# LOWES COMPANIES INC (LOW) Informational only - not investment advice. CIK: 0000060667 SIC: 5211 Retail-Lumber & Other Building Materials Dealers SIC breadcrumb: [Retail Trade](/division/G/) > [Building Materials, Hardware, Garden Supply, And Mobile Home Dealers](/major-group/52/) > [SIC 5211 Retail-Lumber & Other Building Materials Dealers](/industry/5211/) Latest 10-K filed: 2026-03-23 SEC page: https://www.sec.gov/edgar/browse/?CIK=60667 Filing source: https://www.sec.gov/Archives/edgar/data/60667/000006066726000029/low-20260130.htm ## Selected Fundamentals | Metric | Value | Unit | FY | Filed | | --- | ---: | --- | ---: | --- | | Revenue | 86286000000 | USD | 2025 | 2026-03-23 | | Net income | 6654000000 | USD | 2025 | 2026-03-23 | | Assets | 54144000000 | USD | 2025 | 2026-03-23 | ## Macro Cross-References - [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average - [UNRATE](/indicator/UNRATE/): Unemployment Rate - [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate - [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private - [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit - [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit - [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity - [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity - [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity - [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity - [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity - [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy - [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food - [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy - [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter - [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index - [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index - [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities - [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate - [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons - [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm - [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate - [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio - [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed - [CE16OV](/indicator/CE16OV/): Employment Level - [ICSA](/indicator/ICSA/): Initial Claims - [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm - [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm - [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product - [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period - [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index - [TCU](/indicator/TCU/): Capacity Utilization: Total Index - [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units - [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units - [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade - [PCE](/indicator/PCE/): Personal Consumption Expenditures - [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income - [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate - [M2SL](/indicator/M2SL/): M2 - [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance ## Latest 10-K MD&A Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 30, 2026 (our fiscal years 2025 and 2024). Unless otherwise noted, all references herein for the years 2025, 2024, and 2023 represent the fiscal years ended January 30, 2026, January 31, 2025, and February 2, 2024, respectively.  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: •Executive Overview •Operations •Financial Condition, Liquidity and Capital Resources •Critical Accounting Policies and Estimates EXECUTIVE OVERVIEW The following table highlights our annual financial results: (in millions, except per share data) 2025 2024 2023 Net sales $ 86,286  $ 83,674  $ 86,377  Net earnings 6,654  6,957  7,726  Diluted earnings per share $ 11.85  $ 12.23  $ 13.20  Net cash provided by operating activities $ 9,864  $ 9,625  $ 8,140  Capital expenditures 2,213  1,927  1,964  Repurchases of common stock1 75  3,929  6,334  Cash dividend payments 2,636  2,566  2,531  1    Repurchases of common stock on a trade-date basis. Net sales for fiscal 2025 increased 3.1% from fiscal 2024 to $86.3 billion. Comparable sales for fiscal 2025 increased 0.2%, consisting of a 3.0% increase in comparable average ticket, partially offset by a 2.8% decrease in comparable customer transactions. Net earnings for fiscal 2025 decreased 4.4% to $6.7 billion. Diluted earnings per common share decreased 3.1% in fiscal 2025 to $11.85 from $12.23 in fiscal 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 associated with the fiscal 2022 sale of the Canadian retail business, which increased diluted earnings per share by $0.24 in fiscal year 2024. Adjusting for these items, adjusted diluted earnings per common share increased 2.4% to $12.28 in 2025 from adjusted diluted earnings per common share of $11.99 in 2024 (see the non-GAAP financial measures discussion). For fiscal 2025, cash flows from operating activities were $9.9 billion, with $2.2 billion used for capital expenditures. Continuing to deliver on our commitment to return excess cash to shareholders, the Company paid $2.6 billion in dividends during the year. During 2025, we continued to drive progress across all five key initiatives of our Total Home strategy, which was reflected in the strength we delivered with our Pro customers, online, and home services. Our Total Home strategic initiatives have appealed to both the value-conscious homeowner and the busy Pro customer. To expand our Pro customer market, we completed the acquisitions of FBM and ADG. We believe these acquisitions, along with our retail home improvement business, provide the large Pro customer with everything they need for the interior space of the home and position the Company to benefit when there is a recovery in the housing industry. 24 Table of Contents In addition, we continued to deliver on our Perpetual Productivity Improvement (PPI) initiatives, including completing the rollout of our front-end transformation across our store portfolio, streamlining our Freight Flow process, and driving inventory productivity while also navigating dynamic trade policies and tariffs. Given the persistent volatility in the housing macro environment, heading into 2026 we continue our focus on our PPI initiatives and managing what is within our control. We are pleased with our current track record of disciplined execution and are confident we are making the right investments to continue to deliver long-term sales growth and sustainable shareholder value. OPERATIONS The following table sets forth the percentage relationship to net sales of each line item of the consolidated statements of earnings.  This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements, including the related notes to the consolidated financial statements. Basis Point Increase/(Decrease) in Percentage of Net Sales 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Net sales 100.00  % 100.00  % 100.00  % Gross margin 33.48  33.32  33.39  16  (7) Expenses: Selling, general and administrative 19.46  18.74  18.02  72  72  Depreciation and amortization 2.25  2.07  1.99  18  8  Operating income 11.77  12.51  13.38  (74) (87) Interest – net 1.63  1.57  1.60  6  (3) Pre-tax earnings 10.14  10.94  11.78  (80) (84) Income tax provision 2.43  2.63  2.83  (20) (20) Net earnings 7.71  % 8.31  % 8.95  % (60) (64) The following table sets forth key metrics utilized by management in assessing business performance. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements, including the related notes to the consolidated financial statements. Other Metrics 2025 2024 2023 Comparable sales increase/(decrease)1 0.2  % (2.7) % (4.7) % Customer transactions (in millions)2,3 780  801  827  Average ticket3 $ 106.13  $ 102.93  $ 102.47  At end of year: Number of retail stores 1,759  1,748  1,746  Sales floor square feet (in millions) 196  195  195  Average retail store size selling square feet (in thousands)4 112  112  112  Net earnings to average debt and shareholders’ deficit 22.1  % 27.5  % 31.6  % Return on invested capital5 26.1  % 32.0  % 36.4  % 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.  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. Comparable sales include online sales, which positively impacted comparable sales in fiscal 2025, fiscal 2024, and fiscal 2023 by approximately 105 basis points, 50 basis points, and 25 basis points, respectively. Acquisitions are typically included in comparable sales after they have been owned for more than 12 months. 2    In the first quarter of fiscal 2025, the Company adjusted its customer transactions metric to exclude certain order modifications which were previously included as a separate transaction. The prior year periods have been adjusted to align with the current period presentation. 3    Customer transactions and average ticket represent metrics used by management to evaluate performance of our retail locations. 4 Average store size selling square feet is defined as sales floor square feet divided by the number of stores open at the end of the period. 25 Table of Contents 5    Return on invested capital is calculated using a non-GAAP financial measure. See below for additional information and reconciliations of non-GAAP measures. Fiscal 2025 Compared to Fiscal 2024 Net Sales – Net sales increased 3.1% to $86.3 billion in fiscal 2025, driven by sales associated with new acquisitions during the year, and an increase in comparable sales of 0.2% over the same period. The increase in comparable sales was driven by a 3.0% increase in comparable average ticket, partially offset by a decline in comparable customer transactions of 2.8%. Comparable sales change during each quarter of the fiscal year, as reported, were a decline of 1.7% in the first quarter, an increase of 1.1% in the second quarter, an increase of 0.4% in the third quarter, and an increase of 1.3% in the fourth quarter. During fiscal 2025, we had comparable sales increases in five of 14 product categories, including Rough Plumbing, Appliances, Building Materials, Lawn & Garden, and Paint. Strength in these categories reflects continued growth with our Pro customer and online, as well as our broad assortment of appliances available next-day to our customers in the majority of zip codes in the United States. Gross Margin – Gross margin as a percentage of sales for fiscal 2025 increased 16 basis points compared to fiscal 2024. The gross margin increase for the year was primarily driven by favorability from credit revenue and improvements in inventory shrink, partially offset by the operational cost structure of acquisitions during 2025. SG&A – SG&A expense for fiscal 2025 deleveraged 72 basis points as a percentage of sales compared to fiscal 2024. This was primarily driven by employee compensation and benefits, along with cycling prior year realized gains on contingent consideration associated with the 2022 sale of the Canadian retail business, partially offset by the operational cost structure of acquisitions during 2025. Depreciation and Amortization – Depreciation and amortization expense deleveraged 18 basis points for fiscal 2025 as a percentage of sales compared to fiscal 2024, primarily due to amortization of intangible assets of acquired businesses in 2025. Interest – Net – Net interest expense is comprised of the following: (In millions) 2025 2024 Interest expense, net of amount capitalized $ 1,471  $ 1,445  Amortization of original issue discount and loan costs 25  24  Interest on tax uncertainties 3  3  Interest income (121) (159) Other 28  —  Interest – net $ 1,406  $ 1,313  Net interest expense in fiscal 2025 deleveraged six basis points. Income Tax Provision – Our effective income tax rate was 23.9% in fiscal 2025 compared to 24.0% in fiscal 2024. Fiscal 2024 Compared to Fiscal 2023 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, 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 January 31, 2025, filed with the SEC on March 24, 2025. 26 Table of Contents Non-GAAP Financial Measures Adjusted Diluted Earnings Per Share 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 2025 and fiscal 2024. Adjusted diluted earnings per share excludes the impact of certain items, further described below, not contemplated in the Company’s business outlook for fiscal 2025 and fiscal 2024. Fiscal 2025 Impacts •In fiscal 2025, the Company recognized pre-tax expenses of $321 million consisting of transaction costs and intangible asset amortization related to the acquisitions of Artisan Design Group and Foundation Building Materials (Acquisition of businesses). Fiscal 2024 Impacts •In fiscal 2024, the Company recognized pre-tax income of $177 million consisting of realized gains on the contingent consideration associated with the fiscal 2022 sale of the Canadian retail business (Canadian retail business transaction). Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the Company’s diluted earnings per common share as prepared in accordance with GAAP. The Company’s methods of determining this non-GAAP financial measure may differ from the method used by other companies and may not be comparable. 2025 2024 Pre-Tax Earnings Tax1 Net Earnings Pre-Tax Earnings Tax1 Net Earnings Diluted earnings per share, as reported $ 11.85  $ 12.23  Non-GAAP adjustments – per share impacts Acquisition of businesses 0.57  (0.14) 0.43  —  —  —  Canadian retail business transaction —  —  —  (0.31) 0.07  (0.24) Adjusted diluted earnings per share $ 12.28  $ 11.99  1 Represents the tax benefit or expense related to the item excluded from adjusted diluted earnings per share. Return on Invested Capital Return on Invested Capital (ROIC) is calculated using a non-GAAP financial measure. Management believes ROIC is a meaningful metric for analysts and investors as a measure of how effectively the Company is using capital to generate financial returns. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC.  Accordingly, the method used by our management may differ from the methods used by other companies.  We encourage you to understand the methods used by another company to calculate ROIC before comparing its ROIC to ours. We define ROIC as the rolling 12 months’ lease adjusted net operating profit after tax (Lease adjusted NOPAT) divided by the average of current year and prior year ending debt and shareholders’ deficit. Lease adjusted NOPAT is a non-GAAP financial measure, and net earnings is considered to be the most comparable GAAP financial measure. The calculation of ROIC, together with a reconciliation of net earnings to Lease adjusted NOPAT, is as follows: 27 Table of Contents (In millions, except percentage data) 2025 2024 2023 Calculation of Return on Invested Capital Numerator Net earnings $ 6,654  $ 6,957  $ 7,726  Plus: Interest expense – net 1,406  1,314  1,382  Operating lease interest 179  173  157  Provision for income taxes 2,093  2,196  2,449  Lease adjusted net operating profit 10,332  10,640  11,714  Less: Income tax adjustment1 2,473  2,552  2,819  Lease adjusted net operating profit after tax $ 7,859  $ 8,088  $ 8,895  Denominator Average debt and shareholders’ deficit2 $ 30,104  $ 25,270  $ 24,418  Net earnings to average debt and shareholders’ deficit 22.1  % 27.5  % 31.6  % Return on invested capital 26.1  % 32.0  % 36.4  % 1    Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was 23.9%, 24.0%, and 24.1% for fiscal 2025, fiscal 2024, and fiscal 2023, respectively. 2    Average debt and shareholders’ deficit is defined as average current year and prior year ending debt, including current maturities, short-term borrowings, and operating lease liabilities, plus the average current year and prior year ending total shareholders’ deficit. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity 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 January 30, 2026, we held $1.0 billion of cash and cash equivalents, as well as $5.0 billion in undrawn capacity on our Revolving Credit Facilities. As of January 30, 2026, our material contractual obligations and commercial commitments consist of leases, long-term debt, purchase obligations, and letters of credit. See Note 7, Note 8, and Note 15 of the Notes to the Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report for amounts outstanding related to leases, long-term debt, and commitments, respectively, as of January 30, 2026. Cash Flows Provided by Operating Activities (In millions) 2025 2024 Net cash provided by operating activities $ 9,864  $ 9,625  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 30, 2026, compared to the year ended January 31, 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 which were previously deferred under the income tax relief announced by the IRS for businesses impacted by Hurricane Helene. Cash Flows Used in Investing Activities (In millions) 2025 2024 Net cash used in investing activities $ (12,264) $ (1,738) 28 Table of Contents Net cash used in investing activities is primarily driven by our acquisitions of ADG and FBM, which used $10.1 billion in fiscal year 2025, in addition to transactions related to capital expenditures. 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 $2.2 billion in fiscal 2025 and $1.9 billion in fiscal 2024. For fiscal 2026, our guidance for capital expenditures is approximately $2.5 billion. We may adjust our capital expenditures, if necessary or appropriate, to support our operations, to enhance long-term strategic positioning, or in response to the economic environment. Cash Flows Provided by/Used in Financing Activities (In millions) 2025 2024 Net cash provided by/(used in) financing activities $ 1,621  $ (7,047) Net cash provided by/(used in) financing activities primarily consists of transactions related to our debt, share repurchases, and cash dividend payments. Total Debt During fiscal 2025, the Company issued $5.0 billion of unsecured notes. In addition, the Company entered into a $2.0 billion unsecured term loan credit agreement (2025 Term Loan) which has a maturity date of October 2028. The proceeds from the unsecured notes and the 2025 Term Loan were designated to finance, in part, our acquisition of FBM. We also repaid $2.5 billion and $450 million in senior notes at maturity in fiscal 2025 and fiscal 2024, respectively. In fiscal 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 credit agreement entered into in December 2021, and as amended (Third Amended and Restated Credit Agreement). We also have amended the five-year unsecured revolving 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. Under the amendment, borrowings under the 2023 Credit Agreement will no longer be subject to a SOFR credit spread adjustment. 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 Credit Agreements is reduced by the amount of borrowings under our commercial paper program. As of January 30, 2026, and January 31, 2025, there were no outstanding borrowings under the Company’s commercial paper program or the Long-Term Credit Agreements. In fiscal 2025, the Company also entered into a $1.0 billion 364-day unsecured revolving credit agreement (collectively with the Long-term Credit Agreements the “Revolving Credit Facilities”) which has a maturity date of September 2026 and had no outstanding borrowings as of January 30, 2026. The following table includes additional information related to our debt for fiscal 2025 and fiscal 2024: (In millions, except for interest rate data) 2025 2024 Net proceeds from issuance of debt $ 6,974  $ —  Repayment of debt $ (2,587) $ (545) Net change in commercial paper $ —  $ —  Maximum commercial paper outstanding at any period $ 500  $ 250  Share Repurchases 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 29 Table of Contents 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 2025 and fiscal 2024: (In millions, except per share data) 2025 2024 Total amount paid for share repurchases1 $ 116  $ 4,053  Total number of shares repurchased 0.5  16.6  Average price paid per share $ 243.48  $ 244.63  1    Excludes unsettled share repurchases and excise taxes. As of January 30, 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. Dividends In the third quarter of fiscal 2025, we increased our quarterly dividend payment by 4% to $1.20 per share. Our dividend payment dates are established such that dividends are paid in the quarter immediately following the quarter in which they are declared. The following table provides additional information related to our dividend payments for fiscal 2025 and fiscal 2024: (In millions, except per share data and percentage data) 2025 2024 Total cash dividend payments $ 2,636  $ 2,566  Dividends paid per share $ 4.70  $ 4.50  Dividend payout ratio 40  % 37  % Capital Resources We expect to continue to have access to the capital markets on both short-term and long-term bases 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 March 23, 2026, which is disclosed to provide an enhanced understanding of our sources of liquidity and the effect of our ratings on our cost of funds.  Our debt ratings have enabled, and should continue to enable, us the option to refinance our debt as it becomes due. 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. Debt Ratings S&P Moody’s Commercial Paper A-2 P-2 Senior Debt BBB+ Baa1 Outlook Stable Stable There are no provisions in any agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a decrease in our stock price.   CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the consolidated financial statements and notes to consolidated financial statements presented in this Annual Report requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities.  We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources.  Actual results may differ from these estimates. Our significant accounting policies are described in Note 1 to the consolidated financial statements included herein.  We believe that the following accounting policies affect the most significant estimates and management judgments used in preparing the consolidated financial statements. 30 Table of Contents Merchandise Inventory Description 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 2025, our reserve increased approximately $7 million to $229 million as of January 30, 2026. We also record an inventory reserve for the estimated shrinkage between physical inventories.  This reserve is based primarily on actual shrink results from previous physical inventories.  During fiscal 2025, the inventory shrink reserve increased approximately $9 million to $436 million as of January 30, 2026. In addition, we receive funds from vendors in the normal course of business, principally as a result of purchase volumes, early payments, or sales-based promotions of vendors’ products.  Generally, these vendor funds do not represent the reimbursement of specific, incremental, and identifiable costs that we incurred to sell the vendor’s product.  The majority of the vendor funds associated with these purchases are earned under agreements that are negotiated on an annual basis or shorter. The funds are recorded as a reduction to the cost of inventory as they are earned. As the related inventory is sold, the amounts are recorded as a reduction to cost of sales. Funds that are determined to be reimbursements of specific, incremental, and identifiable costs incurred to sell vendors’ products are recorded as an offset to the related expense. Judgments and uncertainties involved in the estimate We do not believe that our merchandise inventories are subject to significant risk of markdown in the near term in excess of our established reserves, and we have the ability to adjust purchasing practices based on anticipated sales trends and general economic conditions. However, changes in consumer purchasing patterns or a deterioration in product quality could result in the need for additional reserves.  Likewise, changes in the estimated shrink reserve may be necessary, based on the timing and results of physical inventories.  We also apply judgment in the determination of obsolete inventory and assumptions about net realizable value. For vendor funds, we develop accrual rates based on the provisions of the agreements in place.  Due to the diversity of the individual vendor agreements, we perform analyses and review historical purchase trends and volumes throughout the year, adjust accrual rates as appropriate and confirm actual amounts with select vendors to ensure the amounts earned are appropriately recorded.  Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected purchase volumes, especially in the case of programs that provide for increased funding when graduated purchase volumes are met. Effect if actual results differ from assumptions We have not made any material changes in the methodology used to establish our inventory valuation or the related reserves for inventory during the past three fiscal years.  We believe that we have sufficient current and historical knowledge to record reasonable estimates for both of these inventory reserves.  However, it is possible that actual results could differ from recorded reserves. A 10% change in either the amount of inventory subject to markdown or the weighted average estimated loss rate used in the calculation of our LCNRV inventory reserve would each have affected net earnings by approximately $17 million for fiscal 2025. A 10% change in the estimated shrinkage rate included in the calculation of our inventory shrink reserve would have affected net earnings by approximately $33 million for fiscal 2025. We have not made any material changes in the methodology used to recognize vendor funds during the past three fiscal years.  If actual results are not consistent with the assumptions and estimates used, we could be exposed to additional adjustments that could positively or negatively impact gross margin and inventory.  However, substantially all receivables associated with these activities do not require subjective long-term estimates because they are collected within the following fiscal year.  Adjustments to gross margin and inventory in the following fiscal year have historically not been material. Self-Insurance Description 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 31 Table of Contents 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 2025, our self-insurance liabilities increased approximately $5 million to $971 million as of January 30, 2026. Judgments and uncertainties involved in the estimate These estimates are subject to changes in the regulatory environment, utilized discount rate, projected exposures including payroll, sales and vehicle units, as well as the frequency, lag and severity of claims. Effect if actual results differ from assumptions We have not made any material changes in the methodology used to establish our self-insurance liability during the past three fiscal years. Although we believe that we have the ability to reasonably estimate losses related to claims, it is possible that actual results could differ from recorded self-insurance liabilities. A 10% change in our self-insurance liability would have affected net earnings by approximately $73 million for fiscal 2025. A 100 basis point change in our discount rate would have affected net earnings by approximately $16 million for fiscal 2025. Business Combinations Description We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. Goodwill is measured as of the acquisition date as the excess of consideration transferred over the net acquisition-date fair value of the net identifiable assets acquired and liabilities assumed. During the measurement period, which is up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill due to the use of preliminary information in our initial estimates. Subsequent to the measurement period, any adjustments are recorded to earnings. Judgments and uncertainties involved in the estimate The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when fair value is not readily available and requires a significant amount of management judgment. For the valuation of intangible assets acquired in a business combination, we typically use an income approach. Specifically, for the acquisitions of ADG and FBM, we used the multi-period excess earnings method to value Customer Relationships and the relief from royalty method to value Tradenames. The significant assumptions used to estimate the fair value of intangibles included forecasted revenues and expenses, growth rates, royalty rates, attrition rates, and discount rates. Effect if actual results differ from assumptions Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired.