LOW 10-K & 10-Q changes, risk factors and insider trading

The home improvement retail environment, like the retail environment generally, is rapidly evolving, and adapting our business concept to respond to our customers’ changing shopping habits and demands and their changing demographics is critical to our future success. Our success is dependent on our ability to identify and respond to the economic, social, style, and other trends that affect demographic and consumer preferences in a variety of our merchandise categories and service offerings, as well as consumer spending. Customers’ needs and expectations about how they wish to research, purchase, and receive products and services have also evolved. It is difficult to predict the mix of products and services that our customers will demand. As our customers expect a more personalized experience, our ability to offer more localized assortments of our merchandise to appeal to local tastes within each customer group is important to our ability to effectively meet customer needs and expectations. Our Pro customers also expect more capabilities such as appropriate product assortment, strong sales support, and competitive credit options. Customers also have evolving preferences and expectations related to the sustainability of our products and operations. If we do not successfully differentiate the shopping experience to meet the individual needs and expectations of or within a customer group, we may lose market share with respect to those customers.

Our interactions with customers have evolved into an omnichannel experience as they use computers, tablets, mobile phones, and other electronic devices to shop in our stores and online and provide feedback and public commentary on social media platforms about all aspects of our business. Omnichannel and digital retail is quickly evolving, and we must anticipate and meet our customers’ expectations and counteract new developments and technology investments by our competitors. Our customer-facing technology systems must appeal to our customers, function as designed, and provide a consistent customer experience. We also need to collect, use, and share relevant customer data to effectively meet customer expectations of a more personalized experience. Our ability to collect, use, and share such data is subject to a number of external factors, including the impact of legislation or regulations governing data privacy and security, as well as the change of third-party policies restricting data collection, use, and sharing.

Our ability to meet our labor needs, particularly in a competitive labor market, while controlling our costs is subject to a variety of external factors, including wage rates, the availability of and competition for talent, health care and other benefit costs, our brand image and reputation, changing demographics and the adoption of new or revised legislation or regulations governing immigration, employment, labor relations, minimum wage, health care benefits, and family and medical leave. We are subject to upward pressure on associate wages and employer-provided benefits, which in turn increases labor costs. Additionally, many associates are in entry-level or part-time roles with historically higher turnover rates, which leads to increased training and retention costs. Further,A limited number of our employees at FBM are represented by labor unions, and we are also subject to labor organizing efforts from time to time,time. andIf ifsuccessful, wethose becomeorganizing subjectefforts to collective bargaining agreements in the future, it couldmay affect how we operate our business. Our response to any organizing efforts could be perceived negatively and harm our business and reputation. In addition to our United States operations, we have support offices in India and China, and any extended disruption of our operations in our different locations, whether due to labor difficulties or otherwise, could adversely affect our business and results of operations.

Our public image and reputation are critical to ensuring that our customers shop at Lowe’s, our vendors want to do business with Lowe’s, and our associates want to work for Lowe’s. We must continue to manage, preserve, and grow Lowe’s public image and reputation. Lowe’s actual or perceived position or lack of position on social, environmental, political, public policy, or other sensitive issues, and any perceived lack of transparency about those matters, could harm our reputation. In addition, failure to meet our stated environmental and social objectives, and consumer, shareholder, and other stakeholder concerns about our environmental and social practices are potential sources of reputational risk. Vendors and others with whom we do business may affect our reputation. Any negative incident can erode trust and confidence quickly, and adverse publicity about us could damage our reputation and brand image, undermine our customers’ confidence, reduce demand for our products and services, affect our relationships with current and future vendors, impact our results of operations, affect our ability to recruit, retain, and engage our associates, and attract regulatory scrutiny. Collaborations with social media content creators, professional athletes, celebrities, and public personalities may also expose us to brand and reputational risks. The significant expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated by such negative incidents. We have been, and in the future may be, subject to criticism in the media and negative social media campaigns related to certain initiatives, including those related to diversity and inclusion, and changes in those initiatives. Widespread dissemination of such criticism at times may adversely impact our relationships with our associates, customers, shareholders, and other stakeholders. In addition, the use of social media platforms and other technologies has increased the speed and accessibility of information dissemination and given users the ability to more effectively organize collective actions such as boycotts and other actions.actions that could have an adverse effect.

Product and service quality issues could result in a negative impact on customer confidence in Lowe’s and our brand image. If our product and service offerings do not meet applicable safety standards or our customers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial, and reputational risks. As a result, Lowe’s reputation as a retailer of high-quality products and services, including both national and Lowe’s private brands, could suffer and impact customer loyalty.loyalty and trust. Additionally, we and our customers have expectations on responsible sourcing and compliance with applicable laws and regulations. Under our Vendor Code of Conduct, our vendors are required to meet our expectations across multiple areas of compliance, including health and safety, environmental standards, compensation, hours of work, and prohibitions on child and forced labor. Where appropriate, we request that our vendors provide additional documentation proving their compliance in these areas. If we need to seek alternative sources of supply from vendors with whom we have less familiarity, the risk of our standards not being met may increase. Actual, potential, or perceived product safety concerns or vendor non-compliance exposes us to litigation, as well as government enforcement action, and could, and in certain instances in the past has, resulted in costly product recalls, the inability to sell certain products due to customs actions, including regulatory enforcement inquiries, holds, detentions, and exclusions, and other liabilities.

We source, both directly and indirectly, a portion of the products we sell from foreign manufacturers, with China and Mexico being the dominant import sources. Tax and trade policies, tariffs, and other regulations affecting trade between the United States and other countries, such as China and Mexico, increase the cost of our merchandise sourced from outside of the United States, which represents a large percentage of our private branded and national brand merchandise. It remains unclear how tax or trade policies, tariffs, customs actions, or trade relations may evolve in the future, which could adversely affect our business, results of operations, effective income tax rate, liquidity, and net income. In addition, other countries have responded by changing their business and trade policies in anticipation of or in response to increased import tariffs and other changes in U.S. trade policy and regulations already enacted or that may be enacted in the future. Complications in the free movement of goods in North America, an escalation of tariff activity elsewhere in the world or changes to existing free trade agreements, like the United States-Mexico-Canada Agreement (USMCA), could adversely impact our financial results. Increased import tariffs and other changes in trade policy could also negatively impact consumer demand for the products we sell. In addition to the potential direct impacts of increased tariff activity, longer term macroeconomic consequences could result, including slower growth, inflation, and higher interest rates. The degree of our exposure is dependent on, among other things, the type of goods, rates imposed, and timing of tariffs. The impact to our business, including net sales and gross margin, will be influenced in part by merchandising and pricing strategies in response to potential cost increasesimpacts by us and our competitors. While these potential impacts are uncertain, they could have an adverse impact on our financial results.

Financial instability among key vendors, political instability, geopolitical or armed conflicts, and labor unrest in source countries or elsewhere in our supply chain, changes in the total costs in our supply chain (including fuel), labor costs or labor shortages among our vendors, port labor disputes and security, the outbreak of pandemics, weather-related events, natural disasters, work stoppages,stoppages or slowdowns, government shutdowns, shipping capacity restraints, shipping delays and disruptions, changes in trade policy, retaliatory trade restrictions imposed by either the United States or a major source country, tariffs or duties, customs actions, including regulatory enforcement inquiries, holds, detentions, and exclusions, fluctuations in transport availability, capacity, and costs are beyond our control and could negatively impact our business if they seriously disrupted the movement of products through our supply chain or increased their costs. In recent years, U.S. ports have been impacted by capacity constraints, port congestion and delays, periodic labor disputes, security issues, weather-related events, and natural disasters.

Additionally, as we add fulfillment capabilities or pursue strategies with different fulfillment requirements, our fulfillment network becomes increasingly complex and operating it becomes more challenging. If our fulfillment network does not operate properly or if a vendor fails to deliver on its commitments, we experience delays in inventory, increased delivery costs, or merchandise out-of-stocks that could lead to lost sales andsales, decreased customer confidence, and adversely affect our results of operations.operations and business performance.

We continue to transform and expand our supply chain network and existing omnichannel capabilities to meet changing customer needs.needs and expectations. These investments are designed to promote greater network capacity and better flow management and optimization while leveraging a market delivery model. Failure to choose the right investments and implement them in the right manner and at the right pace could disrupt our operations. If we are unable to effectively manage the volume, timing, nature, location, and cost of these investments, projects, and changes, our business operations and financial results could be materially and adversely affected. The cost and potential problems, defects of design, and interruptions associated with the implementation of these initiatives, including those associated with implementing new technologies, restructuring support systems and processes, securing appropriate facility locations, addressing impacts on inventory levels, and managing third-party service providers, could disrupt or reduce the efficiency of our operations and impact our profitability. Our investments to enhance and expand our supply chain might not provide the anticipated benefits, or might take longer than expected to complete or realize anticipated benefits, or might fail altogether, each of which could adversely impact our competitive position and our financial condition, results of operations, or cash flows.

We form strategic relationships, some of which are exclusive, with selected suppliers to market and develop products under a variety of recognized and respected national brand names. We also have relationships with certain suppliers to enable us to sell private branded products which differentiate us from other retailers. The inability to effectively and efficiently manage and maintain our relationships with these suppliers could negatively impact our business operations and financial results. The business practices of these suppliers could be associated with us and heighten risks to our brand.

We contract with third-party installers to provide installation services to our customers, and, as the general contractor, we are subject to regulatory requirements and risks applicable to general contractors, including certain licensing and permitting requirements, and those relating to the quality and performance of our third-party installers. We have facedbeen involved in investigations by one or more government agencies relating to our compliance with applicable laws and regulations, including an investigation with respect to whether we are in compliance with applicable recordkeeping requirements and lead-safe practices. Any adverse result following such investigations could negatively affect our operations. The qualification processes and background checks we utilize when engaging third-party installers may not reveal all potentially relevant information, including accurate worker authorization information and criminal history. In addition, failures by us or our third-party installers to effectively manage such requirements and internal processes regarding installation services have, from time to time, resulted in, and in the future could result in lost sales, fines, and lawsuits, as well as damage to our reputation, and may result in the loss of our general contractor licenses, which could negatively affect our business.

Our financial performance could be adversely affected if our information systems or the information systems of third-party vendors are seriously disrupted or we fail to properly maintain, improve, upgrade, and expand those systems.systems and infrastructure.

Additionally, we continually make investments in our systems which may introduce disruption. In particular, the Company is undergoing a multi-year technology transformation which includes updating and modernizing our merchandisedistribution sellingand system,replenishment systems, as well as certain accounting and finance systems. We may not be able to achieve the anticipated benefits of these investments and may experience operational challenges such as delays or errors in implementation, security failures such as loss or corruption of data, reputational harm, increased costs and other significant disruptions. Our financial performance could be adversely affected if our information systems are seriously disrupted or we fail to properly maintain, improve, upgrade, and expand those systems.

Access to the Internet from computers, tablets, smartphones and other mobile communication devices has empowered our customers and changed the way theycustomers shop and how we interact with them.us. Our websites, primarily Lowes.com, and our mobile applications are aimportant sales channel for our products,channels and are also a methodsources of making product, project, and other relevant information available to our customers that impactsinfluence ourboth online and in-store sales. Additionally,We we haveleverage other affiliated websites and mobile apps through which we seek to inspire, inform, cross-sell, establish online communities among, and otherwise interact with, our customers, including through online visualization and configuration tools. Performance issues with these customer-facing technology systems, including temporarysystems outagesfailures causedor interruptions, defects, capacity constraints, human error, natural disasters, power loss, failures by third parties, and cybersecurity threats such as distributed denial of service,service attacks, ransomware, orphishing and other cyber-attacks,attempts to gain unauthorized access to or disrupt systems or data, or a complete failure of one or more of them without a disaster recovery plan that can be quickly implemented, could quickly destroy the positive benefits they provide to our home improvement business and negatively affect our customers’ perceptions of Lowe’s as a reliable online vendor and source of information about home improvement products and services.

We accept payments using a variety of methods, including credit cards, debit cards, credit accounts, our private label and co-branded credit cards, trade credit, mobile and electronic payments, digital wallets, gift cards, cash, consumer invoicing and physical bank checks, buy now pay later, and we may offer different payment options over time. These payment options subject us to many compliance requirements, including, but not limited to, compliance with payment card association operating rules, including data security rules, certification requirements, rules governing electronic funds transfers and Payment Card Industry Data Security Standards. They also subject us to potential fraud by criminal elements seeking to discover and take advantage of security vulnerabilities that may exist in some of these payment systems. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs. Additionally, we rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, gift cards, promotional financing, and other forms of electronic payment, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. National outages with our third-party credit and debit processor have resulted in lost sales and declined transactions after purchases. Future occurrences of such failures in third party systems are difficult to predict and may adversely affect our operations in unexpected ways.

We regularly consider and enter into strategic transactions, including mergers, acquisitions, joint ventures, investments and other growth, market and geographic expansion strategies, such as FBM and ADG in 2025, with the expectation that these transactions will result in increases in sales, cost savings, synergies, and other various benefits. Our ability to deliver the expected benefits from any strategic transaction is subject to numerous uncertainties and risks, including our ability to integrate personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; and increasing the scope, geographic diversity, and complexity of our operations. Effective internal controls are necessary to provide reliable and accurate financial reports, and the integration of businesses may create complexity in our financial systems and internal controls and make them more difficult to manage. Integration of businesses into our internal control system could cause us to fail to meet our financial reporting obligations. Additionally, we have recognized material impairments in the past and may do so in the future, including in connection with assets we have acquired or divested in a strategic transaction or charges to earnings associated with any strategic transaction, which have and may in the future materially reduce our earnings. Our shareholders may react unfavorably to our strategic transactions and strategic transactions may also be subject to regulatory uncertainty due to the changing enforcement landscape. We may not realize the anticipated benefits from such transactions, we may be exposed to additional liabilities of any acquired business or joint venture, and we may be exposed to litigation in connection with the strategic transaction. Further, we may finance these strategic transactions by incurring additional debt, which could increase leverage or impact our ability to access capital in the future.

Many macroeconomic factors have in the past and may in the future adversely affect our financial performance. These include, but are not limited to, periods of slow economic growth or recession, home price appreciation or decreasing housing turnover, age of housing stock, volatility and/or lack of liquidity from time to time in U.S. and world financial markets and the consequent reduced availability and/or higher cost of borrowing to Lowe’s and its customers, slower rates of growth in real disposable personal income that could affect the rate of growth in consumer spending, inflation and its impacts on discretionary spending and on our costs, shortages, and other disruptions in the labor supply, the impact of rising interest rates, consumer debt levels, changes in tax rates and policy, outbreak of pandemics, fluctuations in fuel and energy costs, inflation or deflation of commodity prices, natural disasters, geopolitical or armed conflicts, and acts of both domestic and international terrorism. Additionally, in fiscal 2024,2025, we continued to operate in an environment with inflationary pressures and higheraffordability interest rates,concerns, which has adversely impacted consumer discretionary spending. If cost inflation of merchandise increases beyond our ability to control or respond effectively, we may not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand. Sales of many of our product categories and services are driven by the activity level of home improvement projects. Adverse development in these factors could result in a decrease in home improvement activity which could reduce demand for our products and services.

Our costs of doing business could increase as a result of changes in, expanded enforcement of, or adoption of new international, federal, state or local laws and regulations.

Our business is subject to a wide array of international, federal, state,state and local laws and regulations. In recent years, a number of new laws and regulations have been adopted, and there has been expanded enforcement of certain existing laws and regulations by federal, state, and local agencies. These laws and regulations, and related interpretations and enforcement activity, may change as a result of a variety of factors, including political, economic, or social events. Changes in, expanded enforcement of, or adoption of new federal, state or local laws and regulations governing minimum wage requirements, collective bargaining, the classification of exempt and non-exempt employees, the distinction between employees and contractors, other wage, labor or workplace regulations, health care, data privacy and cybersecurity, the sale and pricing of some of our products, transportation, logistics, international trade, responsible sourcing, supply chain transparency, taxes, unclaimed property, sustainability, the environment and climate change, including energy costs and consumption, could increase our costs of doing business or impact our operations. In addition, if we fail to comply with other applicable laws and regulations, including the Foreign Corrupt Practices Act and local anti-bribery laws, we could be subject to reputational and legal risks, including government enforcement action and class action civil litigation, which could adversely affect our business, financial condition, and results of operations.

We rely on cash flows from operations, as well as continued access to capital markets on both a short-term and long-term basis, as needed, to fund our operations, make strategic investments to support long-term growth, such as the acquisitions of FBM and ADG, return excess cash to shareholders in the form of dividends and share repurchases, and repay debt maturities as they become due. Our access to capital markets depends on our strong credit ratings, the overall condition of such capital markets andmarkets, our operating performance.performance and reputation with potential lenders. If rating agencies lower or place our credit ratings on a credit watch, or if we experience a deterioration of certain financial ratios, it could adversely affect our ability to access the public debt markets and our cost of funds. Each of the credit rating agencies reviews its ratings periodically, and there is no guarantee that our current credit ratings will remain the same. Disruption in the financial markets, including as a result of rising interest rates, bank and private credit failures or other macroeconomic conditions, or an erosion of our credit strength or declines on our credit rating could impact negatively our ability to meet capital requirements or fund working capital needs. If we are unable to access the public debt markets, we may be required to find other sources of capital, which may result in increased borrowing costs and restrict our ability to operate.

The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the two-year period ended January 31,30, 20252026 (our fiscal years 20242025 and 20232024). Unless otherwise noted, all references herein for the years 2025, 2024, 2023, and 20222023 represent the fiscal years ended January 30, 2026, January 31, 2025, and February 2, 2024, and February 3, 2023, respectively. Fiscal years 2024 and 2023 contained 52 weeks of operating results compared to fiscal year 2022, which contained 53 weeks. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in this Annual Report that have been prepared in accordance with accounting principles generally accepted in the United States of America. This discussion and analysis is presented in four sections:

Net sales for fiscal 20242025 decreasedincreased 3.1% from fiscal 20232024 to $83.7$86.3 billion. Comparable sales for fiscal 20242025 decreasedincreased 2.7%,0.2%, consisting of a 3.0% increase in comparable average ticket, partially offset by a 2.8% decrease in comparable customer transactions, and a 0.3% increase in comparable average ticket.transactions. Net earnings for fiscal 20242025 decreased 10.0%4.4% to $7.0$6.7 billion. Diluted earnings per common share decreased 7.4%3.1% in fiscal 20242025 to $12.23$11.85 from $13.20$12.23 in fiscal 2023.2024. Included in fiscal 2025 results are pre-tax expenses of $321 million consisting of transaction costs and intangible asset amortization related to the acquisition of ADG and FBM, which decreased diluted earnings per share by $0.43 in fiscal year 2025. Included in the fiscal 2024 results is $177 million of pre-tax income of $177 million associated with the fiscal 2022 sale of the Canadian retail business, which increased diluted earnings per share by $0.24. Included in the fiscal 2023 results is $63 million of pre-tax income associated with the sale of the Canadian retail business, which increased diluted earnings per share by $0.11$0.24 in fiscal year 2023.2024. Adjusting for these items, adjusted diluted earnings per common share decreasedincreased 8.4%2.4% to $11.99$12.28 in 20242025 from adjusted diluted earnings per common share of $13.09$11.99 in 20232024 (see the non-GAAP financial measures discussion).

For fiscal 2024,2025, cash flows from operating activities were $9.6$9.9 billion, with $1.9$2.2 billion used for capital expenditures. Continuing to deliver on our commitment to return excess cash to shareholders, the Company repurchased $3.9 billion of common stock and paid $2.6 billion in dividends during the year.

21 A comparable location is defined as a retail location that has been open longer than 13 months. A location that is identified for relocation is no longer considered comparable in the month of its relocation. The relocated location must then remain open longer than 13 months to be considered comparable. A location we have decided to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Operating locations which are sold are included in comparable sales until the date of sale. Comparable sales include online sales, which positively impacted comparable sales in fiscal 2024,2025, fiscal 2023,2024, and fiscal 20222023 by approximately 105 basis points, 50 basis points, 25 basis points, and 4525 basis points, respectively. TheAcquisitions are typically included in comparable sales calculationafter they have been owned for fiscalmore 2022than was12 calculated using sales for a comparable 52-week period.months.

For a comparison of our results of operations, financial condition, liquidity, and capital resources for the fiscal years ended January 31, 2025, and February 2, 2024, and February 3, 2023, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended FebruaryJanuary 2,31, 2024,2025, filed with the SEC on March 25,24, 2024.2025.

Cash flows from operations, combined with our continued access to capital markets on both a short-term and long-term basis, as needed, remain adequate to fund our operations, make strategic investments to support long-term growth, return excess cash to shareholders in the form of dividends and share repurchases,dividends, and repay debt maturities as they become due. We believe these sources of liquidity will continue to support our business for the next twelve months. As of January 31,30, 2025,2026, we held $1.8$1.0 billion of cash and cash equivalents, as well as $4.0$5.0 billion in undrawn capacity on our revolvingRevolving creditCredit facilities.Facilities.

Cash flows from operating activities continued to provide the primary source of our liquidity. The increase in net cash provided by operating activities for the year ended January 31,30, 2025,2026, compared to the year ended FebruaryJanuary 2,31, 2024,2025, was primarily driven by changes in merchandise inventory due to inventory optimization efforts during the year, partially offset by lower net earnings and the timing of income tax payments and other changes in working capital, partially offset by lower net earnings. Cash flows relating to changes in other operating liabilities improved $2.1 billion due primarily to timing of federal estimated tax payments. Fiscal 2023 includes payment of certain fiscal 2022 estimated tax payments deferred under the income tax relief announced by the Internal Revenue Service (IRS) for businesses located in states impacted by Hurricane Ian. In addition, fiscal 2024 benefited from deferral of certain federal estimated tax payments thatwhich were previously deferred until fiscal 2025 under the income tax relief announced by the IRS for businesses impacted by Hurricane Helene.

Net cash used in investing activities is primarily consistsdriven by our acquisitions of ADG and FBM, which used $10.1 billion in fiscal year 2025, in addition to transactions related to capital expenditures.

Cash Flows Provided by/Used in Financing Activities

Net cash provided by/(used in) financing activities primarily consistconsists of transactions related to our debt, share repurchases, and cash dividend payments.

WeIn havefiscal 2025, we entered into a $2.0 billion five-year unsecured credit agreement (2025 Credit Agreement), which has a maturity of September 2030, replacing the Company’s $2.0 billion five-year unsecured revolving third amended and restated credit agreement entered into in December 2021, and as amended (the Third Amended and Restated Credit Agreement), with a syndicate of banks, which has a maturity date of December 2026 and an aggregate availability of $2.0 billion.. We also have aamended $2.0 billionthe five-year unsecured revolving amended and restated credit agreement dated September 1, 2023 (the 2023 Credit Agreement), with a syndicate of banks, which has a maturity date of September 2028 and an aggregate availability of $2.0 billion. Subject to obtaining commitments fromUnder the lendersamendment, andborrowings satisfying other conditions specified in the Third Amended and Restated Credit Agreement andunder the 2023 Credit Agreement (collectively,will theno Creditlonger Agreements),be thesubject Companyto maya increaseSOFR thecredit combinedspread aggregate availability of the Credit Agreements by an additional $1.0 billion.adjustment.

The 2025 Credit Agreement and the 2023 Credit Agreement (collectively the Long-Term Credit Agreements) support ourthe Company’s commercial paper program. The amountamounts available to be drawn under the Credit Agreements is reduced by the amount of borrowings under our commercial paper program. There were no outstanding borrowings under the commercial paper program or Credit Agreements asAs of January 31,30, 2025.2026, Total combined availability under the Credit Agreements as ofand January 31, 2025, was $4.0 billion. Therethere were no outstanding borrowings under the Company’s commercial paper program as of February 2, 2024, and there were no outstanding borrowings underor the Long-Term Credit Agreements as of February 2, 2024.Agreements.

We have an ongoinga share repurchase program, authorized by the Company’s Board of Directors, that is executed through purchases made from time to time either in the open market or through private off-market transactions. We also withhold shares from employees to satisfy tax withholding liabilities on share-based payments. Shares repurchased are retired and returned to authorized and unissued status. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for fiscal 20242025 and fiscal 20232024:

1 Excludes unsettled share repurchases and unpaid excise taxes.

As of January 31,30, 2025,2026, we had $10.8 billion remaining under our share repurchase program with no expiration date. In fiscal 2025, the Company paused its share repurchase program.

We record an inventory reserve for the estimated adjustment to mark down merchandise inventory to the lower of cost or net realizable value (LCNRV). This reserve is based on our current knowledge with respect to inventory levels, sales trends and historical experience. During fiscal 2024,2025, our reserve decreasedincreased approximately $23$7 million to $222$229 million as of January 31,30, 2025.2026.

We are self-insured for certain losses relating to workers’ compensation, automobile, property, general and product liability, extended protection plans, and certain medical and dental claims. We have excess insurance coverage above certain retention amounts to limit exposure from single events and earnings volatility. Our self-insured retention or deductible, as applicable, is limited to $2 million per occurrence involving workers’ compensation, and $10 million per occurrence involving general liability, product liability, and automobile liability. We do not have any excess insurance coverage for self-insured extended protection plan or medical and dental claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon our estimates of the discounted ultimate cost for self-insured claims incurred using actuarial assumptions followed in the insurance industry and historical experience. During fiscal 2024,2025, our self-insurance liabilities decreasedincreased approximately $138$5 million to $966$971 million as of January 31,30, 2025.2026.

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity and capital resources during the three and six months ended MayJuly 1,31, 2026, and MayAugust 2,1, 2025. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2026 (the Annual Report), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of fiscal 2025. This discussion and analysis is presented in four sections:

Net sales in the firstsecond quarter of fiscal 2026 improved 10.3%8.3% to $23.1$26.0 billion compared to net sales of $20.9$24.0 billion in the firstsecond quarter of fiscal 2025. Comparable sales for the firstsecond quarter of fiscal 2026 increased 0.6%,0.2%, consisting of an increase in comparable average ticket of 1.5%,2.3%, partially offset by a decrease of 0.9%2.1% in comparable customer transactions. Net earnings in the first quarter of fiscal 2026 remained consistent with the first quarter of fiscal 2025 at $1.6 billion. Diluted earnings per common share were $2.90 in the first quarter of fiscal 2026 compared to $2.92 in the first quarter of fiscal 2025. Included in the first quarter of 2026 results are pre-tax expenses of $96 million consisting of intangible asset amortization related to the acquisitions of ADG and FBM. Excluding the impact of this item, adjusted diluted earnings per common share were $3.03 in the first quarter of 2026 (see the non-GAAP financial measures discussion).

For the first threesix months of fiscal 2026, cash flows from operating activities were approximately $3.4$7.0 billion, with $521$1.1 millionbillion used for capital expenditures. Continuing to deliver on our commitment to return cash to shareholders, during the first quarter of fiscal 2026, we paid $674$1.3 millionbillion in dividends and repaid $2.4 billion of bond maturities as we continued to progress toward our deleveraging commitment.

Beginning in 2025, the United States enacted significant changes to its trade policy and imposed a series of new tariffs on most imported goods. For 2026, the tariff environment remains dynamic and subject to ongoing modification, including court rulings, changes to existing tariffs and potential for additional tariffs this year. We continue to monitor and comply with these changes and evaluate potential impacts, including possible adjustments to our merchandise assortment, pricing, and global supply chain strategies. The Company is the importer of record for certain imported products and pays tariffs directly. The Supreme Court declared on February 20, 2026 that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were invalid. SignificantIn the second quarter, we recognized approximately $80 million pre-tax of tariff refunds. However, uncertainty remains as to the refundamount of IEEPA tariffs, including potential for appeal,and timing of eligibilityfuture in futureIEEPA refund phases, and ultimate amounts to be received.collections.

1 A comparable location is a retail location that has been open longer than 13 months. A location that is identified for relocation is no longer considered comparable in the month of its relocation. A location we decide to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Comparable sales include online sales, which positively impacted firstsecond quarter fiscal 2026 and fiscal 2025 comparable sales by approximately 185195 basis points and 6585 basis points, respectively, and year-to-date fiscal 2026 and fiscal 2025 comparable sales by approximately 190 basis points and 75 basis points, respectively. Acquisitions are typically included in comparable sales after they have been owned for more than 12 months.

Adjusted diluted earnings per share is considered a non-GAAP financial measure. The Company believes this non-GAAP financial measure provides useful insight for analysts and investors in understanding the comparison of operational performance for fiscal 2026. Adjusted diluted earnings per share excludes the impact of a certain item,items, further described below.

•In the first quarter of fiscal 2026, the Company recognized pre-tax expenses of $96 million consisting of intangible asset amortization related to the acquisitions of Artisan Design Group and Foundation Building Materials (AcquisitionAcquisitions of businesses).

1 Income tax adjustment is defined as lease adjusted net operating profit multiplied by the effective tax rate, which was 24.1%24.2% and 24.0%24.1% for the periods ended MayJuly 1,31, 2026, and MayAugust 2,1, 2025, respectively.

Net Sales – Net sales in the firstsecond quarter of 2026 increased 10.3%8.3% to $23.1$26.0 billion. Comparable sales increased 0.6%,0.2%, consisting of a 1.5%2.3% increase in comparable average ticket, partially offset by a 0.9%2.1% decline in comparable customer transactions.

During the firstsecond quarter of 2026, nine of our 13 product categories experienced positive comparable store sales, led by Rough Plumbing, LawnElectrical, and Tools & Garden,Hardware. andGrowth Appliances. Strength inacross these categories reflectswas driven by continued growthmomentum with our Pro customer and online,online channels, due to ongoing strength in repair and maintenance projects, as well as ourin-depth broadbrand assortmentlineups ofand appliancesproduct available next-day to our customers in the majority of the United States.assortments.

Gross Margin – For the firstsecond quarter of 2026, gross margin as a percentage of sales decreased 7077 basis points compared to 2025. The gross margin decline for the quarter was driven by the operational cost structure of acquisitions during 2025,2025 and increased fuel costs, partially offset by favorability from credit revenue.revenue and tariff refunds.

DepreciationGross and Amortization – Depreciation and amortization deleveraged 32 basis pointsmargin as a percentage of sales fordecreased 74 basis points in the first quartersix months of 2026 compared to 2025, primarily due to amortizationthe ofsame intangiblefactors assetsthat ofimpacted acquiredgross businessesmargin infor 2025.the second quarter.

InterestSG&A – Net – Net interest expense forFor the firstsecond quarter of 20262026, deleveragedSG&A 12expense leveraged 25 basis points as a percentage of sales compared to the second quarter of 2025, primarily due to the costsoperational relatedcost tostructure theof Septemberacquisitions 2025during debt issuance and the 2025 Term Loan.2025.

Income Tax Provision – Our effective income tax rates were 24.5%24.4% and 23.9%24.0% for the three months ended MayJuly 1,31, 2026 and MayAugust 2,1, 2025, respectively, and 24.5% and 24.0% for the six months ended July 31, 2026 and August 1, 2025, respectively.

Cash flows from operations, combined with our continued access to capital markets on both a short-term and long-term basis, as needed, remain adequate to fund our operations, make strategic investments to support long-term growth, return cash to shareholders in the form of dividends, and repay debt maturities as they become due. We believe these sources of liquidity will continue to support our business for the next twelve months. As of MayJuly 1,31, 2026, we held $0.8$3.2 billion of cash and cash equivalents, as well as $4.6$5.0 billion in undrawn capacity on our Revolving Credit Facilities.

Cash flows from operating activities continued to provide the primary source of our liquidity. The decrease in net cash provided by operating activities for the threesix months ended MayJuly 1,31, 2026, compared to the threesix months ended MayAugust 2,1, 2025, was primarily driven by timing of prior year income tax payments and other changes in working capital and lower net earnings.capital.

Net cash used in investing activities primarily consists of transactions related to capital expenditures. Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, improve existing stores, and support expansion plans. Capital expenditures were $521 million and $518 million for the three months ended May 1, 2026, and May 2, 2025, respectively. For fiscal 2026, our guidance for capital expenditures is approximately $2.5 billion. Capital expenditures were $1,063 million and $1,013 million for the six months ended July 31, 2026, and August 1, 2025, respectively. In addition to capital expenditures, net cash used in investing activities for the six months ended August 1, 2025, includes our acquisition of ADG.

Net cash used in financing activities primarily consists of transactions related to our debtdebt, share repurchases, and cash dividend payments.

The 2025 Credit Agreement and the 2023 Credit Agreement (collectively the Long-Term Credit Agreements) support the Company’s commercial paper program. The amounts available to be drawn under the Long-Term Credit Agreements are reduced by the amount of borrowings under the commercial paper program. As of MayJuly 1,31, 2026, the Company had no outstanding borrowings under the commercial paper program of $380 million.program.

The following table includes additional information related to our debt for the threesix months ended MayJuly 1,31, 2026, and MayAugust 2,1, 2025:

We have a share repurchase program, authorized by the Company’s Board of Directors, that is executed through purchases made from time to time either in the open market or through private off-market transactions. We also withhold shares from employees to satisfy tax withholding liabilities on share-based payments. Shares repurchased are retired and returned to authorized and unissued status. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for the threesix months ended MayJuly 1,31, 2026, and MayAugust 2,1, 2025:

As of MayJuly 1,31, 2026, we had $10.5 billion remaining available under our share repurchase program with no expiration date.

Dividends are paid in the quarter immediately following the quarter in which they are declared. Dividends paid per share increased from $1.15$2.30 per share for the threesix months ended MayAugust 2,1, 2025, to $1.20$2.40 per share for the threesix months ended MayJuly 1,31, 2026.

We expect to maintain our investment grade rating and have access to the capital markets on both a short-term and long-term basis when needed for liquidity purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects our debt ratings by Standard & Poor’s (S&P) and Moody’s as of MayAugust 28,27, 2026, which we are disclosing to enhance understanding of our sources of liquidity and the effect of our ratings on our cost of funds. Our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.