10-QPeriod: Q3 FY2013

LOWES COMPANIES INC Quarterly Report for Q3 Ended Aug 3, 2012

Filed September 4, 2012For Securities:LOW

Summary

Lowe's Companies, Inc. (LOW) reported its financial results for the fiscal second quarter ended August 3, 2012. While net sales saw a slight decrease of 2.0% to $14.2 billion compared to the prior year, this was partially due to a one-week shift in fiscal 2011. Comparable store sales experienced a minor decline of 0.4%, indicating a challenging retail environment. The company's gross margin also decreased by 56 basis points, primarily attributed to increased promotional activity and price reductions. Despite the top-line pressures, Lowe's demonstrated proactive capital management. The company announced the issuance of $2.0 billion in unsecured notes in April 2012 to strengthen its financial position and continued its aggressive share repurchase program, buying back $2.79 billion in the first half of the fiscal year. Management's outlook anticipates continued transformation efforts aimed at improving customer experience and sales growth, with an expectation for earnings per share to reach $1.64 for fiscal year 2012.

Financial Highlights

47 data points
Beta

Revenue

$14.25B

33.9% Gross Margin

Net Income

$747.00M

5.2% Net Margin

EPS (Diluted)

$0.64

Total Assets

$35.03B

Cash & Equivalents

$1.71B

Free Cash Flow

$44.00M

Financial Statements
Beta
Revenue$14.25B
Cost of Revenue$9.41B
Gross Profit$4.83B
SG&A Expenses$3.17B
Operating Expenses$3.64B
Net Income$747.00M
EPS (Basic)$0.64
EPS (Diluted)$0.64
Shares Outstanding (Basic)1.16B
Shares Outstanding (Diluted)1.16B

Key Highlights

  • 1Net sales for the quarter were $14.2 billion, a 2.0% decrease year-over-year, impacted by a one-week fiscal calendar shift in the prior year.
  • 2Comparable store sales declined by 0.4%, with a 0.8% decrease in customer transactions, partially offset by a 0.4% increase in average ticket price.
  • 3Gross margin decreased by 56 basis points to 33.93% of sales, primarily due to promotional activity and price reductions.
  • 4Selling, general, and administrative (SG&A) expenses deleveraged slightly as a percentage of sales, impacted by store payroll and bonus expenses.
  • 5The company issued $2.0 billion in unsecured notes in April 2012 and utilized $2.79 billion for share repurchases in the first half of the fiscal year.
  • 6Lowe's repurchased approximately 36.9 million shares of common stock in the second quarter.
  • 7The company's outlook for fiscal year 2012 projects total sales to be flat to slightly increasing and diluted earnings per share of $1.64.

Frequently Asked Questions

The decrease in net sales was primarily influenced by a 2.0% decline year-over-year. A portion of this decrease (1.8%) can be attributed to a one-week fiscal calendar shift in fiscal 2011, which benefited that period's sales. Additionally, comparable store sales decreased by 0.4%, reflecting challenges in customer transactions.

Lowe's actively managed its capital by issuing $2.0 billion in unsecured notes in April 2012 to enhance its financial flexibility. Furthermore, the company continued its significant share repurchase program, executing $2.79 billion in buybacks during the first half of the fiscal year, including approximately $1.0 billion in the current quarter.

Lowe's expects the ongoing transformation initiatives to improve customer experience and drive sales. For the full fiscal year 2012, the company anticipates total sales to be flat to up approximately 1% (on a 52-week vs. 52-week basis) and projects diluted earnings per share of $1.64. The company also plans further share repurchases.

The gross margin declined by 56 basis points primarily due to increased promotional activity and price reductions aimed at driving sales. Additionally, write-offs in the Lawn & Garden category due to drought conditions and the impact of Lowe's proprietary credit value proposition also negatively affected the gross margin.