Summary
Lowe's Companies, Inc. (LOW) reported its third-quarter fiscal year 2018 results, characterized by a strategic reassessment aimed at strengthening the company's foundation for long-term success. During the quarter, Lowe's initiated several significant business exits, including Orchard Supply Hardware operations, 20 underperforming U.S. stores, 31 locations in Canada, and certain non-core U.S. activities. Additionally, a decision was made to pursue an exit from its Mexico retail operations. These strategic actions resulted in substantial pre-tax charges of $280 million in the third quarter, impacting net earnings and diluted earnings per share. Despite these charges, net sales increased by 3.8% to $17.4 billion, with comparable sales showing a modest increase of 1.5%. The company is focusing on improving store and online execution, addressing issues like out-of-stocks and reset execution. While facing some category-specific challenges, key growth areas included Seasonal & Outdoor Living, Appliances, and Lawn & Garden. The favorable retail environment, supported by strong consumer confidence and residential investment, presents an opportunity for Lowe's to gain market share as it addresses operational improvements. The company maintains a strong liquidity position and expects it to remain adequate for its operational needs, investments, debt repayment, dividends, and share repurchases.
Key Highlights
- 1Net sales increased by 3.8% to $17.4 billion in the third quarter of fiscal 2018, compared to the prior year period.
- 2Comparable sales increased by 1.5% in the third quarter, driven by a 2.3% increase in average ticket, partially offset by a 0.8% decrease in transactions.
- 3The company recorded significant pre-tax charges totaling $280 million in the third quarter related to strategic business exits, including Orchard Supply Hardware, U.S. and Canadian store closures, and non-core activities.
- 4Diluted earnings per share decreased by 25.7% to $0.78 in the third quarter, largely due to the impact of these restructuring charges ($0.26 per share).
- 5Gross margin as a percentage of sales decreased by 157 basis points in the third quarter, impacted by inventory rationalization, reset-related clearance, and wind-down of Orchard operations, partially offset by the adoption of new revenue recognition standards.
- 6Selling, General, and Administrative (SG&A) expenses deleveraged by 180 basis points as a percentage of sales in the third quarter, mainly due to the adoption of new revenue recognition standards and charges related to strategic reassessment.
- 7Cash provided by operating activities increased significantly to $6.8 billion for the nine months ended November 2, 2018, compared to $5.4 billion in the prior year period, reflecting strong operational cash generation.