10-QPeriod: Q3 FY2008

LOWES COMPANIES INC Quarterly Report for Q3 Ended Aug 3, 2007

Filed September 5, 2007For Securities:LOW

Summary

Lowe's Companies, Inc. reported its financial results for the second quarter and first half of fiscal year 2007, ending August 3, 2007. The company experienced a challenging retail environment, particularly in the home improvement sector, influenced by a cooling housing market and reduced consumer spending on discretionary projects. Despite a 2.6% decline in comparable store sales for the quarter, Lowe's managed to increase net sales by 5.8% to $14.17 billion, driven by new store openings which expanded its retail footprint by 11% year-over-year. The company's gross margin improved by 103 basis points to 34.47% due to a more rational promotional environment and strategic management of seasonal goods. Net earnings for the quarter rose 9.0% to $1.02 billion, with diluted earnings per share increasing to $0.67 from $0.60 in the prior year. For the first six months, net sales grew 4.1% and net earnings decreased slightly by 1.0% to $1.76 billion, with diluted EPS at $1.15. The company highlighted strategic investments in existing stores and supply chain improvements, as well as positive trends in customer service perceptions. However, significant investments in store expansion and capital expenditures continue, with an updated fiscal 2007 capital forecast of $4.0 to $4.1 billion.

Key Highlights

  • 1Net sales for the second quarter increased 5.8% to $14.17 billion, driven by new store openings, though comparable store sales declined 2.6% due to a challenging retail environment.
  • 2Gross margin improved by 103 basis points to 34.47% in the second quarter, attributed to a more favorable promotional landscape and better management of seasonal imports.
  • 3Net earnings for the second quarter rose 9.0% to $1.02 billion, with diluted EPS growing to $0.67 from $0.60 in the prior year.
  • 4The company repurchased approximately $1.5 billion of its common stock during the first six months of fiscal 2007 and authorized an additional $3 billion share repurchase program through fiscal 2009.
  • 5Lowe's expanded its store base significantly, with 143 new stores opened in the past four quarters, increasing total sales floor square footage by 11% year-over-year.
  • 6The company experienced regional variations in performance, with significant comparable store sales declines in markets heavily impacted by the housing correction (e.g., California, Florida, Gulf Coast).
  • 7Investments in supply chain infrastructure and store remodels continue, with updated capital expenditure forecast for fiscal 2007 projected between $4.0 to $4.1 billion.

Frequently Asked Questions

Lowe's sales performance was driven by the opening of new stores, which contributed to a 5.8% increase in net sales for the quarter. However, comparable store sales declined by 2.6%, indicating a challenging retail environment. This decline was attributed to consumers hesitating on larger discretionary projects, a decrease in hurricane rebuilding efforts, and deflation in lumber and plywood prices.

Lowe's successfully improved its gross margin by 103 basis points to 34.47% in the second quarter of 2007. This improvement was primarily due to a more rational promotional environment compared to the prior year, strategic management of seasonal goods using new transload and coastal holding facilities, and a larger proportion of imported goods.

For the third quarter of fiscal 2007, Lowe's projected total sales to increase by 7% to 8% and comparable store sales to be approximately flat, with diluted EPS expected between $0.43 and $0.45. For the full fiscal year 2007, the company expected total sales to increase about 6%, comparable store sales to decline around 2%, and diluted EPS to be in the range of $1.97 to $2.01.

Lowe's generated strong operating cash flows and has a significant credit facility. Capital expenditures for fiscal 2007 were forecast to be between $4.0 to $4.1 billion, with approximately 80% dedicated to store expansion and new distribution centers. The company also continued its share repurchase program, with an additional $3 billion authorized through fiscal 2009.