01—Abstract
Summary
Summary of the 10-K/A filed April 13, 2004. Cited figures are marked; the original filing is the authoritative source.
Lowe's Companies, Inc. (LOW) closed fiscal 2003 (year ended January 30, 2004) with sales of $30.8 billiona, up 18% from $26.1 billion, and net earnings of $1.88 billion, up 28%.
Diluted EPS was $2.34b, versus $1.85 in fiscal 2002. Comparable store sales rose 6.7%, driven by the company's up-the-continuum product strategy, Everyday Low Prices, and strength in the housing market. Gross margin expanded to 31.2% of sales from 30.4%, mainly from lower inventory acquisition costs and reduced shrinkage.
SG&A rose to 18.0% of sales, reflecting the first stock-based compensation expense under SFAS 123. This filing is Amendment No. 1 to the original 10-K, made to correct clerical errors, most notably net earnings, which the original stated as $877 millionc rather than the correct $1,877 million. The balance sheet is strong.
Total assets reached $19.0 billiond and shareholders' equity $10.3 billion. Long-term debt, excluding current maturities, was $3.7 billion, and the long-term debt-to-capitalization ratio fell to 26.3% from 31.0% a year earlier. Cash and equivalents increased to $1.4 billion, and operating cash flow from continuing operations was $3.0 billion.
The company authorized a $1 billion share repurchase program through 2005 and raised its quarterly dividend 20% to $0.03. Management is guiding to roughly 17% sales growth, 140 new stores, and 5-6% comparable store sales growth in fiscal 2004. Diluted EPS guidance is $2.63 to $2.66, reflecting a roughly $0.13 hit from a change in accounting for vendor cooperative advertising funds (EITF 02-16).
The main risks for investors are the sensitivity of demand to housing activity, interest rates, and discretionary home-improvement spending, along with commodity price swings in lumber and plywood and competition from larger rivals and new channels. The company's near-term growth depends on continued store expansion into metropolitan markets and on maintaining margin gains as its vendor-funding accounting changes take effect.
02—Key points
Key Highlights
- Net sales grew 18% to $30.8 billion, and comparable store sales rose 6.7%, with positive comps in every product category and region.
- Net earnings were $1.88 billion (6.1% of sales), up 28%, with diluted EPS of $2.34 versus $1.85 in fiscal 2002.
- Gross margin expanded 80 basis points to 31.2%, driven by lower inventory acquisition costs and reduced shrinkage rather than higher retail prices.
- SG&A rose to 18.0% of sales, partly due to the first-year expense of $41 million for stock-based compensation under SFAS 123.
- Balance sheet strengthened: long-term debt fell to 26.3% of total capitalization from 31.0%, and cash rose to $1.4 billion.
- Board authorized a $1 billion share repurchase program through 2005, and the quarterly dividend was raised 20% to $0.03.
- Fiscal 2004 guidance calls for about 17% sales growth, 140 new stores, and diluted EPS of $2.63–$2.66, including a roughly $0.13 hit from EITF 02-16.
03—Questions
Frequently Asked Questions
Why was this 10-K/A filed, and does it change the financial results?
The amendment corrects clerical errors in the original filing. Most significantly, the original Exhibit 13 reported net earnings of $877 million, while the correct figure is $1,877 million, consistent with the income statement and EPS data. It also corrects a fiscal 2002 SG&A percentage (17.91% rather than 17.97%) and some typographical items. The underlying audited financial statements were otherwise unchanged.
What is driving Lowe's sales and margin growth?
Sales growth came from new store openings (130 in fiscal 2003) and a 6.7% comparable store sales increase. Management attributes comps to its up-the-continuum product strategy, Everyday Low Prices, specialty sales initiatives (installed sales, commercial customers, special orders), and a healthy housing market. Gross margin improved mainly from lower inventory costs and reduced shrinkage.
What are the main risks to Lowe's outlook?
The filing cites dependence on the general economy, housing starts, remodeling activity, and availability of financing. Discretionary projects can be delayed in a downturn, and weather affects seasonal categories. Commodity prices for lumber and plywood fluctuate widely, competition may intensify as the company enters new markets and the internet, and the company relies on vendors for competitively priced inventory. Changes in debt ratings could also affect funding availability, though the company says it expects to maintain its investment-grade rating.
How much debt does Lowe's carry, and is it a concern?
Long-term debt excluding current maturities was $3.7 billion at January 30, 2004, with an estimated fair value of $4.0 billion for non-lease debt. The company's debt is entirely fixed-rate, and it reports $3.8 billion of total long-term debt with no near-term maturity wall beyond $54 million due in 2004 and $608 million in 2005. Its senior credit facility of $800 million was undrawn at year-end. Debt-to-capitalization fell to 26.3%, and the company's ratings were A (S&P), A2 (Moody's), and A (Fitch), with positive or stable outlooks.
What does the company plan to do with its capital in 2004?
The 2004 capital budget is $3.4 billion, about 76% of which goes to store expansion and new distribution centers. Plans include opening about 140 stores, increasing square footage about 14%, and adding a regional distribution center in Florida and one in Connecticut. The company is also starting a $1 billion share repurchase program through 2005 and has increased its dividend. It does not currently plan major acquisitions.
04—Continue