10-QPeriod: Q3 FY2009

LOWES COMPANIES INC Quarterly Report for Q3 Ended Aug 1, 2008

Filed September 3, 2008For Securities:LOW

Summary

Lowe's Companies, Inc. reported its financial results for the second quarter and first half of fiscal year 2008, ending August 1, 2008. The company faced a challenging economic environment characterized by declining home prices and tight credit markets, which impacted consumer spending on home improvement. Despite the headwinds, Lowe's demonstrated resilience. Net sales saw a modest increase, primarily driven by store expansion, though comparable store sales declined. The company's focus on customer service and project selling contributed to market share gains. Management expressed a cautious outlook for the remainder of the year, anticipating continued pressure on consumer spending. The company actively managed its capital resources, including debt redemption and a pause in share repurchases, while maintaining compliance with debt covenants.

Financial Highlights

50 data points
Beta

Revenue

$11.73B

34.0% Gross Margin

Net Income

$488.00M

4.2% Net Margin

EPS (Diluted)

$0.33

Total Assets

$33.03B

Cash & Equivalents

$322.00M

Free Cash Flow

$1.82B

Financial Statements
Beta
Revenue$11.73B
Cost of Revenue$7.74B
Gross Profit$3.98B
SG&A Expenses$2.73B
Operating Expenses$3.21B
Interest Expense$65.00M
Net Income$488.00M
EPS (Basic)$0.33
EPS (Diluted)$0.33
Shares Outstanding (Basic)1.46B
Shares Outstanding (Diluted)1.46B

Key Highlights

  • 1Net sales increased by 2.4% for the quarter and 0.7% for the first six months, largely due to store expansion, while comparable store sales declined significantly (-5.3% for the quarter, -6.7% for the six months).
  • 2Net earnings decreased by 8.0% for the quarter ($938 million vs. $1,019 million) and 12.1% for the first six months ($1,545 million vs. $1,758 million) compared to the prior year.
  • 3Selling, General, and Administrative (SG&A) expenses deleveraged, increasing as a percentage of sales by 74 basis points for the quarter and 68 basis points for the six months, driven by store payroll and fixed expenses due to weaker sales.
  • 4The company redeemed approximately $511 million in principal of convertible notes during the second quarter of 2008, reducing long-term debt obligations.
  • 5Net cash provided by operating activities increased to $3.9 billion for the first six months of 2008 from $3.1 billion in the prior year, reflecting improved inventory management and payment terms.
  • 6Capital expenditures remain significant, with an expected net cash outflow of approximately $3.6 billion for fiscal 2008, primarily for store expansion.
  • 7Lowe's maintained compliance with its debt covenants and had no outstanding borrowings under its $1.75 billion senior credit facility as of August 1, 2008.

Frequently Asked Questions

Comparable store sales declined significantly, with a decrease of 5.3% for the three months ended August 1, 2008, and 6.7% for the six months ended August 1, 2008, compared to the same periods in the prior year. This indicates a challenging sales environment at existing store locations.

Lowe's management anticipates continued pressure on consumer spending due to economic factors like declining home prices and rising unemployment. They expect comparable store sales to decline between 5% and 7% for the third quarter and between 6% and 7% for the full fiscal year 2008. Diluted EPS for fiscal 2008 is projected to be between $1.48 and $1.56.

The company redeemed a substantial amount of its convertible notes during the quarter, reducing its long-term debt. Net cash from operations increased, and Lowe's maintained its $1.75 billion senior credit facility with no outstanding borrowings. While capital expenditures for store expansion remain high, the company believes its operating cash flows and financing arrangements are adequate to meet its liquidity needs.

Profitability is being impacted by several factors. Net earnings decreased due to lower comparable store sales and increased SG&A expenses as a percentage of sales (deleveraging). Gross margin also experienced a slight decline due to promotional activities, vendor price increases, and higher operating costs like fuel. The challenging economic environment is a significant overarching factor.