10-QPeriod: Q2 FY2017

LOWES COMPANIES INC Quarterly Report for Q2 Ended Jul 29, 2016

Filed September 2, 2016For Securities:LOW

Summary

Lowe's Companies, Inc. reported solid results for the second quarter and first half of fiscal year 2016, demonstrating growth driven by a combination of increased comparable sales and the impactful acquisition of RONA Inc. Net sales saw a notable increase, bolstered by the strategic expansion into the Canadian market through RONA. The company also reported growth in net earnings and diluted earnings per share, reflecting operational improvements and strategic initiatives. Key financial highlights include a significant increase in total assets, largely due to the RONA acquisition which also contributed to higher total liabilities and long-term debt. Despite these increases, the company maintained a strong focus on shareholder returns, evidenced by substantial dividend payments and significant share repurchases. Management remains optimistic about the home improvement industry's outlook, citing positive macroeconomic trends such as job market gains and disposable income growth as drivers for continued consumer spending.

Financial Highlights

53 data points
Beta

Revenue

$18.26B

34.4% Gross Margin

Net Income

$1.17B

6.4% Net Margin

EPS (Diluted)

$1.31

Total Assets

$36.47B

Cash & Equivalents

$1.99B

Free Cash Flow

$1.13B

Financial Statements
Beta
Revenue$18.26B
Cost of Revenue$11.97B
Gross Profit$6.29B
SG&A Expenses$3.87B
Operating Expenses$4.40B
Operating Income$2.05B
Net Income$1.17B
EPS (Basic)$1.32
EPS (Diluted)$1.31
Shares Outstanding (Basic)883.00M
Shares Outstanding (Diluted)885.00M

Key Highlights

  • 1Net sales for Q2 2016 increased by 5.3% to $18.3 billion, driven by RONA acquisition (2.7% of growth) and comparable sales growth of 2.0%.
  • 2Net earnings for Q2 2016 increased by 3.7% to $1.2 billion, with diluted EPS rising 9.2% to $1.31.
  • 3Acquisition of RONA Inc. for $2.4 billion (C$3.1 billion) was completed on May 20, 2016, significantly expanding Lowe's presence in the Canadian market.
  • 4Total assets grew to $36.5 billion as of July 29, 2016, up from $32.7 billion in the prior year, primarily due to the RONA acquisition.
  • 5Long-term debt increased significantly to $14.6 billion (excluding current maturities) from $10.3 billion, largely due to financing the RONA acquisition.
  • 6Lowe's returned $1.2 billion to shareholders through share repurchases and paid $251 million in dividends during Q2 2016.
  • 7The company updated its Fiscal Year 2016 outlook, expecting total sales to increase approximately 10% and diluted EPS of approximately $4.06.

Frequently Asked Questions

The acquisition of RONA Inc., completed on May 20, 2016, for $2.4 billion, significantly impacted Lowe's financial statements. It contributed 2.7% to the 5.3% net sales growth in the second quarter and led to an increase in total assets and total liabilities. The goodwill from this acquisition was recorded at $922 million.

Lowe's significantly increased its long-term debt to finance the RONA acquisition, with long-term debt (excluding current maturities) rising to $14.6 billion from $10.3 billion in the prior year. The company issued $3.3 billion of unsecured notes in April 2016. Despite the increased debt, Lowe's maintains a stable debt rating and has sufficient liquidity from operations and existing credit facilities.

Lowe's updated its fiscal year 2016 outlook to include the RONA acquisition and a 53rd week. The company anticipates total sales to increase by approximately 10%, comparable sales to grow by about 4%, and diluted earnings per share to be around $4.06. The company also plans to repurchase approximately $3.5 billion of its common stock.

Lowe's demonstrated a strong commitment to returning capital to shareholders. In the second quarter of fiscal 2016, the company paid $251 million in dividends and repurchased $1.2 billion of its common stock through its share repurchase program. As of July 29, 2016, $1.2 billion remained available under the company's $5.0 billion share repurchase program.