10-QPeriod: Q2 FY2013

LOWES COMPANIES INC Quarterly Report for Q2 Ended May 4, 2012

Filed June 6, 2012For Securities:LOW

Summary

Lowe's Companies, Inc. reported its first quarter results for the period ending May 4, 2012. The company saw a significant increase in net sales, driven by favorable weather and growth in the commercial business, though demand for seasonal products slowed towards the end of the quarter. Despite a contraction in gross margin, Lowe's managed operating expenses effectively, leading to an increase in diluted earnings per share. Key strategic initiatives focused on enhancing customer experiences through a flexible fulfillment process and improved contact center tools, product differentiation by resetting store layouts and highlighting brands, and value improvement via product line reviews and simplified vendor agreements. The company raised its quarterly dividend and continued its aggressive share repurchase program, indicating a focus on returning capital to shareholders. Despite macroeconomic uncertainties and a cautious outlook on consumer spending, Lowe's remains focused on operational execution and strategic investments to drive future growth.

Financial Highlights

47 data points
Beta

Revenue

$13.15B

34.7% Gross Margin

Net Income

$527.00M

4.0% Net Margin

EPS (Diluted)

$0.43

Total Assets

$37.21B

Cash & Equivalents

$3.07B

Free Cash Flow

$2.13B

Financial Statements
Beta
Revenue$13.15B
Cost of Revenue$8.59B
Gross Profit$4.56B
SG&A Expenses$3.24B
Operating Expenses$3.71B
Net Income$527.00M
EPS (Basic)$0.43
EPS (Diluted)$0.43
Shares Outstanding (Basic)1.21B
Shares Outstanding (Diluted)1.21B

Key Highlights

  • 1Net sales increased by 7.9% to $13.2 billion, aided by a 53rd week in the prior year and a 2.6% increase in comparable store sales.
  • 2Diluted earnings per share rose to $0.43 from $0.34 in the prior year period, demonstrating improved profitability.
  • 3The company raised its quarterly cash dividend by 14% to $0.16 per share.
  • 4Lowe's repurchased approximately $1.75 billion of its common stock during the quarter, with $2.75 billion remaining under its authorization.
  • 5Gross margin decreased by 74 basis points as a percentage of sales, primarily due to customer response to the 5% off credit card offer and a greater emphasis on everyday low pricing.
  • 6Selling, General, and Administrative (SG&A) expenses leveraged by 95 basis points as a percentage of sales, driven by improved performance of the proprietary credit program.
  • 7The company issued $2.0 billion in unsecured notes to fund general corporate purposes, including potential share repurchases and capital expenditures.

Frequently Asked Questions

The increase in net sales was driven by several factors, including better-than-anticipated weather early in the season, growth in the commercial business segment, and a 53rd week in the prior fiscal year which contributed approximately $514 million or 4.2% to the net sales increase. Comparable store sales also increased by 2.6%.

The gross margin contracted by 74 basis points as a percentage of sales. This was primarily due to a strong customer response to the '5% off every day' offer for Lowe's credit cardholders (negatively impacting margin by approximately 39 basis points) and actions taken to emphasize everyday low pricing (negatively impacting margin by approximately 15 basis points). Inflation in certain categories like paint and building materials also contributed.

Lowe's is focusing on three key areas: 1) Enhancing customer experiences through initiatives like a flexible fulfillment process that expands online product availability and improved tools for contact center associates and exterior project specialists. 2) Driving product differentiation by resetting approximately one-third of its stores to highlight innovation, brands, and value. 3) Achieving value improvement by simplifying vendor agreements, optimizing product assortment (SKUs) by market, and focusing on a 'best first cost'.

Lowe's is actively managing its capital by issuing $2.0 billion in unsecured notes to support its financial strategy. The company is also focused on returning value to shareholders through a significant share repurchase program, having bought back $1.75 billion in the first quarter with $2.75 billion remaining authorization, and by increasing its quarterly cash dividend by 14% to $0.16 per share.