The
$952 million related to a non-cash goodwill impairment charge associated with the company's Canadian operations;$208 million of charges, primarily lease obligations, related to the previously announced closing of all Orchard Supply Hardware locations;$150 million of charges, primarily lease and severance obligations as well as accelerated depreciation and amortization, related to the previously announced closing of certain underperforming stores in theU.S. andCanada as well as other locations inCanada ;$222 million related to asset impairment charges associated with the previously announced exit of retail operations inMexico ;$32 million of inventory write-down, severance obligations and other costs associated with the wind down ofIris Smart Home ; and$13 million in severance obligations associated with the elimination of the Project Specialists Interiors position.
Sales for the fourth quarter were
"Overall, we are pleased with the progress we are making in our business," commented
"
1 Adjusted diluted earnings per share is a non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures Reconciliation" section of this release for additional information as well as reconciliations between the Company's GAAP and non-GAAP financial results.
Delivering on its commitment to return excess cash to shareholders, the company repurchased
As of
A conference call to discuss fourth quarter 2018 operating results is scheduled for today (
Reclassification of Shipping and Handling Costs
During the fourth quarter of fiscal 2018, the company changed its accounting policy for shipping and handling costs from its stores, distribution centers, and other locations to customers. As a result, shipping and handling costs related to the delivery of products from the company to customers are included in cost of sales, whereas previously they were included in selling, general and administrative expense as well as depreciation and amortization. This reclassification resulted in a decrease in gross margin of
Accounting Considerations for Fiscal 2019
For fiscal 2019, the company will adopt ASU No. 2016-02, which pertains to accounting for leases. Under the standard, lessees are required to recognize lease right of use assets and lease liabilities on the balance sheet for all leases. The company will adopt this standard and related amendments in the first quarter of fiscal 2019 using a prospective transition approach, which applies the provisions of the new standard at the effective date without adjusting the comparative periods. The company estimates adoption of the standard will result in an increase in lease-related assets of
Lowe's Business Outlook
Fiscal Year 2019 (comparisons to fiscal year 2018)
- Total sales are expected to increase approximately 2 percent.
- Comparable sales are expected to increase approximately 3 percent.
- Operating income as a percentage of sales (operating margin) is expected to increase 375 to 385 basis points.
- Adjusted operating income as a percentage of sales (adjusted operating margin) is expected to increase 85 to 95 basis points.
- The effective income tax rate is expected to be approximately 24%.
- Diluted earnings per share of
$6.00 to$6.10 are expected for the fiscal year endingJan. 31, 2020 .
Disclosure Regarding Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as "believe", "expect", "anticipate", "plan", "desire", "project", "estimate", "intend", "will", "should", "could", "would", "may", "strategy", "potential", "opportunity" and similar expressions are forward-looking statements. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Forward-looking statements include, but are not limited to, statements about future financial and operating results,
A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, inflation or deflation of commodity prices, recently enacted or proposed tariffs, and disruptions caused by our recent management and key personnel changes, and other factors that can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, a reduced rate of growth in household formation, and slower rates of growth in housing renovation and repair activity, as well as uneven recovery in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes necessary to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence and enhance our efficiency, and otherwise successfully execute on our strategy and implement our strategic initiatives, including acquisitions, dispositions and the closing of certain stores and facilities; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems from system outages, data security breaches, ransomware and other cyber threats; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax, environmental issues or privacy and data protection; (ix) positively and effectively manage our public image and reputation and respond appropriately to unanticipated failures to maintain a high level of product and service quality that could result in a negative impact on customer confidence and adversely affect sales; and (x) effectively manage our relationships with selected suppliers of brand name products and key vendors and service providers, including third party installers. In addition, we could experience impairment losses and other charges if either the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values, or we are required to reduce the carrying amount of our investment in certain unconsolidated entities. With respect to acquisitions and dispositions, potential risks include the effect of such transactions on
The forward-looking statements contained in this news release are expressly qualified in their entirety by the foregoing cautionary statements. The foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. All such forward-looking statements are based upon data available as of the date of this release or other specified date and speak only as of such date. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf about any of the matters covered in this release are qualified by these cautionary statements and in the "Risk Factors" included in our most recent Annual Report on Form 10-K and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the
|
|||||||||||||||||||||||||||
Consolidated Statements of Current and Retained Earnings |
|||||||||||||||||||||||||||
In Millions, Except Per Share and Percentage Data |
|||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||
Current Earnings |
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
|||||||||||||||||||
Net sales |
$ |
15,647 |
100.00 |
$ |
15,494 |
100.00 |
$ |
71,309 |
100.00 |
$ |
68,619 |
100.00 |
|||||||||||||||
Cost of sales |
10,749 |
68.70 |
10,530 |
67.96 |
48,401 |
67.88 |
46,185 |
67.31 |
|||||||||||||||||||
Gross margin |
4,898 |
31.30 |
4,964 |
32.04 |
22,908 |
32.12 |
22,434 |
32.69 |
|||||||||||||||||||
Expenses: |
|||||||||||||||||||||||||||
Selling, general and administrative |
5,097 |
32.58 |
3,510 |
22.66 |
17,413 |
24.41 |
14,444 |
21.04 |
|||||||||||||||||||
Depreciation and amortization |
368 |
2.35 |
356 |
2.30 |
1,477 |
2.07 |
1,404 |
2.05 |
|||||||||||||||||||
Operating income/(loss) |
(567) |
(3.63) |
1,098 |
7.08 |
4,018 |
5.64 |
6,586 |
9.60 |
|||||||||||||||||||
Interest - net |
158 |
1.00 |
154 |
0.98 |
624 |
0.88 |
633 |
0.92 |
|||||||||||||||||||
Loss on extinguishment of debt |
— |
— |
— |
— |
— |
— |
464 |
0.68 |
|||||||||||||||||||
Pre-tax earnings/(loss) |
(725) |
(4.63) |
944 |
6.10 |
3,394 |
4.76 |
5,489 |
8.00 |
|||||||||||||||||||
Income tax provision |
99 |
0.64 |
390 |
2.52 |
1,080 |
1.52 |
2,042 |
2.98 |
|||||||||||||||||||
Net earnings/(loss) |
$ |
(824) |
(5.27) |
$ |
554 |
3.58 |
$ |
2,314 |
3.24 |
$ |
3,447 |
5.02 |
|||||||||||||||
Weighted average common shares outstanding |
801 |
828 |
811 |
839 |
|||||||||||||||||||||||
Basic earnings/(loss) per common share (1) |
$ |
(1.03) |
$ |
0.67 |
$ |
2.84 |
$ |
4.09 |
|||||||||||||||||||
Weighted average common shares outstanding |
801 |
829 |
812 |
840 |
|||||||||||||||||||||||
Diluted earnings/(loss) per common share (1) |
$ |
(1.03) |
$ |
0.67 |
$ |
2.84 |
$ |
4.09 |
|||||||||||||||||||
Cash dividends per share |
$ |
0.48 |
$ |
0.41 |
$ |
1.85 |
$ |
1.58 |
|||||||||||||||||||
Retained Earnings |
|||||||||||||||||||||||||||
Balance at beginning of period |
$ |
5,156 |
$ |
5,289 |
$ |
5,425 |
$ |
6,241 |
|||||||||||||||||||
Cumulative effect of accounting change |
— |
— |
33 |
— |
|||||||||||||||||||||||
Net earnings/(loss) |
(824) |
554 |
2,314 |
3,447 |
|||||||||||||||||||||||
Cash dividends declared |
(385) |
(340) |
(1,500) |
(1,324) |
|||||||||||||||||||||||
Share repurchases |
(495) |
(78) |
(2,820) |
(2,939) |
|||||||||||||||||||||||
Balance at end of period |
$ |
3,452 |
$ |
5,425 |
$ |
3,452 |
$ |
5,425 |
|||||||||||||||||||
(1) |
Under the two-class method, earnings per share is calculated using net earnings/(loss) allocable to common shares, which is derived by reducing net earnings by the earnings allocable to participating securities. Net earnings/(loss) allocable to common shares used in the basic and diluted earnings per share calculation were |
|
|||||||||||||||||||||||||||
Consolidated Statements of Comprehensive Income |
|||||||||||||||||||||||||||
In Millions, Except Percentage Data |
|||||||||||||||||||||||||||
Three Months Ended |
Year Ended |
||||||||||||||||||||||||||
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
||||||||||||||||||||
Net earnings/(loss) |
$ |
(824) |
(5.27) |
$ |
554 |
3.58 |
$ |
2,314 |
3.24 |
$ |
3,447 |
5.02 |
|||||||||||||||
Foreign currency translation adjustments - |
(46) |
(0.27) |
(26) |
(0.17) |
(221) |
(0.30) |
251 |
0.37 |
|||||||||||||||||||
Net unrealized investment gain - net of tax |
2 |
— |
— |
— |
1 |
— |
— |
— |
|||||||||||||||||||
Other comprehensive income/(loss) |
(44) |
(0.27) |
(26) |
(0.17) |
(220) |
(0.30) |
251 |
0.37 |
|||||||||||||||||||
Comprehensive income/(loss) |
$ |
(868) |
(5.54) |
$ |
528 |
3.41 |
$ |
2,094 |
2.94 |
$ |
3,698 |
5.39 |
|||||||||||||||
|
||||||||||
Consolidated Balance Sheets |
||||||||||
In Millions, Except Par Value Data |
||||||||||
(Unaudited) |
||||||||||
|
|
|||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ |
511 |
$ |
588 |
||||||
Short-term investments |
218 |
102 |
||||||||
Merchandise inventory - net |
12,561 |
11,393 |
||||||||
Other current assets |
938 |
689 |
||||||||
Total current assets |
14,228 |
12,772 |
||||||||
Property, less accumulated depreciation |
18,432 |
19,721 |
||||||||
Long-term investments |
256 |
408 |
||||||||
Deferred income taxes - net |
294 |
168 |
||||||||
|
303 |
1,307 |
||||||||
Other assets |
995 |
915 |
||||||||
Total assets |
$ |
34,508 |
$ |
35,291 |
||||||
Liabilities and shareholders' equity |
||||||||||
Current liabilities: |
||||||||||
Short-term borrowings |
$ |
722 |
$ |
1,137 |
||||||
Current maturities of long-term debt |
1,110 |
294 |
||||||||
Accounts payable |
8,279 |
6,590 |
||||||||
Accrued compensation and employee benefits |
662 |
747 |
||||||||
Deferred revenue |
1,299 |
1,378 |
||||||||
Other current liabilities |
2,425 |
1,950 |
||||||||
Total current liabilities |
14,497 |
12,096 |
||||||||
Long-term debt, excluding current maturities |
14,391 |
15,564 |
||||||||
Deferred revenue - extended protection plans |
827 |
803 |
||||||||
Other liabilities |
1,149 |
955 |
||||||||
Total liabilities |
30,864 |
29,418 |
||||||||
Shareholders' equity: |
||||||||||
Preferred stock - |
— |
— |
||||||||
Common stock - |
||||||||||
Shares issued and outstanding |
||||||||||
|
801 |
|||||||||
|
830 |
401 |
415 |
|||||||
Capital in excess of par value |
— |
22 |
||||||||
Retained earnings |
3,452 |
5,425 |
||||||||
Accumulated other comprehensive income/(loss) |
(209) |
11 |
||||||||
Total shareholders' equity |
3,644 |
5,873 |
||||||||
Total liabilities and shareholders' equity |
$ |
34,508 |
$ |
35,291 |
||||||
|
|||||||
Consolidated Statements of Cash Flows |
|||||||
In Millions |
|||||||
Year Ended |
|||||||
(Unaudited) |
|||||||
|
|
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ |
2,314 |
$ |
3,447 |
|||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
1,607 |
1,540 |
|||||
Deferred income taxes |
(151) |
53 |
|||||
Loss on property and other assets - net |
630 |
40 |
|||||
Impairment of goodwill |
952 |
— |
|||||
Loss on extinguishment of debt |
— |
464 |
|||||
(Gain) loss on cost method and equity method investments |
9 |
(82) |
|||||
Share-based payment expense |
74 |
99 |
|||||
Changes in operating assets and liabilities: |
|||||||
Merchandise inventory - net |
(1,289) |
(791) |
|||||
Other operating assets |
(110) |
250 |
|||||
Accounts payable |
1,720 |
(92) |
|||||
Other operating liabilities |
437 |
137 |
|||||
Net cash provided by operating activities |
6,193 |
5,065 |
|||||
Cash flows from investing activities: |
|||||||
Purchases of investments |
(1,373) |
(981) |
|||||
Proceeds from sale/maturity of investments |
1,393 |
1,114 |
|||||
Capital expenditures |
(1,174) |
(1,123) |
|||||
Proceeds from sale of property and other long-term assets |
76 |
45 |
|||||
Acquisition of business - net |
— |
(509) |
|||||
Other - net |
(2) |
13 |
|||||
Net cash used in investing activities |
(1,080) |
(1,441) |
|||||
Cash flows from financing activities: |
|||||||
Net change in short-term borrowings |
(415) |
625 |
|||||
Net proceeds from issuance of long-term debt |
— |
2,968 |
|||||
Repayment of long-term debt |
(326) |
(2,849) |
|||||
Proceeds from issuance of common stock under share-based payment plans |
114 |
139 |
|||||
Cash dividend payments |
(1,455) |
(1,288) |
|||||
Repurchase of common stock |
(3,037) |
(3,192) |
|||||
Other - net |
(5) |
(10) |
|||||
Net cash used in financing activities |
(5,124) |
(3,607) |
|||||
Effect of exchange rate changes on cash |
(12) |
13 |
|||||
Net increase/(decrease) in cash and cash equivalents, |
(23) |
30 |
|||||
Less: Net increase in cash classified within current assets held for sale |
(54) |
— |
|||||
Net increase/(decrease) in cash and cash equivalents |
(77) |
30 |
|||||
Cash and cash equivalents, beginning of period |
588 |
558 |
|||||
Cash and cash equivalents, end of period |
$ |
511 |
$ |
588 |
|||
Non-GAAP Financial Measures Reconciliation
To provide additional transparency, the company has presented the non-GAAP financial measure of adjusted earnings per share for the quarters ended
In addition, as part of its Business Outlook for 2019, the company has provided a comparison to the non-GAAP financial measure of adjusted operating margin for fiscal 2018, which excludes the impact of certain discrete items, as further described below, not contemplated in
The company believes these non-GAAP financial measures provide useful insight for analysts and investors in evaluating the company's operational performance.
During fiscal 2018, the company recognized the following pre-tax charges, not contemplated in the company's original Business Outlook for 2018:
- During the fourth quarter of fiscal 2018, the Company recorded
$952M of goodwill impairment associated with its Canadian operations (Canadian goodwill impairment);
- On
August 17, 2018 , the Company committed to exit its Orchard Supply Hardware operations. As a result, the Company recognized pre-tax charges of$230 million during the second quarter of fiscal 2018 associated with long-lived asset impairments and discontinued projects. During the third quarter of fiscal 2018, the Company recognized pre-tax charges of$123 million associated with accelerated depreciation and amortization, severance and lease obligations. During the fourth quarter of fiscal 2018, the Company recognized additional pre-tax charges of$208 million primarily related to lease obligations. Total pre-tax charges for fiscal year 2018 were$561 million (Orchard Supply Hardware charges);
- On
October 31, 2018 , the company committed to close 20 under-performing stores across theU.S. and 31 locations inCanada , including 27 under-performing stores. As a result, the company recognized pre-tax charges of$121 million during the third quarter of fiscal 2018 associated with long-lived asset impairment and severance obligations. During the fourth quarter of fiscal 2018, the company recognized additional pre-tax charges of$150 million , primarily associated with severance and lease obligation costs, as well as accelerated depreciation. Total pre-tax charges for fiscal year 2018 were$271 million (U.S. andCanada store closure charges);
- On
November 20, 2018 , the company announced its plans to exit retail operations inMexico and is exploring strategic alternatives. During the third quarter,$22 million of long-lived asset impairment was recognized on certain assets inMexico as a result of the strategic evaluation. During the fourth quarter, an additional$222 million of impairment was recognized. Total charges for fiscal year 2018 were$244 million (Mexico impairment charges);
- During the third quarter of fiscal 2018, the company identified certain non-core activities within its
U.S. home improvement business to exit, including Alacrity Renovation Services andIris Smart Home . As a result, during the third quarter of 2018, the company recognized pre-tax charges of$14 million associated with long-lived asset impairment and inventory write-down. During the fourth quarter of fiscal 2018, the company recognized additional pre-tax charges of$32 million . Total pre-tax charges for fiscal year 2018 were$46 million (Non-core activities charges), and;
- During the fourth quarter of fiscal 2018, the company recorded pre-tax charges of
$13 million , associated with severance costs due to the elimination of the Project Specialists Interiors position (Project Specialists Interiors charge).
During the fourth quarter of fiscal 2017, the company recognized the following charges, not contemplated in the company's original Business Outlook for 2017:
- The Company recognized
$66 million or$0.05 per share related to the one-time cash bonus to eligible hourlyU.S. employees (One-time cash bonus attributable to tax reform), and;
- The Company recognized
$20 million or$0.02 per share tax charge associated with the Tax Cuts and Jobs Act of 2017 (Impact of tax reform).
Adjusted diluted earnings per share and adjusted operating margin should not be considered an alternative to, or more meaningful indicator of, the company's diluted earnings per share or operating margin as prepared in accordance with GAAP. The company's methods of determining this non-GAAP financial measure may differ from the method used by other companies for this or similar non-GAAP financial measures. Accordingly, this non-GAAP measure may not be comparable to the measures used by other companies.
Detailed reconciliations between the company's GAAP and non-GAAP financial results are shown below and available on the company's website at www.lowes.com/investor.
Three Months Ended |
|||||||||||||||||||
(Unaudited) |
(Unaudited) |
||||||||||||||||||
|
|
||||||||||||||||||
(millions, except per share data) |
Pre-Tax |
Tax |
Net |
Pre-Tax |
Tax |
Net |
|||||||||||||
Diluted earnings/(loss) per share, as reported |
$ |
(1.03) |
$ |
0.67 |
|||||||||||||||
Non-GAAP Adjustments |
|||||||||||||||||||
Canadian goodwill impairment |
1.19 |
(0.03) |
1.16 |
— |
— |
— |
|||||||||||||
Orchard Supply Hardware charges |
0.25 |
(0.05) |
0.20 |
— |
— |
— |
|||||||||||||
|
0.18 |
(0.05) |
0.13 |
— |
— |
— |
|||||||||||||
|
0.28 |
0.01 |
0.29 |
— |
— |
— |
|||||||||||||
Non-core activities charges |
0.04 |
(0.01) |
0.03 |
— |
— |
— |
|||||||||||||
Project Specialists Interiors charge |
0.02 |
— |
0.02 |
— |
— |
— |
|||||||||||||
Impact of tax reform |
— |
— |
— |
— |
0.02 |
0.02 |
|||||||||||||
One-time cash bonus attributable to tax reform |
— |
— |
— |
0.08 |
(0.03) |
0.05 |
|||||||||||||
Adjusted diluted earnings per share |
$ |
0.80 |
$ |
0.74 |
|||||||||||||||
Year Ended |
||||
(Unaudited) |
||||
(millions, except operating margin) |
|
|||
Operating income, as reported |
$ |
4,018 |
||
Non-GAAP Adjustments |
||||
Canadian goodwill impairment |
952 |
|||
Orchard Supply Hardware charges |
561 |
|||
|
271 |
|||
|
244 |
|||
Non-core activities charges |
46 |
|||
Project Specialists Interiors charge |
13 |
|||
Adjusted operating income |
$ |
6,105 |
||
Adjusted operating margin |
8.56 |
% |
||
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