10-QPeriod: Q2 FY2014

LOWES COMPANIES INC Quarterly Report for Q2 Ended May 3, 2013

Filed June 4, 2013For Securities:LOW

Summary

This 10-Q filing for Lowe's Companies, Inc. for the period ending May 3, 2013, reveals a slight decrease in net sales by 0.5% to $13.1 billion compared to the prior year's first quarter. This dip was primarily attributed to unfavorable weather conditions impacting seasonal outdoor categories, which saw a 7% decline in comparable sales. However, indoor categories performed well, with a 3% increase in comparable sales, and the Pro Services business also demonstrated strength. Despite the revenue softness, the company reported an increase in net earnings by 2.5% to $540 million and a significant 14.0% rise in diluted earnings per share to $0.49. This improvement was driven by gross margin expansion and effective management of selling, general, and administrative (SG&A) expenses, despite investments in store labor. Lowe's continued its commitment to returning capital to shareholders by paying $178 million in dividends and repurchasing approximately $1.0 billion in common stock during the quarter, demonstrating a focus on shareholder value enhancement amidst a challenging sales environment.

Financial Highlights

48 data points
Beta

Revenue

$13.09B

34.8% Gross Margin

Net Income

$540.00M

4.1% Net Margin

EPS (Diluted)

$0.49

Total Assets

$34.73B

Cash & Equivalents

$1.08B

Free Cash Flow

$1.80B

Financial Statements
Beta
Revenue$13.09B
Cost of Revenue$8.53B
Gross Profit$4.55B
SG&A Expenses$3.22B
Operating Expenses$3.69B
Net Income$540.00M
EPS (Basic)$0.49
EPS (Diluted)$0.49
Shares Outstanding (Basic)1.09B
Shares Outstanding (Diluted)1.09B

Key Highlights

  • 1Net sales decreased by 0.5% to $13.1 billion, largely due to adverse weather impacting seasonal outdoor product sales.
  • 2Comparable sales for indoor categories increased by approximately 3%, while outdoor categories decreased by approximately 7%.
  • 3Net earnings increased by 2.5% to $540 million, and diluted earnings per share rose by 14.0% to $0.49.
  • 4Gross margin as a percentage of sales improved by 10 basis points.
  • 5Selling, general, and administrative (SG&A) expenses leveraged 3 basis points as a percentage of sales, despite increased investment in store labor.
  • 6The company repurchased $1.0 billion of its common stock through an Accelerated Share Repurchase (ASR) program and paid $178 million in dividends.
  • 7The company maintained a strong liquidity position with $2.0 billion in cash flow from operations and access to a $1.75 billion senior credit facility.

Frequently Asked Questions

The primary drivers were mixed. Net sales saw a slight decrease of 0.5% due to unfavorable weather conditions negatively impacting seasonal outdoor product categories (down 7% comparable sales). However, indoor product categories showed resilience with a 3% increase in comparable sales, and the Pro Services business also performed strongly. The company also noted that housing recovery in certain regions contributed to solid demand.

Lowe's improved its net earnings through a combination of factors. Gross margin as a percentage of sales increased by 10 basis points. Additionally, Selling, General, and Administrative (SG&A) expenses leveraged 3 basis points as a percentage of sales, despite planned investments in store labor to increase customer-facing hours. This expense management, coupled with favorable actuarial adjustments for casualty insurance and lower incentive compensation, helped offset the impact of lower sales.

Lowe's is actively returning capital to shareholders. In the first quarter, the company paid $178 million in dividends and repurchased approximately $1.0 billion of its common stock, primarily through an Accelerated Share Repurchase (ASR) agreement. The company also has a remaining authorization of $4.0 billion under its share repurchase program.

The company's initial fiscal year 2013 guidance, as of May 22, 2013, projected total sales to increase approximately 4% and comparable sales to increase approximately 3.5%. Operating margin was expected to increase by about 60 basis points, and diluted earnings per share were projected at $2.05 for the full fiscal year. The company anticipates continued benefits from the housing market recovery and its strategic initiatives.