory investments and a tailored digital experience. The retailer has built out what it claims is the largest selection of DEWALT power tools and accessories in the home center channel, reinforcing its credentials with small and medium-sized contractors.

Just as significant, Lowe’s is weaving AI into its Pro strategy. A new “Pro Companion” tool arms field sales staff with pre-configured recommendations and data on customer needs, turning what used to be a manual, relationship-driven process into something more scalable. At the Pro desk, the Extended Aisle interface gives associates access to suppliers’ catalogues and now includes staged job-site delivery – allowing contractors to receive materials in phased drops rather than all at once.

Home services, the “do-it-for-me” side of the house, posted high single-digit growth in the quarter, reflecting a revamped, more digital experience for installations. This is one of the few parts of home improvement still seeing healthy ticket sizes, as time-strapped or less confident homeowners outsource complex projects.

Online, Lowe’s delivered a 10.5% increase in Q4 sales and set records on Black Friday and Cyber Monday. The Lowe’s app became the number one free shopping app in Apple’s US App Store on Black Friday, a symbolic milestone for a retailer that has spent the last several years re-platforming its digital estate.

Ellison was keen to point out that the omnichannel investments are starting to show up in engagement metrics: record holiday performance, flexible fulfillment options, and a same-day “gig” delivery offering that proved especially valuable to last-minute shoppers. The company is also positioning itself for what he called “Agentic commerce,” collaborating with major digital platforms as AI becomes more embedded in shopping journeys.

Merchandising in a value-conscious era

On the merchandising floor, EVP Bill Boltz painted a picture of a consumer who remains willing to spend – but wants visible value and targeted innovation.

Nine of 14 merchandising divisions posted positive comps in Q4. Building products, long a barometer of Pro health, saw broad-based strength, notably in rough plumbing, HVAC and water treatment. Lowe’s highlighted a new merchandising approach for SharkBite PEX pipe and fittings – straight pipes stacked upright rather than coiled – a small but telling example of tailoring assortments to Pro preferences.

Millwork, particularly windows and doors, delivered positive comps, supported by exclusive brands such as Pella, Therma-Tru and Larson, and backed by installation and financing offers for replacement projects. In home décor, kitchens and bath, paint and appliances all posted positive comps. Lowe’s reiterated its claim to market leadership in appliances, touting what it says is the only next-day delivery and installation capability for major appliances across virtually every US zip code.

Paint was another bright spot, buoyed by milder early-quarter weather and the launch of Sherwin-Williams ProBlock Quick Dry Primers. Pros responded with double-digit comps in primers in Q4, suggesting that at least some discretionary refresh work is still going ahead despite macro jitters.

Hardlines categories, including hardware, seasonal and outdoor living, and lawn and garden, saw growth tied in part to holiday gifting and storm-prep demand. Black Friday theatrics – from bucket giveaways to “golden ticket” appliance promotions – delivered several viral moments across social platforms. Pet and workwear ranges, now in more than 1,000 stores, performed well enough that Lowe’s plans to roll them out chainwide in 2026.

Perhaps more quietly significant is the continued expansion of the Lowe’s Media Network, the retailer’s burgeoning retail media arm. Boltz described it as a way to leverage loyalty data from both DIY and Pro customers to offer supplier partners targeted advertising solutions across channels, from connected TV to creator partnerships. The financial impact is folding into Lowe’s broader perpetual productivity improvement (PPI) programme; Sink said growth in advertising revenue is one reason the company expects to unlock about $1bn of productivity again this year, roughly half in gross margin and half in expenses.

Productivity, AI and the human equation

Lowe’s PPI initiatives have become the quiet engine behind its margin stability. In 2025, the company delivered about $1bn of productivity, helping to offset inflation, wage pressures and investment in growth initiatives. For 2026, the target is roughly the same.

In stores, EVP of Stores Joe McFarland detailed a multi-year “front-end transformation” that has now rolled out across the fleet. The new layout includes expanded buy-online-pickup-in-store areas, designed to speed order retrieval and free up labour for “the aisle,” where associates can better serve customers. Freight flow has been re-engineered to move product more efficiently from trucks to shelves, and a new “Freight Flow 3.0” initiative will further sequence inbound inventory so that overnight teams focus on the highest-priority items, with early morning teams handling the rest. The result: more staff available during the crucial early Pro rush.

AI is not just a digital curiosity; it is being woven into the operational fabric. A full-shelf replenishment system, rolled out across all stores last month, uses real-time data to identify out-of-stocks and send a prioritized restock list to associates. Merchandising teams are getting AI tools to streamline vendor negotiations and assortment decisions. Technology teams are using AI for development and code reviews, producing what Ellison described as “double-digit productivity gains.”

On the customer-facing side, the “Mylow Companion” AI assistant has become a central plank. Built on OpenAI technology, it now handles about a million questions a month, in both English and Spanish, helping associates bridge knowledge gaps and boosting customer satisfaction scores by around 200 basis points in stores where adoption is high. Online, conversions roughly double when customers engage with the assistant.

Yet productivity has a human cost. As part of its drive for “financial agility,” Lowe’s is cutting around 600 corporate and support roles. Those savings will help fund continued investment in customer-facing areas, technology and Pro capabilities. To soften the blow and underline the importance of store staff, management announced $125m in discretionary bonuses for frontline associates in Q4 – $5,000 for assistant store managers and $150–$700 for hourly staff in stores and distribution centres, on top of regular incentives.

Ellison stressed that frontline staff were the reason Lowe’s was recently named Fortune’s number one “most admired” specialty retailer, and he sounded almost wistful as he thanked outgoing investor relations chief Kate Pearlman at the end of the prepared remarks. For all the talk of algorithms and agentic commerce, the narrative remains anchored in human execution.

Guidance: flat macro, modest upside

Sink’s guidance for 2026 is built on a view of an economy that is easing at the edges but not yet breaking free. The Federal Reserve has already cut short-term rates by 175 basis points over the last 18 months, and consensus expects another 50 basis points of cuts in 2026. That may help consumers with credit cards and auto loans, but the long end of the curve, and thus mortgage rates, still hover in the 4–4.5% range for the 10-year Treasury.

Lowe’s internally views mortgage rates below 6% as the level at which demand could meaningfully inflect, partly for psychological reasons. Rates dipped briefly below that threshold this week, but Ellison and Sink both argued it is too early to draw firm conclusions. The wide guidance range – 0–2% comp growth – implicitly brackets scenarios from continued deferral of big-ticket DIY spend at the low end to a modest reawakening of project activity, aided by tax refunds and home equity loans, at the top.

Key moving pieces in 2026 include:

• Q1 comps below the midpoint of the full-year guide, given storm-related disruptions in February.
• Adjusted operating margin about 20 basis points below the lower end of the full-year range in Q1, as FBM and ADG’s margin dilution is most acute early on.
• Net interest expense of around $1.6bn, reflecting FBM deal financing, partly offset by $2.3bn of bond maturities to be repaid in the first quarter.
• Capital expenditures of about $2.5bn, heavily weighted to the core retail business and Total Home initiatives.

In transactions and tickets, the company expects the pattern from the back half of 2025 to repeat: ticket driving growth in the first half as tariffs flow through pricing, then a gradual improvement in traffic as Lowe’s laps those increases in the second half.

Investors who have grown used to pandemic-era volatility may find this outlook almost subdued. But within that narrow band is a more interesting structural pivot: a retailer knitting together big-box retail, wholesale distribution, AI-enabled operations and a retail media business – all while promising to “outperform the macro” and take share, come what may in housing.

Whether that promise holds as mortgage rates and tariffs zigzag will be the real test of Lowe’s disciplined, quietly ambitious playbook in the year ahead.