01—Abstract
Summary
Summary of the 8-K filed November 19, 2024. Cited figures are marked; the original filing is the authoritative source.
Lowe's (LOW) reported third-quarter fiscal 2024 results for the quarter ended November 1, 2024, with diluted EPS of $2.99a (GAAP) and adjusted diluted EPS of $2.89 excluding a $54 million pre-tax gain tied to the 2022 sale of its Canadian retail business.
Net sales fell 1.5% to $20.2 billionb and comparable sales declined 1.1%, driven by continued softness in DIY bigger-ticket discretionary demand, partly offset by storm-related sales from Hurricanes Helene and Milton and positive comps in Pro (high-single-digit growth) and online. Gross margin held roughly flat at 33.7%, but SG&A deleverage pushed GAAP operating margin down 60 basis points to 12.6% (adjusted 12.3%, down 86 basis points year over year). Management updated full-year 2024 guidance: total sales are now expected at $83.0 to $83.5 billion (up from $82.7 to $83.2 billion), comparable sales are expected to decline 3.0% to 3.5% (improved from down 3.5% to 4.0%), and adjusted diluted EPS is now approximately $11.80 to $11.90 (narrowed upward at the low end from $11.70 to $11.90).
Adjusted operating margin guidance was trimmed to 12.3% to 12.4% from 12.4% to 12.5%, and net interest expense guidance improved to about $1.3 billionc from $1.4 billion. The company returned $1.4 billion to shareholders in the quarter through $758 million of buybacks and $654 million of dividends.
The guidance update reflects modest anticipated storm-related demand in the fourth quarter, while the underlying DIY backdrop remains weak. Investors will want to watch the Analyst and Investor Conference planned for December, where management said it will discuss new growth and productivity initiatives, as well as the company's balance sheet, which shows a shareholders' deficit of $13.4 billiond and total debt of roughly $35.5 billion, a function of its aggressive capital return history.
02—Key points
Key Highlights
- Q3 GAAP diluted EPS of $2.99 vs. $3.06 prior year; adjusted diluted EPS of $2.89 excluding a $54M (~$0.10/share) gain on the 2022 Canadian retail business sale, down 6% year over year
- Net sales of $20.2B, down from $20.5B; comparable sales decreased 1.1%, with Pro up high-single digits and online sales growing while DIY bigger-ticket discretionary demand remained soft
- GAAP operating margin of 12.6% (down 60 bps YoY) and adjusted operating margin of 12.3% (down 86 bps); gross margin up 3 bps to 33.7%, but SG&A rose to 18.97% of sales from 18.37%
- FY2024 guidance raised on sales ($83.0-$83.5B) and comparable sales (-3.0% to -3.5%, improved from -3.5% to -4.0%); adjusted EPS guidance narrowed to $11.80-$11.90 from $11.70-$11.90
- FY2024 adjusted operating margin guidance lowered to 12.3%-12.4% from 12.4%-12.5%; net interest expense outlook improved to ~$1.3B from ~$1.4B
- Returned $1.4B to shareholders in Q3 ($758M buybacks of ~2.9M shares, $654M dividends); year-to-date cash flow from operations of $8.7B vs. $7.0B prior year
- Balance sheet shows $2.6B in current debt maturities and a $13.4B shareholders' deficit, consistent with a leveraged capital return strategy
03—Questions
Frequently Asked Questions
Why did Lowe's adjusted EPS and operating margin decline despite raised sales guidance?
Adjusted diluted EPS fell 6% to $2.89 as SG&A expenses rose to 18.97% of sales from 18.37%, compressing operating margin by 86 basis points on an adjusted basis. Higher selling costs and deleverage on softer DIY demand outweighed the modest sales benefit from storm-related activity.
What is driving the improved comparable sales outlook for 2024?
Management attributes the improved full-year comp outlook (now -3.0% to -3.5%, versus -3.5% to -4.0% previously) to anticipated modest storm-related demand from Hurricanes Helene and Milton in the fourth quarter, along with strength in Pro (high-single-digit comp growth) and online sales, including double-digit traffic growth on the app.
How significant is the $54 million Canadian retail gain to reported results?
The gain contributed about $0.10 per diluted share to Q3 GAAP EPS of $2.99. Excluding it, adjusted EPS was $2.89. Because the gain relates to contingent consideration from the 2022 sale, it is non-recurring and investors should focus on adjusted figures when assessing underlying performance.
How is Lowe's managing its capital structure and shareholder returns?
In Q3 Lowe's repurchased about 2.9 million shares for $758 million and paid $654 million in dividends. Its balance sheet carries a shareholders' deficit of $13.4 billion, with total debt of roughly $35.5 billion including $2.6 billion of current maturities. Guidance calls for approximately $2 billion in capital expenditures and lower net interest expense of about $1.3 billion.
What should investors watch for next?
Management plans to present new growth and productivity initiatives at its Analyst and Investor Conference in December 2024. Key items to monitor include whether Pro and online momentum can offset continued DIY weakness, the realization of the fourth-quarter storm benefit, and whether margin pressure from SG&A stabilizes.
04—Continue