The
Sales for the second quarter increased 7.1 percent to
As a result of the new revenue recognition accounting standard ASU No. 2014-09 adopted in the first quarter of 2018, the company reclassified certain items within operating income. This change resulted in an increase to sales of approximately
"We posted solid results this quarter by capitalizing on delayed spring demand," commented
"While it was a necessary business decision to exit Orchard Supply Hardware, decisions that impact our people are never easy. We will be providing outplacement services for impacted associates, and they will be given priority status if they choose to apply for other
"In addition to the decision to exit Orchard Supply Hardware, we are developing plans to aggressively rationalize store inventory, reducing lower-performing inventory while investing in increased depth of high velocity items. Exiting Orchard Supply Hardware and rationalizing inventory are the driving force behind the changes to Lowe's Business Outlook." Ellison continued. "Our strategic reassessment is ongoing as we evaluate the productivity of our real estate portfolio and non-retail business investments. We will update you on the changes to our strategy at the upcoming analyst and investor conference in December."
Delivering on its commitment to return excess cash to shareholders, the company repurchased
As of
A conference call to discuss second quarter 2018 operating results is scheduled for today (
Lowe's Business Outlook
In addition to the decision to exit Orchard Supply Hardware, the company is developing plans to aggressively rationalize its store inventory, reducing lower-performing inventory while investing in increased depth of high velocity items. Potential impacts of these actions have been reflected in
Fiscal Year 2018 (comparisons to fiscal year 2017; based on
- Total sales are expected to increase approximately 4.5 percent.
- Comparable sales are expected to increase approximately 3 percent.
- The company expects to add approximately 9 home improvement stores.
- Operating income as a percentage of sales (operating margin) is expected to decrease approximately 180 basis points2, including the
$230 million non-cash charges recorded in the second quarter of fiscal 2018 and$390 to$475 million in additional costs expected to be incurred in the second half of fiscal 2018 as a result of the decision to exit Orchard Supply Hardware. - The effective income tax rate is expected to be approximately 25%.
- Diluted earnings per share of
$4.50 to$4.60 are expected for the fiscal year endingFeb. 1, 2019 .
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 a reconciliation between the Company's GAAP and non-GAAP financial results.
2 Includes 4 basis point net negative impact from the gain on the sale of the company's interest in its Australian joint venture (2Q 2017) and the one-time bonus paid to eligible hourly
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, management and key personnel change, 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, 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 and dispositions; (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 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 or environmental issues; (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 (Unaudited) In Millions, Except Per Share and Percentage Data |
|||||||||||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||
Current Earnings |
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
|||||||||||||||||||
Net sales |
$ |
20,888 |
100.00 |
$ |
19,495 |
100.00 |
$ |
38,247 |
100.00 |
$ |
36,355 |
100.00 |
|||||||||||||||
Cost of sales |
13,689 |
65.54 |
12,825 |
65.79 |
25,036 |
65.46 |
23,885 |
65.70 |
|||||||||||||||||||
Gross margin |
7,199 |
34.46 |
6,670 |
34.21 |
13,211 |
34.54 |
12,470 |
34.30 |
|||||||||||||||||||
Expenses: |
|||||||||||||||||||||||||||
Selling, general and administrative |
4,691 |
22.45 |
3,931 |
20.16 |
8,878 |
23.21 |
7,807 |
21.47 |
|||||||||||||||||||
Depreciation and amortization |
345 |
1.65 |
357 |
1.83 |
705 |
1.84 |
722 |
1.99 |
|||||||||||||||||||
Operating income |
2,163 |
10.36 |
2,382 |
12.22 |
3,628 |
9.49 |
3,941 |
10.84 |
|||||||||||||||||||
Interest - net |
153 |
0.74 |
159 |
0.81 |
313 |
0.82 |
319 |
0.87 |
|||||||||||||||||||
Loss on extinguishment of debt |
— |
— |
— |
— |
— |
— |
464 |
1.28 |
|||||||||||||||||||
Pre-tax earnings |
2,010 |
9.62 |
2,223 |
11.41 |
3,315 |
8.67 |
3,158 |
8.69 |
|||||||||||||||||||
Income tax provision |
490 |
2.34 |
804 |
4.13 |
806 |
2.11 |
1,137 |
3.13 |
|||||||||||||||||||
Net earnings |
$ |
1,520 |
7.28 |
$ |
1,419 |
7.28 |
$ |
2,509 |
6.56 |
$ |
2,021 |
5.56 |
|||||||||||||||
Weighted average common shares outstanding |
813 |
841 |
819 |
849 |
|||||||||||||||||||||||
Basic earnings per common share (1) |
$ |
1.86 |
$ |
1.68 |
$ |
3.05 |
$ |
2.37 |
|||||||||||||||||||
Weighted average common shares outstanding |
814 |
842 |
820 |
850 |
|||||||||||||||||||||||
Diluted earnings per common share (1) |
$ |
1.86 |
$ |
1.68 |
$ |
3.05 |
$ |
2.37 |
|||||||||||||||||||
Cash dividends per share |
$ |
0.48 |
$ |
0.41 |
$ |
0.89 |
$ |
0.76 |
|||||||||||||||||||
Retained Earnings |
|||||||||||||||||||||||||||
Balance at beginning of period |
$ |
5,405 |
$ |
5,346 |
$ |
5,425 |
$ |
6,241 |
|||||||||||||||||||
Cumulative effect of accounting change |
— |
— |
33 |
— |
|||||||||||||||||||||||
Net earnings |
1,520 |
1,419 |
2,509 |
2,021 |
|||||||||||||||||||||||
Cash dividends declared |
(390) |
(344) |
(728) |
(643) |
|||||||||||||||||||||||
Share repurchases |
(1,018) |
(1,168) |
(1,722) |
(2,366) |
|||||||||||||||||||||||
Balance at end of period |
$ |
5,517 |
$ |
5,253 |
$ |
5,517 |
$ |
5,253 |
|||||||||||||||||||
(1) |
Under the two-class method, earnings per share is calculated using net earnings allocable to common shares, which is derived by reducing net earnings by the earnings allocable to participating securities. Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were |
Consolidated Statements of Comprehensive Income (Unaudited) In Millions, Except Percentage Data |
|||||||||||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
Amount |
% Sales |
||||||||||||||||||||
Net earnings |
$ |
1,520 |
7.28 |
$ |
1,419 |
7.28 |
$ |
2,509 |
6.56 |
$ |
2,021 |
5.56 |
|||||||||||||||
Foreign currency translation adjustments |
(70) |
(0.34) |
106 |
0.54 |
(154) |
(0.40) |
105 |
0.29 |
|||||||||||||||||||
Other comprehensive income/(loss) |
(70) |
(0.34) |
106 |
0.54 |
(154) |
(0.40) |
105 |
0.29 |
|||||||||||||||||||
Comprehensive income |
$ |
1,450 |
6.94 |
$ |
1,525 |
7.82 |
$ |
2,355 |
6.16 |
$ |
2,126 |
5.85 |
|||||||||||||||
Consolidated Balance Sheets In Millions, Except Par Value Data |
||||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||
|
|
|
||||||||||||
Assets |
||||||||||||||
Current assets: |
||||||||||||||
Cash and cash equivalents |
$ |
2,251 |
$ |
1,696 |
$ |
588 |
||||||||
Short-term investments |
391 |
119 |
102 |
|||||||||||
Merchandise inventory - net |
11,885 |
11,407 |
11,393 |
|||||||||||
Other current assets |
956 |
811 |
689 |
|||||||||||
Total current assets |
15,483 |
14,033 |
12,772 |
|||||||||||
Property, less accumulated depreciation |
19,172 |
19,762 |
19,721 |
|||||||||||
Long-term investments |
87 |
360 |
408 |
|||||||||||
Deferred income taxes - net |
249 |
328 |
168 |
|||||||||||
|
1,271 |
1,255 |
1,307 |
|||||||||||
Other assets |
843 |
930 |
915 |
|||||||||||
Total assets |
$ |
37,105 |
$ |
36,668 |
$ |
35,291 |
||||||||
Liabilities and shareholders' equity |
||||||||||||||
Current liabilities: |
||||||||||||||
Short-term borrowings |
$ |
— |
$ |
— |
$ |
1,137 |
||||||||
Current maturities of long-term debt |
894 |
296 |
294 |
|||||||||||
Accounts payable |
8,984 |
8,649 |
6,590 |
|||||||||||
Accrued compensation and employee benefits |
671 |
665 |
747 |
|||||||||||
Deferred revenue |
1,449 |
1,450 |
1,378 |
|||||||||||
Other current liabilities |
2,583 |
2,565 |
1,950 |
|||||||||||
Total current liabilities |
14,581 |
13,625 |
12,096 |
|||||||||||
Long-term debt, excluding current maturities |
14,937 |
15,788 |
15,564 |
|||||||||||
Deferred revenue - extended protection plans |
828 |
790 |
803 |
|||||||||||
Other liabilities |
978 |
929 |
955 |
|||||||||||
Total liabilities |
31,324 |
31,132 |
29,418 |
|||||||||||
Shareholders' equity: |
||||||||||||||
Preferred stock - |
— |
— |
— |
|||||||||||
Common stock - |
||||||||||||||
Shares issued and outstanding |
||||||||||||||
|
811 |
|||||||||||||
|
837 |
|||||||||||||
|
830 |
406 |
419 |
415 |
||||||||||
Capital in excess of par value |
— |
— |
22 |
|||||||||||
Retained earnings |
5,517 |
5,253 |
5,425 |
|||||||||||
Accumulated other comprehensive income/(loss) |
(142) |
(136) |
11 |
|||||||||||
Total shareholders' equity |
5,781 |
5,536 |
5,873 |
|||||||||||
Total liabilities and shareholders' equity |
$ |
37,105 |
$ |
36,668 |
$ |
35,291 |
||||||||
Consolidated Statements of Cash Flows (Unaudited) In Millions |
|||||||
Six Months Ended |
|||||||
|
|
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ |
2,509 |
$ |
2,021 |
|||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
751 |
768 |
|||||
Deferred income taxes |
(75) |
(87) |
|||||
Loss on property and other assets - net |
261 |
13 |
|||||
Loss on extinguishment of debt |
— |
464 |
|||||
(Gain) loss on cost method and equity method investments |
3 |
(87) |
|||||
Share-based payment expense |
62 |
55 |
|||||
Changes in operating assets and liabilities: |
|||||||
Merchandise inventory - net |
(549) |
(850) |
|||||
Other operating assets |
(140) |
166 |
|||||
Accounts payable |
2,408 |
2,031 |
|||||
Other operating liabilities |
557 |
580 |
|||||
Net cash provided by operating activities |
5,787 |
5,074 |
|||||
Cash flows from investing activities: |
|||||||
Purchases of investments |
(980) |
(624) |
|||||
Proceeds from sale/maturity of investments |
1,012 |
789 |
|||||
Capital expenditures |
(543) |
(476) |
|||||
Proceeds from sale of property and other long-term assets |
30 |
10 |
|||||
Acquisition of business - net |
— |
(505) |
|||||
Other - net |
1 |
10 |
|||||
Net cash used in investing activities |
(480) |
(796) |
|||||
Cash flows from financing activities: |
|||||||
Net change in short-term borrowings |
(1,137) |
(511) |
|||||
Net proceeds from issuance of long-term debt |
— |
2,968 |
|||||
Repayment of long-term debt |
(24) |
(2,574) |
|||||
Proceeds from issuance of common stock under share-based payment plans |
50 |
80 |
|||||
Cash dividend payments |
(678) |
(603) |
|||||
Repurchase of common stock |
(1,846) |
(2,503) |
|||||
Other - net |
(2) |
(9) |
|||||
Net cash used in financing activities |
(3,637) |
(3,152) |
|||||
Effect of exchange rate changes on cash |
(7) |
12 |
|||||
Net increase in cash and cash equivalents |
1,663 |
1,138 |
|||||
Cash and cash equivalents, beginning of period |
588 |
558 |
|||||
Cash and cash equivalents, end of period |
$ |
2,251 |
$ |
1,696 |
|||
Non-GAAP Financial Measures Reconciliation (Unaudited)
To provide additional transparency, the company has presented the non-GAAP financial measure of adjusted earnings per share to exclude the impact of certain discrete items, as further described below, not contemplated in
In the second quarter of 2017, the company recognized a
In the second quarter of 2018, the company recognized
Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the company's diluted earnings per share 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 per share, as reported |
$ |
1.86 |
$ |
1.68 |
|||||||||||||||
Non-GAAP Adjustments |
|||||||||||||||||||
Gain on sale of interest in Australian joint venture |
— |
— |
— |
(0.11) |
— |
(0.11) |
|||||||||||||
Orchard Supply Hardware charges |
0.28 |
(0.07) |
0.21 |
— |
— |
— |
|||||||||||||
Adjusted diluted earnings per share |
$ |
2.07 |
$ |
1.57 |
|||||||||||||||
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