10-QPeriod: Q1 FY2011

LOWES COMPANIES INC Quarterly Report for Q1 Ended Apr 30, 2010

Filed June 2, 2010For Securities:LOW

Summary

Lowe's Companies, Inc. reported its first quarter results for the period ending April 30, 2010, showing a notable rebound in sales and a slight increase in net earnings compared to the prior year. The company experienced its first comparable store sales increase in 15 quarters, driven by improving consumer sentiment, favorable weather, and the impact of government stimulus programs like 'Cash for Appliances' and the 'Homebuyer Tax Credit.' This sales momentum contributed to a 2.7% increase in net earnings year-over-year, reaching $489 million. Despite the positive top-line performance, the gross margin rate saw a slight decrease due to a change in product mix, particularly the increased sales of lower-margin appliances stimulated by government programs. However, the company managed its expenses effectively, with selling, general, and administrative costs remaining relatively stable as a percentage of sales. Lowe's also demonstrated a strong ability to generate operating cash flow, which was bolstered by effective working capital management, including a significant increase in accounts payable. The company also bolstered its liquidity by issuing $1 billion in senior notes during the quarter.

Financial Highlights

50 data points
Beta

Revenue

$12.39B

35.2% Gross Margin

Net Income

$489.00M

3.9% Net Margin

EPS (Diluted)

$0.34

Total Assets

$37.41B

Cash & Equivalents

$2.68B

Free Cash Flow

$2.45B

Financial Statements
Beta
Revenue$12.39B
Cost of Revenue$8.03B
Gross Profit$4.36B
SG&A Expenses$3.09B
Operating Expenses$3.57B
Interest Expense$82.00M
Net Income$489.00M
EPS (Basic)$0.34
EPS (Diluted)$0.34
Shares Outstanding (Basic)1.44B
Shares Outstanding (Diluted)1.44B

Key Highlights

  • 1Net sales increased by 4.7% to $12.39 billion for the three months ended April 30, 2010, compared to $11.83 billion in the prior year.
  • 2Comparable store sales increased by 2.4% for the quarter, marking the first increase in 15 quarters, indicating a recovery in consumer demand.
  • 3Net earnings rose to $489 million, or $0.34 per diluted share, from $476 million, or $0.32 per diluted share, in the same period last year.
  • 4Gross margin decreased slightly to 35.18% of sales from 35.46%, impacted by a change in product mix including higher appliance sales.
  • 5Selling, general, and administrative expenses remained stable as a percentage of sales at 24.98%, demonstrating effective cost management.
  • 6Net cash provided by operating activities increased significantly to $2.74 billion from $2.35 billion, driven by favorable changes in working capital, particularly accounts payable.
  • 7The company issued $1.0 billion in unsecured senior notes in April 2010 to fund general corporate purposes, capital expenditures, and share repurchases.

Frequently Asked Questions

The increase in net sales was driven by an improving consumer outlook, favorable weather conditions, and the impact of government stimulus programs such as the 'Cash for Appliances' and 'Homebuyer Tax Credit' programs. These factors contributed to increased consumer willingness to spend on big-ticket items and home improvement projects, leading to the first comparable store sales increase in 15 quarters.

The gross margin rate decreased by 28 basis points due to a change in product mix, specifically the increased sales of appliances driven by the government's 'Cash for Appliances' program, which have a lower margin. Additionally, delays in passing on commodity price increases due to the competitive environment and increased promotional activity also contributed to the decline, partially offset by supply chain efficiencies and lower inventory shrink.

Lowe's demonstrated effective expense management. Selling, general, and administrative (SG&A) expenses remained stable as a percentage of sales. While store payroll saw some de-leverage due to additional hours for new positions, this was partially offset by leverage from the private label credit card program and favorable insurance costs. Depreciation expense also decreased slightly due to reduced capital spending.

For the second quarter of 2010, Lowe's expected total sales to increase 5% to 7% and comparable store sales to increase 2% to 4%, with an expected diluted earnings per share of $0.57 to $0.59. For the full fiscal year 2010, the company projected total sales to increase 5% to 7% and comparable store sales to increase 2% to 4%, with an expected diluted earnings per share of $1.37 to $1.47.