01—Abstract
Summary
Summary of the 8-K filed February 27, 2024. Cited figures are marked; the original filing is the authoritative source.
Lowe's (LOW) reported fourth quarter fiscal 2023 results (quarter ended February 2, 2024) that were weak on the top line but resilient on profitability.
Total sales fell to $18.6 billiona from $22.4 billion, reflecting the absence of the 53rd week and the divested Canadian retail business, and comparable sales declined 6.2% on a slowdown in DIY demand and unfavorable January weather. Pro comparable sales were flat. Diluted EPS was $1.77, up from $1.58 in the prior-year quarter, which had included $441 million in Canadian transaction costs; on an adjusted basis, EPS fell about 22% from $2.28.
Operating margin expanded 148 basis points to 9.1% on a GAAP basis, aided by lower SG&A as a percentage of sales. For the full year, net sales were $86.4 billionb, down from $97.1 billion, with comparable sales down 4.7%. Operating margin improved to 13.4% (adjusted 13.3%), and diluted EPS was $13.20 (adjusted $13.09).
Lowe's returned $8.9 billionc to shareholders through buybacks and dividends, though it carried $35.4 billion of long-term debt and a shareholders' deficit of $15.1 billion, with cash of only $921 million. Operating cash flow of $8.1 billion covered capital expenditures of about $2.0 billion, but the company's leverage and buyback funding from debt issuance warrant attention.
Management's fiscal 2024 outlook calls for total sales of $84 to $85 billiond, comparable sales down 2% to 3%, operating margin of 12.6% to 12.7%, and diluted EPS of approximately $12.00 to $12.30, implying a decline from fiscal 2023. Management cited near-term macroeconomic uncertainty and continued DIY pullback as key headwinds, while emphasizing its Total Home strategy, Pro penetration, and market share gains as the path to long-term growth.
02—Key points
Key Highlights
- Q4 comparable sales fell 6.2%, driven by a DIY demand slowdown and harsh January weather; Pro comparable sales were flat.
- Q4 diluted EPS rose to $1.77 from $1.58 on a GAAP basis, but declined about 22% from the adjusted $2.28 prior-year figure that excluded $441 million in Canadian divestiture costs.
- Q4 operating margin expanded 148 basis points to 9.1%, while net sales declined 17% to $18.6 billion, partly due to the 53rd-week lapping (~$1.4 billion) and the Canadian business sale (~$958 million).
- Fiscal 2023 full-year diluted EPS was $13.20 (adjusted $13.09) on net sales of $86.4 billion, with comparable sales down 4.7%.
- FY2024 guidance projects sales of $84–85 billion, comparable sales down 2–3%, operating margin of 12.6–12.7%, and diluted EPS of roughly $12.00–12.30, indicating further earnings pressure.
- The company returned $8.9 billion to shareholders in fiscal 2023 via $6.3 billion in buybacks and $2.5 billion in dividends, while long-term debt rose to $35.4 billion and shareholders' deficit reached $15.1 billion.
- Management highlighted the Total Home strategy, Pro penetration, and a newly launched DIY loyalty program as drivers of future share gains.
03—Questions
Frequently Asked Questions
Why did Lowe's comparable sales decline in the fourth quarter?
Comparable sales fell 6.2% due to a continued pullback in DIY spending and unfavorable January winter weather. Pro customer comparable sales were flat, offset by pressure in the DIY segment. The company compares against weeks 41–53 of fiscal 2022.
Did Lowe's earnings improve in the fourth quarter?
On a GAAP basis, diluted EPS rose to $1.77 from $1.58, and operating margin improved to 9.1% from 7.6%. However, the prior-year quarter included $441 million in Canadian transaction costs; against the adjusted prior-year EPS of $2.28, earnings declined roughly 22%.
What is Lowe's outlook for fiscal 2024?
Lowe's expects total sales of $84–85 billion, comparable sales down 2–3%, operating margin of 12.6–12.7%, interest expense near $1.4 billion, and diluted EPS of approximately $12.00–12.30. Management cited near-term macroeconomic uncertainty as the reason for the cautious outlook.
How is Lowe's returning capital to shareholders, and is it sustainable?
In fiscal 2023 Lowe's returned $8.9 billion, including $6.3 billion in share repurchases and $2.5 billion in dividends. Operating cash flow of $8.1 billion covered capex of about $2.0 billion, but the company issued roughly $3.0 billion in net new debt and carries a shareholders' deficit, so returns are heavily reliant on continued debt access and cash generation.
What do the Canadian retail business items mean for the financials?
Lowe's sold its Canadian retail business in fiscal 2022, recording a $2.1 billion impairment in Q3 and $441 million in additional transaction costs in Q4. In fiscal 2023, it recognized a $63 million gain on contingent consideration. These items distort year-over-year GAAP comparisons, which is why management presents adjusted EPS.
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