10-QPeriod: Q3 FY2014

LOWES COMPANIES INC Quarterly Report for Q3 Ended Aug 2, 2013

Filed September 3, 2013For Securities:LOW

Summary

Lowe's Companies, Inc. reported solid performance for the second quarter and first half of fiscal year 2013, demonstrating notable year-over-year growth in key financial metrics. Net sales increased by 10.3% to $15.7 billion for the quarter and 5.1% to $28.8 billion for the first six months, driven by a robust 9.6% comparable sales increase in Q2, fueled by both higher transaction volume and average ticket size. This growth reflects a strengthening housing market, increased housing turnover, and improved job growth, which boosted consumer spending on home improvement. The company also highlighted significant improvements in profitability, with net earnings up 25.9% to $941 million in the second quarter and 16.2% for the first six months. This was supported by a 42 basis point increase in gross margin as a percentage of sales for the quarter, attributed to cost reductions and more effective promotions, and a 53 basis point leverage in SG&A expenses, primarily due to operating salary efficiencies. Management expressed confidence in the company's strategic initiatives and execution, expecting continued strength in key markets and overall business outlook for the remainder of the year.

Financial Highlights

49 data points
Beta

Revenue

$15.71B

34.4% Gross Margin

Net Income

$941.00M

6.0% Net Margin

EPS (Diluted)

$0.88

Total Assets

$33.41B

Cash & Equivalents

$1.08B

Free Cash Flow

$1.18B

Financial Statements
Beta
Revenue$15.71B
Cost of Revenue$10.31B
Gross Profit$5.40B
SG&A Expenses$3.41B
Operating Expenses$3.89B
Net Income$941.00M
EPS (Basic)$0.88
EPS (Diluted)$0.88
Shares Outstanding (Basic)1.07B
Shares Outstanding (Diluted)1.07B

Key Highlights

  • 1Net sales increased by 10.3% to $15.7 billion in Q2 2013 and 5.1% to $28.8 billion for the first six months.
  • 2Comparable sales grew by 9.6% in Q2 2013, driven by a 5.0% increase in transactions and a 4.4% increase in average ticket.
  • 3Net earnings increased by 25.9% to $941 million in Q2 2013 and 16.2% to $1.48 billion for the first six months.
  • 4Gross margin improved by 42 basis points year-over-year in Q2 2013, reflecting cost reductions and promotional effectiveness.
  • 5Selling, General, and Administrative (SG&A) expenses leveraged by 53 basis points as a percentage of sales in Q2 2013, indicating improved operational efficiency.
  • 6The company returned significant capital to shareholders through $1.0 billion in share repurchases during Q2 2013 and $174 million in dividends.
  • 7Lowe's acquired Orchard Supply Hardware on August 30, 2013, for approximately $205 million, expanding its store format and customer reach in California.

Frequently Asked Questions

Lowe's sales growth in Q2 2013 was primarily driven by a 9.6% increase in comparable sales, which in turn was fueled by a 5.0% rise in comparable customer transactions and a 4.4% increase in the comparable average ticket price. This performance was supported by broader economic factors like increased housing turnover and job growth, as well as the company's ability to capitalize on seasonal trends and recover sales missed due to poor weather in the first quarter.

Lowe's improved profitability through effective expense management. For the second quarter, SG&A expenses leveraged by 53 basis points as a percentage of sales, due to operating salary efficiencies and reduced claims costs in employee and casualty insurance. Additionally, gross margin increased by 42 basis points due to cost reductions from product line reviews and more targeted promotions, despite some negative impact from product mix and lumber inflation.

Lowe's is committed to returning excess cash to shareholders. During the second quarter of 2013, the company paid $174 million in dividends and repurchased approximately 27.1 million shares of common stock for $1.0 billion under its share repurchase program. The company had $3.0 billion remaining authorization under its $5.0 billion share repurchase program as of August 2, 2013, and expects to continue returning capital through dividends and repurchases.

Yes, on August 30, 2013, shortly after the quarter ended, Lowe's acquired the majority of the assets of Orchard Supply Hardware for approximately $205 million in cash, plus the assumption of about $70 million in payables. This acquisition is expected to allow Lowe's to expand through a new store format and reach a new customer base, particularly in California.