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Lowe's Companies, Inc. (NYSE:LOW)

2013 Annual Meeting of Shareholders Conference Call

May 31, 2013, 10:00 am ET

Executives

Robert Niblock - Chairman, President & CEO

Gaither Keener - Chief Legal Officer, Chief Compliance Officer & Secretary

Bob Hull -CFO

Hannah Kim - VP

Analysts

Operator

Before we begin, pleas note that throughout this presentation you will hear forward-looking statements as defined in Private Securities Litigation Reform Act of 1995. Management’s expectations and opinions reflected in these statements are subject to risks and the company can give no assurance that they will prove to be correct. These risks are described in the company’s annual meeting press release and it’s filings with the Securities and Exchange Commission.

Also, during this presentation, management will be using certain non-GAAP financial measures. You can find reconciliation to the most directly comparable GAAP financial measures and other information about them posted on Lowe's Investor Relations website under Investor Documents.

And now please welcome Lowe’s Chairman, President and CEO, Mr. Robert Niblock.

Robert Niblock

Thank you. Good morning and welcome to Lowe’s 2013 Annual Shareholders Meeting. We’re glad you are able to join us and on behalf of Lowe’s thank you for your continued commitment and support.

To begin this meeting, I am pleased to announce this morning your Board of Directors approved a 12.5% increase in Lowe’s quarterly dividend. Increasing the dividend from $0.16 per share to $0.18 per share and that is scheduled to be paid on August, 7th of this year. This increase is a result of the dedication hard work of our employees across the organization which is led by our executive management team and which I would like to introduce you now and Lowe’s to recognize them so please hold your applause till we’ve introduced all of them.

With me on the platform is Chief Financial Officer, Bob Hull, and Chief Legal Officer Gaither Keener. In the front row here is Maureen Ausura, Chief Human Resources Officer; Greg Bridgeford, Chief Customer Officer; Marshall Croom, Chief Risk Officer; Rick Damron, Chief Operating Officer; Bob Gfeller, Customer Experience Design Executive; Mike Jones, Chief Merchandising Officer; Brent Kirby, Sales and Service Fulfillment Executive; Dennis Knowles, U.S. Stores Executive; Mike Mabry, Digital Interfaces Executive; Richard Maltsbarger, Business Development Executive; Brian Peace, Corporate Administration Executive; Doug Robinson, Head of International Operations and Development; Kevin Summers, Chief Information Officer and Steve Szilagyi, Supply Chain Executive. Thank you.

Now I would like to introduce Board of Directors and once again please hold your applause until all have been recognized. On this side of the room in the front row is Mr. Raul Alvarez; Mr. Dave Bernauer; Dr. Len Berry; Mr. Rick Dreiling; Ms. Dawn Hudson; Mr. Bob Johnson; Mr. Marshall Larsen; Mr. Dick Lochridge and Mr. Eric Wiseman. And also not with us today, due to a conflict is Mr. Peter Browning, who is also standing for election. Thank you for attendance and dedicated service over the many years, so give them a round of applause.

I would also like to introduce Mr. Bill Sullivan from the accounting firm of Deloitte & Touche. Bill is here and he is available to answer any questions you may have of him after the meeting. On this side of the room Hannah Kim, our Vice President Lowe’s has been appointed the Inspector of Election for this meeting and we look forward to voting results in a few minutes. Also financial services from Broadridge will assist with the tabulation of proxies and ballots. As your proxy cards indicated, Mr. Keener and Mr. Hull have been duly appointed as proxies for this meeting.

At this time, I officially call the meeting to order. Mr. Keener, please report on the mailing of the notice for this meeting, the presence of a quorum and other business we will consider today.

Gaither Keener

Thank you, Robert. Notice of annual meeting of the shareholders of Lowe’s Companies, Inc., has been provided to shareholders of record as of March 28, 2013. The notice and the company proxy statement were mailed to shareholders beginning on April 15, 2013. And as a record date of March 28, 2013 there were 1,088,511,808 shares a common stock outstanding of which 88.17% are represented today either in person or by proxy. Therefore, we have a quorum.

As provided in the notice of the annual meeting of shareholders, the purpose of this meeting is to address five items of business. First, elect 11 directors to remain to terms of one year.

Second, ratify the appointment of Deloitte & Touche as independent registered public accounting firm for the company for 2013 fiscal year.

Third, approve the company’s executive compensation program. John Chevedden is not present to present the proposal regarding executive stock retention requirements. Mr. Chevedden failed to comply with requirements of Lowe’s bylaws that he give notice of his authorization of another person to act for him as a proxy to present the proposal at the meeting and the person’s contacting information in writing to the Secretary of Lowe’s no less than three business days before the date of the meeting. Mr. Chevedden was given advanced written notice of the requirements and Lowe’s bylaws on multiple occasions and the board of directors decided to weigh this three day advance notice requirement of the bylaws last year when Mr. Chevedden failed to comply with the same requirements.

At recurrence he was present today and whom he has authorized today to do so will not be permitted to present proposal on his behalf for vote at the meeting, and therefore as the council of the company cleared that the proposal is an eligible for consideration at this meeting and the vote for this proposal was notified.

Please note that the proposals were eligible for vote at the meeting, the proposal would have failed. The last on the business is to transact its other business as maybe properly bought before the annual meeting or any adjournment or postponement thereof. Robert, this completes our shareholder proposals and return the meeting to you.

Robert Niblock

Thank you, Gaither. And now we clear the polls open for voting. The proxies delivered their ballots to the Inspector of Elections. If you’ve already delivered the proxy, it is not necessary to voting person unless you wish to change your vote. Anyone who desires to vote in person should raise their hand at this time through either Hannah or Steve from [Broadridge] may provide you with a ballot. And we do not see any hands raised for voting. So since all votes have now been cast, I declare the polls to be closed. Hannah, are you prepared to deliver your report?

Hannah Kim

I am. Based upon the vote of the shareholders, let me note that the nominees to the board of directors are elected with all 11 nominees receiving no less than 89.8% of the vote. Deloitte & Touche is ratified as the company’s independent public accountant receiving 98.8% of the vote. The company’s executive compensation plan has been approved with 94.3% of the vote. Please note that the final numbers will be filed through the SEC within four business days. Thank you, Robert.

Robert Niblock

Thank you, Hanna, for your report. At this time, I'll now provide insight in to our performance and the progress that we made as a company in 2012. Our journey to build better home improvement experiences for customers continues. It's a journey that will enable us to meet customers whenever and wherever they choose to engage in home improvement, a journey that includes significant investments in areas that will differentiate us from the competition, a journey that will ultimately make us the customer’s preferred choice and partner in home improvement.

2012 is the year we balanced running the business while we changed the business. The balance has helped us drive financial performance while making progress on the changes necessary to complete our journey. In 2012, our sales topped a company record $15.5 billion, driven by comp sales increase of 1.4%. Our earnings per share were up 18% to $1.69 and our stock price finished the year at $38.56, a 42% increase for the fiscal year.

Last week we announced a 14% increase in our first quarter earnings per share over first quarter of 2012 and our stock price closed yesterday at $42.66, representing a 10.6% increase so far in 2013.

Some of the strategic decisions we have made in 2010 are starting to pay off and we are gaining the momentum needed to deliver transformational change. Our financial performance was solid. We also made progress on a number of key initiatives that move us closer to creating better customer experiences in an omni channel environment that will set us apart.

We have invested more than 350,000 hours in training to empower our employees to find solutions for customers and build relationships that over time turn cross-shoppers into loyal Lowe’s customers. We conducted more than 80% of our product line reviews and completed approximately 30% of the associated store resets as we continue to move towards giving customers better everyday value, competitive prices and market-specific product assortments.

Sales from lowes.com increased nearly 60% over the prior year, and mobile now represents 20% of all traffic on lowes.com. In the first quarter alone, we saw a 25% increase in the number of registered MyLowe's user, given us an important point of differentiation with customers and we are in the process of realign the company to improve execution through better collaboration.

Our journey continues in 2013, with special emphasis in areas that impact customers the most. We are making investment in additional payroll hours and depth of inventory to maximize our selling opportunities. We are continuing to invest in technology, with upgrades to the internet and mobility platforms in our stores to ensure we have the technology that’s critical to improve customer experience and reselling tools that have been in development for a number of years are in their final testing phases with the planned rollout in 2014. These tools will further empower and enable employees to meet the rapidly changing needs of customers.

2013 represents an enormous opportunity for us to turn investments like these along with an improving housing and macroeconomic outlook into another year of strong performance and progress on our journey. We’re excited about our prospects this year, excited about the recovery in housing, especially in markets like Florida, California and Arizona and the opportunity they represent for our company.

We’re excited about the momentum we’re gaining and what it means for our ability to continue our transformational change and the benefits it will deliver. We’re excited about the investments we’re making and what they’ll enable us to do in the future as we start to realize new capabilities that serve customers better. And we’re encouraged by results so far this year even with the weather delayed spring selling season as evidenced by comp performance in markets we have experienced a more normal spring this year.

In 2013, we will continue to focus on executing the fundamentals of retail, valuing every customer interaction and constantly seeking to improve the experiences we provide in our stores, online, on mobile devices, over the phone and in our customers’ homes.

We’ll also continue to focus on the things that make us strong in the house of customers, our commitment to giving back to the community in areas of housing and education, our commitment to the environment in the areas of energy and water efficiency through our award winning programs and products, and our commitment to help the communities recover from natural disastrous. Our hearts go up to the people of Oklahoma and across the plains who are recovering and starting to rebuild in the wake of last week’s tornadoes.

As we’ve done in the past when natural disaster strike, we donated $1 million to relief efforts to organization such as the American Red Cross and activated our stores around the country and lowes.com to be Red Cross their nation sites. Between the investments we are making, the initiatives we’re completing and the improvements taking place in the housing market we expect the momentum we gain in 2012 to accelerate in 2013 and lead to another year of solid growth.

We value and support our shareholders and look forward to continuing our strong relationship. I will now turn the meeting over to Bob Hull to discuss Lowe’s financial results in greater detail. Bob?

Bob Hull

Thank you, Robert. Good morning, everyone. In my time today, I plan to review our 2012 financial performance, recap our first quarter 2013 results and provide some thoughts on our financial strength and how we are returning capital to shareholders

For 2012, total sales were $50.5 billion, an increase of 0.6% over 2011. Comparable store sales increased 1.4% for the year which is our best comp since 2005. Earnings before interest and taxes or EBIT increased 52 basis points over 2011 to 7% of sales. Net earnings increased 6.5% to almost $2 billion while earnings per share increased 18% to a $1.69.

As many of you know we’ve recently reported our first quarter results. Here is a look at those results. Sales for the first quarter were $13.1 billion, which represent the 0.5% decrease from last year’s first quarter. Comp sales were negative 0.7% due to unfavorable weather that delayed the spring selling season. EBIT increased 25 basis points to 7.5% of sales. The increase in EBIT was driven by both gross margin expansion and expense leverage. Net earnings increased 2.5% to $540 million and earnings per share increased 14% to $0.49.

For the year, we expect earnings per share of $2.05, an increase of 21% over 2012. We ended 2012 with $9.1 billion in total debt. Our lease adjusted debt to earnings before interest, taxes, depreciation and amortization or EBITDA ratio was 2.17 times, with (inaudible) at or below 2.25 times for year-end 2013.

For 2012, we generated cash flow from operations of almost $3.8 billion and free cash flow of $2.6 billion. We shared on our first quarter earnings call that we expect cash flow from operations for 2013 to be approximately $4 billion and cash capital expenditures to be roughly $1.2 billion resulting in free cash flow of $2.8 billion.

Our strong financial position allows us to return capital to shareholders through increased dividend and share repurchases. As you heard from Robert, this morning our board approved a 12.5% increase in quarterly dividend. Over the past 10 years, our quarterly dividend has grown at a 31% compound annual growth rate.

In 2012, we repurchased 146 million shares, which equates to total repurchase amount of $4.35 billion. In February, our board approved a new $5 billion repurchase authorization while simultaneously terminating the prior program. Under the new authorization we repurchased a little more than $1 billion in the first quarter of 2013. This leaves us with approximately $4 billion remaining on a share repurchase authorization.

We expect to repurchase a total of $3.8 billion in 2013. As we make further progress on our initiatives, we look forward to generating and returning additional value for our shareholders. Thank you for interest in Lowe’s and I will turn the program back to Robert.

Robert Niblock

Thank you, Bob. I will now open the meeting to our shareholders with questions. We read through this morning you offered the form for the submission of questions. All questions and comments are limited to three minutes each.

Before asking your question, I ask you to step to the microphone in center of the room, state your name and the organization for which you are proxy if you are here on their behalf. I will then respond your question or direct another officer or director to respond to your question. The floor is now open for questions.

Okay. I don't see one moving to the microphone with questions. So given that we don't have any questions this morning, I would like to express my thanks again for your continued support and commitment for attending this year’s meetings. Thanks also to the shareholders who submitted their proxies but were unable to attend this year. Hope that you will be able to join us at next year’s meeting. Thank you and this meeting is now adjourned.

Question-and-Answer Session

[No Q&A Session for this event]

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