10-QPeriod: Q3 FY2002

LOWES COMPANIES INC Quarterly Report for Q3 Ended Nov 2, 2001

Filed December 17, 2001For Securities:LOW

Summary

Lowe's Companies, Inc. reported strong performance for the third quarter and the first nine months of fiscal year 2001, demonstrating significant growth in sales and net earnings. Sales for the third quarter surged by 21% to $5.5 billion, with comparable store sales increasing by 4.0%. Net earnings for the quarter rose 24% to $250.5 million, translating to a diluted EPS of $0.32, up from $0.26 in the prior year's comparable quarter. For the nine-month period, sales grew 18% to $16.9 billion, and net earnings increased 20% to $804.9 million, with diluted EPS reaching $1.02. The company's expansion strategy is a key driver of this growth, evidenced by a 23.7% increase in retail selling space year-over-year. This expansion, along with improved sales in core categories like appliances and building materials, contributed to the positive financial results. Management highlighted improved gross margin percentages due to higher margin rates and product mix enhancements, as well as better SG&A expense leverage. Despite increased interest expenses from recent debt issuances, the company maintains a positive outlook on its liquidity and capital resources, believing they are adequate to fund its aggressive expansion plans.

Key Highlights

  • 1Third-quarter net sales increased 21% to $5.5 billion, with comparable store sales up 4.0%.
  • 2Diluted earnings per share for the third quarter rose 23% to $0.32 from $0.26 in the prior year.
  • 3Nine-month net sales grew 18% to $16.9 billion, and net earnings increased 20% to $804.9 million.
  • 4Retail selling space increased by 23.7% year-over-year, reflecting aggressive store expansion.
  • 5Gross margin percentage improved to 29.17% in Q3 and 28.49% year-to-date, driven by better sourcing and product mix.
  • 6The company issued significant amounts of convertible debt in February and October 2001 to fund its growth, leading to higher interest expenses.
  • 7Despite increased debt, Lowe's maintains adequate liquidity and capital resources to support its 2001 expansion plan, which includes significant capital expenditures for new stores and distribution centers.

Frequently Asked Questions

Lowe's experienced a 21% increase in net sales for the third quarter, driven by both the addition of new retail selling space (approximately 15 million square feet) and a 4.0% increase in comparable store sales. The comparable store sales growth was supported by stabilization in lumber and building material prices and improved performance in categories such as appliances, paint, building materials, and flooring.

Lowe's demonstrated effective expense management, with Selling, General, and Administrative (SG&A) expenses as a percentage of sales improving slightly to 17.84% in the third quarter (vs. 17.97% last year) and 17.28% for the nine-month period (vs. 17.38% last year). This leverage was achieved through expense control in areas like payroll and advertising, although partially offset by increased employee benefits costs and bankcard expenses.

Lowe's has significantly increased its long-term debt through the issuance of convertible notes in February ($1.005 billion) and October 2001 ($580.7 million). This has led to a substantial rise in interest expense. However, the company has secured an $800 million senior credit facility and believes its overall liquidity and capital resources are sufficient to fund its ongoing expansion plans and operating needs.

Lowe's continues its aggressive expansion strategy, planning to increase retail sales floor square footage by approximately 19% in 2001 through new store openings and relocations. The company has allocated a $2.7 billion capital budget for 2001, with the majority focused on store and distribution center expansion. Funding for this expansion is expected to come from a combination of operating cash flows, debt issuances, and existing credit agreements.