10-QPeriod: Q2 FY2018

LOWES COMPANIES INC Quarterly Report for Q2 Ended May 5, 2017

Filed June 6, 2017For Securities:LOW

Summary

Lowe's Companies, Inc. reported its first quarter results for fiscal year 2017, ending May 4, 2017. While net sales saw a significant increase of 10.7% to $16.9 billion, driven by the acquisition of RONA and comparable sales growth, net earnings experienced a notable decrease of 31.9% to $602 million. This decline was largely influenced by a $464 million pre-tax loss on debt extinguishment, which impacted diluted earnings per share by $0.33. Excluding this and a prior year foreign currency hedge gain, adjusted diluted EPS saw a healthy increase of 18.4% to $1.03. Despite the net earnings dip, the company demonstrated strong operational performance with comparable sales increasing by 1.9%, led by categories like Kitchens, Appliances, and Lumber & Building Materials. The company continued its commitment to shareholder returns, paying $304 million in dividends and repurchasing $1.2 billion of common stock in the quarter. Looking ahead, Lowe's anticipates solid gains in the home improvement industry, supported by economic growth and favorable consumer spending trends. The company is also strategically expanding its Pro customer offerings and integrating the RONA acquisition to unlock further value.

Financial Highlights

50 data points
Beta

Revenue

$16.86B

34.4% Gross Margin

Net Income

$602.00M

3.6% Net Margin

EPS (Diluted)

$0.70

Total Assets

$37.61B

Cash & Equivalents

$1.96B

Free Cash Flow

$3.09B

Financial Statements
Beta
Revenue$16.86B
Cost of Revenue$11.06B
Gross Profit$5.80B
SG&A Expenses$3.88B
Operating Income$1.56B
Net Income$602.00M
EPS (Basic)$0.70
EPS (Diluted)$0.70
Shares Outstanding (Basic)857.00M
Shares Outstanding (Diluted)858.00M

Key Highlights

  • 1Net sales increased 10.7% to $16.9 billion, driven by RONA acquisition and comparable sales growth.
  • 2Net earnings decreased 31.9% to $602 million due to a $464 million loss on debt extinguishment.
  • 3Adjusted diluted EPS (excluding debt extinguishment loss and prior year FX gain) increased 18.4% to $1.03.
  • 4Comparable sales grew 1.9%, with notable strength in Kitchens, Appliances, and Lumber & Building Materials.
  • 5The company returned $1.2 billion to shareholders through share repurchases and paid $304 million in dividends.
  • 6Lowe's expects continued growth in the home improvement industry driven by economic factors.
  • 7Strategic focus on enhancing Pro customer offerings and integrating RONA continues.

Frequently Asked Questions

The primary reason for the decrease in net earnings was a $464 million pre-tax loss on the extinguishment of debt incurred during the quarter. This loss significantly impacted profitability, even as sales grew.

Lowe's issued $3.0 billion in unsecured notes and used a portion of the proceeds to repurchase $1.6 billion of existing debt. The company also has a substantial $3.8 billion remaining under its share repurchase program and continues to pay dividends, demonstrating a commitment to shareholder returns and active capital management.

Lowe's anticipates continued solid growth in the home improvement sector, supported by positive economic trends such as job growth, increased disposable income, and favorable housing market conditions. The company is strategically investing in its Pro customer segment and integrating its RONA acquisition to capture market share and drive future growth.

Lowe's adopted ASU 2016-09, which requires excess tax benefits and deficiencies from share-based payments to be recognized in the income tax provision. This adoption resulted in a $23 million recognition of excess tax benefits in the first quarter of 2017, which reduced the effective income tax rate by 241 basis points and positively impacted diluted earnings per share by $0.03.