10-QPeriod: Q1 FY2017

LOWES COMPANIES INC Quarterly Report for Q1 Ended Apr 29, 2016

Filed May 31, 2016For Securities:LOW

Summary

Lowe's Companies, Inc. reported strong performance for the first quarter of fiscal year 2016, with net sales increasing by 7.8% to $15.2 billion and comparable sales rising by 7.3%. This growth was driven by broad-based strength across all product categories and regions, benefiting from favorable macroeconomic conditions and increased consumer investment in home improvement. The company also saw a significant increase in net earnings, up 31.4% to $884 million, translating to diluted earnings per share (EPS) of $0.98, a 40% increase year-over-year. A notable item impacting results was an unrealized gain from a foreign currency option contract related to the pending acquisition of RONA Inc., which added $0.11 to EPS. Despite a slight contraction in gross margin due to promotional activity and product mix, the company demonstrated effective cost management, leading to a leverage in SG&A expenses. The company also continued its commitment to returning capital to shareholders, repurchasing $1.2 billion in common stock and paying $255 million in dividends during the quarter.

Financial Highlights

51 data points
Beta

Revenue

$15.23B

35.0% Gross Margin

Net Income

$884.00M

5.8% Net Margin

EPS (Diluted)

$0.98

Total Assets

$37.18B

Cash & Equivalents

$4.56B

Free Cash Flow

$3.01B

Financial Statements
Beta
Revenue$15.23B
Cost of Revenue$9.90B
Gross Profit$5.34B
SG&A Expenses$3.39B
Operating Expenses$3.91B
Operating Income$1.59B
Net Income$884.00M
EPS (Basic)$0.98
EPS (Diluted)$0.98
Shares Outstanding (Basic)897.00M
Shares Outstanding (Diluted)899.00M

Key Highlights

  • 1Net sales grew 7.8% to $15.2 billion, with comparable sales increasing 7.3%.
  • 2Net earnings rose significantly by 31.4% to $884 million.
  • 3Diluted Earnings Per Share (EPS) increased 40.0% to $0.98.
  • 4An unrealized gain from a foreign currency option contract related to the RONA acquisition contributed $0.11 to EPS.
  • 5SG&A expenses leveraged 188 basis points as a percentage of sales, driven partly by the currency option gain.
  • 6The company returned $1.2 billion to shareholders through share repurchases and $255 million through dividends in the quarter.
  • 7Strong performance was observed across all 13 product categories and 14 regions, with particular strength in Lumber & Building Materials, Millwork, Paint, Lawn & Garden, and Tools & Hardware.

Frequently Asked Questions

Lowe's sales growth in Q1 2016 was primarily driven by a 7.3% increase in comparable sales, fueled by favorable macroeconomic conditions, increased consumer spending on home improvement, and strong execution across all 13 product categories and 14 regions. Specific categories like Lumber & Building Materials, Millwork, Paint, Lawn & Garden, and Tools & Hardware showed particular strength.

The RONA acquisition was pending during this quarter, but an associated foreign currency option contract resulted in an unrealized gain of $160 million pre-tax, which contributed $0.11 to diluted EPS. This gain was a significant factor in the leverage seen in Selling, General, and Administrative (SG&A) expenses. The actual acquisition occurred shortly after the quarter ended.

Lowe's demonstrated a strong commitment to returning capital to shareholders in Q1 2016, repurchasing $1.2 billion of its common stock under its ongoing share repurchase program and paying out $255 million in cash dividends. The company has a substantial amount remaining under its authorized repurchase program and expects to continue these activities.

The company's financial condition remained strong, with net cash provided by operating activities increasing significantly due to improved working capital management and higher net earnings. The company also issued $3.3 billion in senior notes to finance its operations and future investments, including the RONA acquisition. Lowe's has access to a $1.75 billion unsecured revolving credit facility and expects its operating and financing cash flows to be adequate for its needs over the next 12 months.