Good morning, everyone. Welcome to Lowe's Companies' Fourth Quarter 2020 Earnings Conference Call. My name is Rob, and I'll be your operator for today's call. As a reminder, this conference is being recorded. I will now turn the call over to Kate Pearlman, Vice President of Investor Relations.

Thank you, and good morning, everyone. Here with me today are Marvin Ellison, our President and Chief Executive Officer; Bill Boltz, our Executive Vice President, Merchandising; Joe McFarland, our Executive Vice President, Stores; and Dave Denton, our Executive Vice President and Chief Financial Officer. I would like to remind you that a notice regarding forward-looking statements is included in our press release this morning, which can be found on Lowe's Investor Relations website. During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2021. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the risk factors, MD&A and other sections of our annual report on Form 10-K and our other SEC filings. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release and on our Investor Relations website. With that, I'll turn the call over to Marvin.

Good morning, everyone. I'd like to begin by thanking our frontline associates for their efforts to serve our customers and communities during the ongoing pandemic. In recognition of the efforts and the unique challenges posed by the pandemic, we invested over $100 million in incremental financial assistance for our frontline hourly associates in the quarter, which brought our total COVID-related support for hourly associates to over $900 million for the year. We remain laser-focused on our highest priority, which has always been protecting the health and safety of our associates and communities. And in the quarter, we invested $65 million in support of store safety protocols and our communities. For the year, we invested nearly $1.3 billion in COVID-related support for our associates, store safety and our communities. Now turning to our results. For the quarter, we delivered total company comparable sales growth of 28% over the prior year and 41% growth in adjusted diluted earnings per share to $1.33. Those results cap off a fiscal 2020 where comp sales increased 26% and adjusted earnings per share grew 54% to $8.86. Looking at the fourth quarter results from a geographic perspective in the U.S., growth was broad-based, with comparable sales growth exceeding 19% across all 15 geographic regions and exceeding 25% for all U.S. divisions. On Lowes.com, sales grew 121% as customers shifted more of their shopping online, especially over the holiday season. We continue to enhance our omnichannel retailing capabilities in store operations, on Lowes.com and across our supply chain, with our goal to meet customer demand to shop however, whenever and wherever they choose. Once again, DIY comps outpaced Pro comps in the quarter, driven by consumer mindset that remains focused on the home. During the pandemic, the home has come to serve 4 primary purposes: a residence,…

Thanks, Marvin, and good morning, everyone. We delivered U.S. home improvement comparable sales growth of 28.6% in the fourth quarter. And consistent with the trends we've seen since the second quarter, growth was broad-based across both DIY and Pro customers, in-store and online and across all merchandising departments. In fact, all 15 merchandising departments generated positive comps of over 16%. Great execution, combined with our compelling product offering of well-known national brands, balanced with high-value private brands, ensured that we were well positioned to meet the continued elevated demand for home-related projects during the quarter. Lumber was, once again, the top performer, driven by strong unit demand across Pro and DIY customers, as well as commodity inflation. Our merchants and our supply chain teams did an exceptional job in working with our vendor partners to keep up with demand and to ensure that our stores were stocked with job lot quantities. Several other categories posted comps above 30%, including building materials, which was driven by strong demand for roofing and gutters. An improved level of in-stock and an exceptional customer service have allowed us to continue to grow our Pro business in these Pro-focused building product categories. Our seasonal and outdoor living, lawn and garden and paint categories also delivered comps above 30% in the quarter, reflecting the consumers' continued focus on the home. Our seasonal and outdoor living team delivered a successful holiday season with a holiday trim a tree program that exceeded the customers' expectations. The team also leveraged our selection in key brands to drive strong sales in grills, patio heaters and fire pits, as these categories were strong throughout the quarter as consumers continue to enjoy their outdoor spaces. Outdoor power equipment was driven by sales of chore-related product, such as snowblowers, generators and pressure washers,…

Thanks, Bill, and good morning, everyone. This past year presented challenges that few of us could have imagined. Lowe's has always been at the forefront in responding to crisis in our communities, and our associates rose to the challenge once again in 2020. In recognition of the outstanding efforts of our associates, in January, we announced a bonus of $300 for each full-time associate and $150 for each part-time associate. This $80 million bonus brought the total COVID-related assistance to our associates to over $900 million in 2020. And I could not be more pleased to announce today that for the fourth quarter in a row, 100% of our stores are under "Winning Together" profit-sharing bonus totaling $90 million. And because of their efforts, once again exceeded expectations, this represents an incremental $30 million over the target payment level. And we're supporting our communities again through hiring as we bring on more than 50,000 seasonal and full-time retail associates this spring to ensure that our customers get the exceptional service they expect from Lowe's. This builds on the more than 90,000 associates hired into permanent roles over the past year. 2020 changed the way the customers shop with Lowe's. Nowhere is this more evident than the 111% sales growth on Lowes.com for the year. And with roughly 60% of these online orders fulfilled in our stores, we needed to dramatically expand our fulfillment capabilities to support this increased demand. We began by rapidly rolling out curbside pickup in the first quarter, and then we began to launch touchless BOPIS lockers in our stores a few months later. We now have BOPIS lockers in over 1,200 stores with the goal of rolling out lockers to all U.S. stores by April. Providing multiple contactless pickup options for our customers, we are meeting…

Thank you, Joe. I'll begin this morning with a few comments regarding the company's robust capital allocation strategy. In fiscal 2020, we generated $9.3 billion in free cash flow driven by outstanding operating performance, and we returned $6.7 billion to our shareholders through both a combination of share repurchases and dividends. During the fourth quarter alone, we paid $452 million in dividends at $0.60 per share. We also repurchased 21.1 million shares for $3.4 billion at an average price of approximately $160 a share. This brings the total to $5 billion in share repurchases for the year. We have approximately $20 billion remaining on our share repurchases authorization and plan to utilize our strong cash flow to drive significant long-term shareholder value. Capital expenditures totaled $619 million in the quarter and $1.8 billion for the full year as we invest in the business to support our strategic growth initiatives. We ended 2020 with $4.7 billion of cash and cash equivalents on the balance sheet. And along with $3 billion in undrawn capacity on our revolving credit facility, we have immediate access to $7.7 billion in funds. We remain confident that we have ample liquidity to navigate any unforeseen circumstances. At the end of the fiscal year, our adjusted debt-to-EBITDA ratio stands at 2.2x. Now I'd like to turn to the income statement. In Q4, we generated GAAP diluted earnings per share of $1.32 compared to $0.66 last year, an increase of 100%. In the quarter, there was a very modest impact on operating income related to the previously announced Canadian restructuring. Now my comments from this point forward will include certain non-GAAP comparisons where applicable. In Q4, we delivered adjusted diluted earnings per share of $1.33, an increase of 41% compared to the prior year. These results were driven by…

[Operator Instructions] Our first question comes from the line of Seth Sigman with Crédit Suisse.

Congrats on all the progress. Dave, I wanted to follow-up on the guidance point here. Obviously, not full guidance, but the scenarios you discussed in December. If I recall, it included gross margin relatively flat. Given the pressure as you saw in the fourth quarter, I'm just curious, should we be thinking about gross margin in '21 down slightly, but maybe more benefits from SG&A to still get to the same EBIT margin outlook? How should we be thinking about that?

Yes. Seth, Happy New Year. Good question. Just I think, most importantly, is we're really focused on operating income and margin expansion as we cycle into this year. Clearly, we're focused on improving our gross margin performance, as you've seen us do that consistently through 2020. We continue to make really nice progress from a product cost perspective. I think what you're also seeing us do is we're investing from a supply chain perspective to make sure that we're building out in the future to meet the needs and demands of consumers in the future. So I think we're excited about that. I do expect that gross margin over the longer term, think about it flattish. We are experiencing some headwinds as we think about inflation from lumber, but nothing has materially changed from what we discussed in December, Seth.

Okay. That's helpful. And then just a follow-up question about demand. Obviously, the strength you've seen has been pretty broad-based. Beyond some of the seasonal variations that you've been seeing, I'm just curious how you see the consumer or the customer evolving their focus in the category? How are the types of projects changing? And part of the question is whether you're seeing an acceleration in some of the bigger projects that may have been constrained during parts of this year. Because it does feel like the mid-20s Pro comp that you pointed to, does seem like that's an acceleration. So I just wanted to get a little bit more context on that.

So Seth, this is Marvin. I'll take part of that, and I'll let Joe comment a bit on Pro. As we've said, 2021, to state the obvious, is a very difficult environment to forecast. And I think all your questions are relevant. And what we can say is when you look at the comp cadence for the month during the quarter, you saw us accelerate throughout. You look at the month of January, which is a significant sales performer, and both Dave and I discussed the importance of our Total Home strategy leaning into those 2 events, the bath event and the home organization event, that gives you an indication that the customer is still in the project mindset as they continue to find ways to make their home more livable and more comfortable for all the various activities that COVID has forced upon us. So the short answer to your question is we feel great about the mood of the customer. We feel great about the trends relative to big ticket, small ticket, Pro and installations. And all the work that we put in place the last 2 years in our retail fundamental strategy just gave us a good position and platform to service the customer effectively across all those different categories. I'm going to let Joe talk a little bit about Pro because, again, we're very proud of the performance. As we mentioned in the prepared comments, we delivered mid-20% comps in the quarter for the year. We're hovering around 20% comps. And this was in an environment early in the year where the Pro business became very soft just because of the normal occurrences of customers not being comfortable allowing strangers in their homes. I'll let Joe discuss a little bit more on our excitement around Pro.

Thanks, Marvin. And Seth, thank you for the question. You're correct, from Q3 to Q4, we did see a nice comp acceleration. We're excited about the underlying demand in the Pro space. As we look at the kind of robust pipeline that's out there in the Pro space, thinking about the expanded product offerings that we've had throughout the year. In addition, I mentioned in my prepared comments, the benefit from TurboTax and the progress that we're making to help these Pros expedite their year-end close. And then in addition, we've been focused on all the fundamentals. And as we continue to move forward, confident that things like our U.S. stores reset and the area that we created for Pros and the ease of Pros to shop. In addition, very excited about the growth of our new Pro loyalty platform, along with the integrated CRM that rolls out. And very excited about what's happening inside the Pro business.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

My first question is on the outlook or the perspective, if you will. Dave, you mentioned that the business is tracking towards a robust case. And I know robust, I don't know if it was couched as a base case for you or not, but I think we're interpreting it as one. Do you have any more confidence in that? Or are you expecting some twist and turns as the year goes? Or the fact that we're tracking there gives you confidence that -- more confidence in that scenario?

Listen, I think we're only a few weeks into the year, but I think we feel encouraged by the trends that we're seeing at the moment. So I think we -- as Joe and Marvin just articulated, I think the health of the Pro business is sustainable and it's actually accelerating a bit. So I think we feel really good about that. At the same time, the consumer remains healthy and continues to invest in the home to support both their living needs but also their educational needs for the kids, in many cases, and continue to invest to make sure that, that is an asset that is sustainable for them going forward. So we're encouraged at this point, but pretty early still.

Simeon, this is Marvin. And what I'll add to that is, we'll go back to the same theme that you'll probably hear us say all morning. Obviously, we can't predict with any high degree of precision what 2021 macro will look like. But we're confident in 2 things: number one, that we're going to take market share; and number two, we're going to improve operating income. And I think for us, we're just planting our flag on those 2 things. We believe that 2020 was not an anomaly. We believe it's a reflection of a lot of hard work and retail fundamental implementations we put in place across Lowes.com, Pro, merchandising, store operations, IT infrastructure. And we believe that those initiatives and our Total Home market acceleration strategy is going to allow us to continue to take market share and, at the same time, improving operating income.

Okay. And my follow-up is in the robust case of 120 basis points, I think, for margin expansion. I don't know if we said, but how much can you look at that amount and divide it among top line dependent versus internal execution or transformation dependent. I don't know if we looked at it that way or if we could bridge it versus the other scenarios.

Yes. I would just encourage you maybe to go back and look at our Analyst Day presentation. I had a building block slide in that presentation that walked us from kind of where we -- where our guidance was for the end of 2020 to a 12% margin rate perspective. And I think it does show a little bit of -- kind of how gross margin might perform as well as how SG&A is going to perform. And again, this is largely about, in aggregate, gross margin rates being relatively flat and us improving our SG&A performance across the business.

Our next question is coming from the line of Kate McShane with Goldman Sachs.

I wondered if there was any way you could update us on what Pro is as a percentage of your sales today? I feel like there is some ceiling with your stock price or valuation because the thinking is, is you just don't have as big of exposure to the Pro as your main competitor. But with the comps that you've put up in 2020 and all the initiatives, I wondered if there was any further insight into what that percentage of sales is today.

Kate, this is Marvin. The best way that I'll answer that is we're going to pretty much stick to our 20% to 25% penetration. We're going to reevaluate that, obviously, coming out of 2020. The key is that, as you know, DIY significantly outpenetrated the Pro during the year. So we know that the 2020 data may not be a good, consistent data set to look at relative to Pro and DIY penetration. So we probably need to cycle through the first half of 2021 to get that data really balanced out. What I can say is, in Joe's prepared comments and also in mine, we laid out some of the specific initiatives related to the Pro. One of the key things that we focused on arriving at Lowe's a little over 2 years ago, is one of the main reasons why we had a gap relative to sales per square foot productivity and operating income by store was because the Pro penetration was significantly less than what it should have been. Pros drive productivity in multiple product categories throughout the entire store. And so part of our focus on the Pro is because we know it's going to be critical for us to improve overall productivity from a space perspective as well as driving operating income throughout the store. So we'll get back to you later in the year on an answer. But the key is we're going to be focused on it, and we think we're making great improvements.

And Kate, I'll just add that we look at it a little bit the opposite. We are underpenetrated, but that is the big opportunity we have. And all the investments we're making is going to allow us to really accelerate in that business segment pretty significantly over the next several years.

Okay. And then my follow-up question is just on wages and how we should think about that in 2021 relative to what was paid in 2020, especially considering the number of bonuses that were given to associates during that time.

So Kate, this is Marvin. I'll take it. And if Dave wants to provide any additional financial analysis, he can. But I think at the highest level, what we've laid out for operating income targets for 2021, what we laid out at the investor update in December and what Dave mentioned in his prepared comments, reflect any investments we intend to make in our associates. The good news for us, and Dave mentioned this earlier in the morning, that from the year 2019 and 2020 made a $1.4 billion investment in incremental wages, equity programs and other associate-related benefits, and that was pre-COVID. So other retailers candidly are catching up to the work investment that we already made going into COVID, so we don't have an enormous bogey, so to speak, that we need to make from an investment standpoint to catch up. We've been on a pathway to get our wages up. That's why we're very proud to say that we are one of the highest wage retailers from an hourly associate perspective in the U.S. So we don't see 2021 as anything that will be materially different than that. Obviously, we'll look at how the business is tracking, we'll look at the needs of our associates. But any investments we plan to make has already been factored into any financial guidance or at least the range of guidance that Dave has discussed in December and this morning.

So Kate, it's Joe, and thanks for the question. I'll just add a few things to what Marvin said. And over the last 2 years, we've been taking steps from a store operation standpoint to simplify the store structure, if you think about some of the updates we've given, our 4 levels of sales associate on the sales floor and all the work we've done. And so in addition, the labor management tools and the workforce management initiatives the team has laid out, I feel very good about the balance of ticket and transactions in our transaction-based labor model, and that will continue, to be able to deliver on the operational efficiency we need to. And then finally, for the spring hiring season, we feel that we've done a nice job addressing any difficult-to-hire markets. We measure the pipeline of sales associates coming in by position by market, so we've made adjustments where we need to and feel confident going forward.

Our next question comes from the line of Michael Lasser with UBS.

Given the introduction of the PPI initiative, is it likely that you'll come in at the high end of the profitability scenario, even if you don't come in -- even if you come in at the middle end or low end of your sales scenario for 2021?

Michael, it's Dave here. Clearly, what we're doing is we're working really diligently to improve the productivity across our business. And Joe has kicked off a pretty major effort to do that. But we're doing it really across all segments of our operation. That's probably a little bit more specific guidance, if you will, so we're probably not going to go there. But I'll just say that as a management team and as a business, we're controlling what we can control. We're making sure that as we look at these sales scenarios over time is that we're improving our operating income performance. And we're dead set on improving that. We're very focused and adamant about going after that. And I think we have a very good line of sight to that.

Okay. And it seems like you're going to have more takes than puts on your gross margin this year with supply chain pressures, probably inflation drag for at least the near term, and what's likely to be at least some return to a more promotional environment. So in that scenario, with your gross margin already declining in the fourth quarter, how do you keep it flat in 2021? What are the offsets?

Well, listen, we're focused in a few different areas. We've just enhanced our pricing and promotional tools, from a merchandising perspective. I think the merchants have just kind of taken a step back and looked at, from a promotional cadence perspective, how to think of more of an EDLP type environment, at the same time going out and negotiating special buys in certain areas to drive real value from a consumer perspective. I think we're getting a lot more efficient on how we layer in and out of our online business to drive both top line and improve profitability. At the same time, we do need to manage our supply chain to be more efficient as we think about same day, next day deliveries to the home and to the job site. So all those levers are things that we're working on that we're actively using to manage our gross margin performance. And yes, we do have some headwinds, but we're also -- that's part of our job is to manage those headwinds to improve performance over time. And again, with a real focus, once again, Michael, on improving our operating income flow through, that's the opportunity we have.

Okay. And then...

Michael, this is Bill. I'll just add a couple of comments to that. As we've said over the last couple of years, we've been on a journey to get to more of an everyday competitive price. And so getting credit for what we're doing and less of this high-low approach that we had been typically on prior to this leadership team coming in. And then we have done a lot of work in the last 18 months around our localization initiative, and it's one of our key unlocks and part of our Total Home strategy as we go forward that gives us the opportunity from a margin perspective as well. So we're confident that we can deliver on what we said back in December.

If you could just clarify that, though. Where do you stand today in terms of your pricing position versus where you might have been a year ago? If you can use that as a lever to offset some of the gross margin headwinds that you might experience in next couple of quarters.

Well, look, this is Marvin. What I'll say, Michael, is it's a work in progress. What I can tell you is the set of tools that Bill and the merchants currently have today versus what we had 2 years ago is truly a night and day difference. So it gives us the ability to have localized pricing and we can price now in more smaller clusters. I mean 2 years ago, we were using blunt instruments to price in broad markets. Now we can get down to individual locations. In addition to that, Joe talked about the expansion of things like digital signs. It may not sound like a big deal, but there are parts of the store where you have frequent, rather volatile price-changing activities, a lot of labor goes into that. And if you can put a digital process in place, it allows you to capture the different costs and retail changes in a way that actually can benefit gross margin. And localization, to Bill's point, solves a couple of major significant issues. But one is you have the right product in the right market. So your exit strategy doesn't just destroy your gross margin because you're clearancing everything just to get it out. I'd use the example at the December update when Bill, Joe and I walked in the store in West Philadelphia and saw riding lawn mowers and big, deep seating patio sets, and sheds and other products that was just waiting for markdown to happen because it was simply in the wrong location from a geographic perspective. So Bill's team is working to solve all of that, so we can have the right product in the right location so we don't take deep markdowns to exit. So all of those things will play a role in giving us -- to create our own internal headwind to go up against some of the investments we're making, like in supply chain. So we'll keep you updated on the activities.

Our next question comes from the line of Karen Short with Barclays.

I know, as you said, you're kind of trending or contemplating you'll probably be at the robust end of your guidance range. But I guess if you end up actually even slightly better than that, how should we think about operating margin opportunity? Would there be upside to that? Or would you reinvest and kind of maintain the cadence that you'd indicated previously? And then I had one follow-up.

Sure. Yes, ma'am. So Karen, this is Marvin. The best way to answer that question is the simple statement is that we expect to outperform the market and gain share in 2021. So if the market performs better than our robust scenario, that would be music to our ears, because we would believe that it would only provide us with upside opportunity on the top line and on the bottom line. So again, we're going to just have a very, very singular focus on taking market share and improving operating income. And if the macro improves better than our forecast and better than we anticipate, that will be only good news for us.

Great. And then I just wanted to see, I don't know if you'd be willing to provide this, but would you be willing to give us some color on the number of Pro loyalty members and then just a quick update on timing of combining the Lowe's credit card with the low -- with the Pro loyalty program? Or does all of that happen at the same time as you migrate to the cloud?

So I'll take the easiest part of the question, and that is, no, we're not going to provide you with the number of loyalty members from a competitive perspective. What we can tell you is that we're very pleased with the adoption rate and we're very pleased with the returned visit as a result of that. I'll let Joe talk about the merging of credit and the platform.

Yes, Karen, this is Joe. And thank you for the question. We will be migrating our credit platforms and our Pro loyalty platforms together. We have every intention. That is a part of -- it's a huge part of the benefit. Again, we've been very encouraged by the new sign-ups in Pro loyalty, how the Pro customers are responding. We've been very pleased also with our new credit acquisition from a Pro standpoint. And so with those underlying themes, although we won't release the number of Pros, we're excited about what the platform is delivering and all the work that the Pro team has done.

Our next question comes from the line of Christopher Horvers with JPMorgan.

Can you talk about how you think stimulus helped the business there in January? A very strong comp, obviously at 35%. What do you think the lift was? And how would you compare that lift to what you saw last Spring when stimulus hit?

Chris, Dave here. Yes, I do think stimulus, as we cycled into the new year, did help our comps. We estimate somewhere between 50 and 100 basis points from that perspective. I think as stimulus has gone on for a while now, I think the performance and the impact of it has been -- has moderated a little bit. So I think we do see it -- when those trap checks do hit, we do see an inflection kind of up a little bit, but it has not been nearly as dramatic as it was when it first hit basically a year or so ago.

Understood. And then as you think about -- just to square the T on the gross margin. So in the slides, you have flat gross margin to 12% in the robust scenario. Is there any potential cadence around that? You do have the freight pressures probably earlier, maybe shrink in supply chain investments. So a flat relative to 2020, do you expect it to be maybe down a bit in the first half and then up in the back half and net flat that way?

I think that's a little bit more specific than probably what we could give you some color on at this point in time. I'd just say that at the end of the day, back to Marvin's point, is our focus this year taking market share, improving operating income. That's just are 2 things that we're focused on just consistently, and you'll continue to hear us talk about that, demonstrate our performance in those 2 metrics.

Our next question is coming from the line of Eric Bosshard with Cleveland Research.

Curious in regards to the supply chain investments, Pro and online obviously areas of growth and accelerating growth. But what I'm curious to understand is the incremental investments you're making in both of those areas, some of them you've made already, some that are in process. How will the customer experience be different in those areas in '21? And where I'm really trying to end up is in terms of the share gains that you're making in both of those areas, what do you think about the future of that, especially in terms of payback from where you're investing incrementally?

So Eric, this is Marvin. And early on, we committed to a $1.7 billion supply chain infrastructure investment between the years of 2019 and 2023, and we're well on the pathway to achieve that. Specific to your question, we're trying to create a market-based delivery model, which will transition the pressure of delivery from our individual stores to a market-based model. In addition to that, we're trying to develop a fulfillment model that will serve a customer any way they choose to shop in this omni-channel ecosystem that we're creating. So relative to a customer, how will it be different? It would be different that you will have a more seamless delivery with better visibility to appointment, scheduling and arrival, specific to any big and bulky items starting with appliances. So for the DIY or the Pro, if you're in the appliance space, you're going to have a more seamless opportunity to purchase a product. Just to take you back to how this has been done historically, when a customer purchases an appliance, the scheduling process is done by an associate calling the customer at home and going through a manual process to try to find a date that best fits the availability of the product and the customers' schedule. To say it's clucky and inconvenient will be an understatement. Now we've transitioned to a digital scheduling model where a customer can choose their own date based on prepublished openness in our system. And our associates have total visibility to inventory, whether it's in their store or in a market-based distribution center. What we're doing on the Pro side is also trying to create more of an omni experience. You're going to see us launching Pro lockers later this year. And you're going to see us improve our job site delivery with Pro and have a lot more flexibility around that. So those are 2 ways that those customers will see a difference. And there are a lot of other activities underway that Joe in operations partnering with the supply chain, but we'll wait till a later day to get into those.

Okay. That's helpful. And then one question for Dave. The incremental margin of the business in '21, in an upside sales scenario, does the incremental margin change? And I guess what I'm trying to get a sense of is, obviously, in '20, there were incremental investments made through the year as sales came to the upside and were necessary, but diluted the incremental margin of the business. Does that same story play in '21 in a better sales scenario? Or can the incremental margin either be sustained or expand in an upside sales scenario?

Yes. Eric, I would say that it should expand a little bit in upside scenario, just given what we've done in 2020, to your point. So great. So Rob, with that, we're going to take one more question, please.

That question will come from the line of Greg Melich with Evercore ISI.

Great. I'd love to follow-up on inflation. So I think you called out 300 bps in the fourth quarter. What percentage of your sales, is that really looking at the commodities? And any number you have for the full year? And if you could even talk about the ability to pass through some rise in input costs outside of those commodities, that would be great.

So yes, largely, the inflation has been centered primarily in the lumber category. If you think about it from that perspective, and again, about 300 basis points. This is -- from a commodity standpoint, this is something that we're very used to managing. And largely, those are passed on ultimately to the consumer at the store.

And for the full year, would that number have been 150 basis points as we're thinking about what it -- how it impacts '21?

Yes. I don't know that off the top of my head. But obviously, inflation in the back half of the year was higher than the first half of the year, so it's certainly less than 300 basis points. And we'll keep -- obviously, we'll keep -- we watch it daily.

Got it. And then my follow-up question sort of goes back to really supply chain. I know you have the plan, and it's coming along. Just given the investments ramps we've seen on -- particularly in supply chain, not just from your number 1 competitor, Home Depot, but from Amazon, from Walmart, where CapEx is sort of up significantly from where it was a year ago. Is there anything you're seeing that you're planning on leaning more into as you get through the first year or 2 of that $1.7 billion plan, whether it's more market delivery operations, more centralized fulfillment? Anything on that as to what you're seeing them do and how you want to respond.

No, Greg, I think COVID and the pandemic really taught us all about responding to the needs of the customer in a more dramatic way. And also, it taught us how quickly consumer preferences will shift, specifically when it comes to how customers desire to receive products that they purchase. We feel like our strategy is sound. We're the #1 appliance retailer in the U.S. and we do it the hard way. We deliver it from every store, and that is not an optimal way to manage such a large amount of inventory and such a large expense from a transportation perspective. So going to a market-based model is going to unlock an enormous amount of productivity, not only from a store labor perspective but on how we manage billions of dollars in inventory around the company. So market-based delivery is absolutely the way to go. In the moment, we bill the process for appliances, it opens up other product categories like riding lawn mowers and sheds and patio furniture and grills. So this market-based model is going to be incredibly important for us. We opened up a dot-com fulfillment DC in Southern California this past year. It gives us the ability to have 2-day delivery from an e-comm perspective to every U.S. location. We're also opening up 3 additional e-commerce fulfillment centers. That's relatively new to our strategy, to answer your question, and that's going to give us the ability to create more same-day next-day delivery opportunities. And we're aggressively building out our bulk distribution centers and our cross docks to help with the market delivery. In addition to that, we're going to be leaning into Pro job site delivery, and we have a couple of initiatives underway that we're working on to make that a reality. So the short answer to your question is we benchmark a lot. We look at what's working in the marketplace, but we feel really good about the strategy we've laid out. And there's a reason why most retailers delay supply chain transformations because they're very hard to do. And we're committed to it and we understand the benefit of it. And we're going to make the right investments, and we believe is going to allow us to be competitive in out-years. But as an investment, we know we're going to have to lean into for the next couple of years. But again, it's something we're very committed to.

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