10-QPeriod: Q2 FY2019

LOWES COMPANIES INC Quarterly Report for Q2 Ended May 4, 2018

Filed June 5, 2018For Securities:LOW

Summary

Lowe's Companies, Inc. reported a notable increase in net sales and net earnings for the first quarter of fiscal year 2018 compared to the prior year. Net sales grew by 3.0% to $17.4 billion, driven by both product sales and services, with comparable sales showing a modest increase of 0.6%, though offset by a decrease in customer transactions. The company's adoption of the new revenue recognition standard (ASU 2014-09) had a positive impact on reported sales and gross margin. Significant strategic leadership changes were announced, including the upcoming retirement of the CEO and Chairman, Robert A. Niblock, and the appointment of Marvin R. Ellison as his successor. These transitions, along with the CFO's planned retirement, are highlighted as a key factor to monitor. The company also continued its capital return program, paying $340 million in dividends and repurchasing $750 million of its common stock in the quarter, reflecting a commitment to shareholder value.

Financial Highlights

50 data points
Beta

Revenue

$17.36B

33.1% Gross Margin

Net Income

$988.00M

5.7% Net Margin

EPS (Diluted)

$1.19

Total Assets

$38.24B

Cash & Equivalents

$1.56B

Free Cash Flow

$3.21B

Financial Statements
Beta
Revenue$17.36B
Cost of Revenue$11.61B
Gross Profit$5.75B
SG&A Expenses$3.93B
Operating Income$1.47B
Net Income$988.00M
EPS (Basic)$1.19
EPS (Diluted)$1.19
Shares Outstanding (Basic)825.00M
Shares Outstanding (Diluted)826.00M

Key Highlights

  • 1Net sales increased by 3.0% to $17.4 billion for the three months ended May 4, 2018.
  • 2Net earnings saw a substantial increase of 64.1% to $988 million compared to the prior year's period.
  • 3Diluted earnings per share (EPS) rose significantly by 70.0% to $1.19 from $0.70.
  • 4The company adopted new revenue recognition standards (ASU 2014-09), which positively impacted sales by $129 million and gross margin.
  • 5Significant leadership changes were announced: Marvin R. Ellison appointed as new CEO and President, and Richard W. Dreiling as new Chairman, effective July 2, 2018.
  • 6Shareholders received $340 million in dividends and the company repurchased $750 million of its common stock during the quarter.
  • 7Comparable sales increased by 0.6%, driven by a 4.3% rise in average ticket, though customer transactions decreased by 3.7%.

Frequently Asked Questions

The substantial 64.1% increase in net earnings was primarily driven by the adoption of the new revenue recognition accounting standard (ASU 2014-09), which positively impacted reported sales and gross margin, and a lower effective income tax rate due to the Tax Cuts and Jobs Act of 2017. Additionally, a loss on extinguishment of debt in the prior year's comparable period made the current year's net earnings appear significantly higher.

The adoption of ASU 2014-09, using the modified retrospective method, resulted in an increase in net sales by $129 million and gross margin by $145 million for the quarter. It also led to a reclassification of profit sharing income from selling, general, and administrative (SG&A) expenses to net sales, causing SG&A to appear to deleverage as a percentage of sales.

Lowe's announced that current Chairman, President, and CEO Robert A. Niblock will retire on July 2, 2018. Marvin R. Ellison has been appointed as his successor as President and CEO, effective July 2, 2018. Richard W. Dreiling will become the new Chairman of the Board, also effective July 2, 2018. Additionally, CFO Marshall A. Croom plans to retire on October 5, 2018.

Lowe's continues to return capital to shareholders through dividend payments and share repurchases. In the first quarter of fiscal 2018, the company paid $340 million in cash dividends and repurchased $750 million of its common stock. The company has a substantial remaining authorization under its share repurchase program.