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Lowe’s Reports Third Quarter Sales And Earnings Results

November 20, 2019 GMT
Lowe's Companies, Inc. Logo. (PRNewsFoto/Lowe's Companies, Inc.)
Lowe's Companies, Inc. Logo. (PRNewsFoto/Lowe's Companies, Inc.)

MOORESVILLE, N.C., Nov. 20, 2019 /PRNewswire/ -- Lowe’s Companies, Inc. (NYSE: LOW) today reported net earnings of $1.0 billion and diluted earnings per share of $1.36 for the quarter ended Nov. 1, 2019, which included non-cash pre-tax charges of $53 million further described below, compared to net earnings of $629 million and diluted earnings per share of $0.78 in the third quarter of 2018. Excluding the impact of these charges, adjusted diluted earnings per share1 increased 35.6 percent to $1.41 from adjusted diluted earnings per share1 of $1.04 in the third quarter of 2018.

The $53 million non-cash pre-tax charges referenced above resulted from the company initiating a strategic review of its Canadian operations during the third quarter. This review led to long-lived asset impairments and a change to the Canadian leadership team in the third quarter. Based on the findings of the strategic review, in the fourth quarter, the company decided to take the following actions to improve future sales performance and profitability:

Additional pre-tax operating costs and charges of $175 to $225 million consisting of inventory liquidation, accelerated depreciation and amortization, severance and other costs are expected to be incurred in the fourth quarter of 2019, and have been reflected in the company’s updated GAAP business outlook.

Sales for the third quarter were $17.4 billion and consolidated comparable sales increased 2.2 percent. Comparable sales for the U.S. home improvement business increased 3.0 percent.

“We were pleased with the performance of our U.S. home improvement stores, which reflects a solid macroeconomic backdrop and continued progress in our transformation driven by investments in customer experience, improved merchandise category performance, and continued growth of our Pro business. Due to improved execution, we delivered strong earnings per share growth, and as a result, we are raising our adjusted earnings per share and adjusted operating income guidance for 2019,” commented Marvin R. Ellison, Lowe’s president and CEO.

1 Adjusted operating margin and adjusted diluted earnings per share are non-GAAP financial measures. 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.

“Although we still have work to do, I am confident we are on the right path to build a better Lowe’s and generate long-term profitable growth. We are committed to the Canadian market and are taking decisive action to improve the performance and profitability of our Canadian operations. We also have a detailed roadmap and a very experienced team in place to repair our Lowes.com business. As we enter the fourth quarter, we are building strong momentum in the U.S. and are well positioned to deliver strong topline performance, while also driving margin improvement and operational efficiency. We are excited about the progress we’ve made and the opportunity that lies ahead. I would like to thank our associates for their commitment and dedication to serving our customers and communities,” added Ellison.

Delivering on its commitment to return excess cash to shareholders, the company repurchased $835 million of stock under its share repurchase program and paid $428 million in dividends in the third quarter.

As of Nov. 1, 2019, Lowe’s operated 2,004 home improvement and hardware stores in the United States and Canada representing 208.9 million square feet of retail selling space.

A conference call to discuss third quarter 2019 operating results is scheduled for today (Wednesday, Nov. 20) at 9:00 am ET. The conference call will be available by webcast and can be accessed by visiting Lowe’s website at www.Lowes.com/investor and clicking on Lowe’s Third Quarter 2019 Earnings Conference Call Webcast. Supplemental materials will be available approximately 15 minutes prior to the start of the conference call. A replay of the call will be archived on Lowes.com/investor until Feb. 25, 2020.

Lowe’s Business Outlook

The company has updated its GAAP business outlook to reflect pre-tax operating costs and charges associated with its Canadian restructuring, as well as its expectations for fourth quarter operating results.

The company has raised its 2019 adjusted operating margin1 and adjusted diluted earnings per share1 outlook, reflecting its expectations for fourth quarter operating results.

Fiscal Year 2019 (comparisons to fiscal year 2018)

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, Lowe’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions by Lowe’s and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.

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, proposed or threatened tariffs, 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 Lowe’s and the target company’s or operating business’s strategic relationships, operating results and businesses generally; our ability to integrate or divest personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing or decreasing the scope, geographic diversity and complexity of our operations; significant integration or disposition costs or unknown liabilities; and failure to realize the expected benefits of the transaction. For more information about these and other risks and uncertainties that we are exposed to, you should read the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC.

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 SEC. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, change in circumstances, future events or otherwise, except as may be required by law.

Lowe’s Companies, Inc.

Lowe’s Companies, Inc. (NYSE: LOW) is a FORTUNE® 50 home improvement company serving more than 18 million customers a week in the United States and Canada. With fiscal year 2018 sales of $71.3 billion, Lowe’s and its related businesses operate or service more than 2,200 home improvement and hardware stores and employ approximately 300,000 associates. Founded in 1946 and based in Mooresville, N.C., Lowe’s supports the communities it serves through programs focused on creating safe, affordable housing and helping to develop the next generation of skilled trade experts. For more information, visit Lowes.com.

Lowe's Companies, Inc.

Consolidated Statements of Current and Retained Earnings (Unaudited)

In Millions, Except Per Share and Percentage Data



Three Months Ended


Nine Months Ended


November 1, 2019


November 2, 2018


November 1, 2019


November 2, 2018

Current Earnings

Amount


% Sales


Amount


% Sales


Amount


% Sales


Amount


% Sales

Net sales

$

17,388


100.00


$

17,415


100.00


$

56,121


100.00


$

55,662


100.00

Cost of sales

11,748


67.56


12,038


69.12


38,159


67.99


37,653


67.64

Gross margin

5,640


32.44


5,377


30.88


17,962


32.01


18,009


32.36

Expenses:
















Selling, general and administrative

3,772


21.69


3,997


22.95


11,682


20.82


12,315


22.13

Depreciation and amortization

310


1.79


423


2.43


924


1.65


1,108


1.99

Operating income

1,558


8.96


957


5.50


5,356


9.54


4,586


8.24

Interest - net

177


1.02


153


0.88


508


0.90


467


0.84

Pre-tax earnings

1,381


7.94


804


4.62


4,848


8.64


4,119


7.40

Income tax provision

332


1.90


175


1.01


1,077


1.92


981


1.76

Net earnings

$

1,049


6.04


$

629


3.61


$

3,771


6.72


$

3,138


5.64

































Weighted average common shares outstanding - basic

769




806




782




815



Basic earnings per common share (1)

$

1.36




$

0.78




$

4.81




$

3.84



Weighted average common shares outstanding - diluted

770




807




783




816



Diluted earnings per common share (1)

$

1.36




$

0.78




$

4.80




$

3.83



Cash dividends per share

$

0.55




$

0.48




$

1.58




$

1.37



















Retained Earnings
















Balance at beginning of period

$

2,439




$

5,517




$

3,452




$

5,425



Cumulative effect of accounting change







(263)




33



Net earnings

1,049




629




3,771




3,138



Cash dividends declared

(423)




(387)




(1,233)




(1,115)



Share repurchases

(827)




(603)




(3,489)




(2,325)



Balance at end of period

$

2,238




$

5,156




$

2,238




$

5,156





















(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 $1,046 million for the three months ended November 1, 2019 and $628 million for the three months ended November 2, 2018. Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were $3,760 million for the nine months ended November 1, 2019 and $3,128 million for the nine months ended November 2, 2018.

Lowe's Companies, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

In Millions, Except Percentage Data



Three Months Ended


Nine Months Ended


November 1, 2019


November 2, 2018


November 1, 2019


November 2, 2018


Amount


% Sales


Amount


% Sales


Amount


% Sales


Amount


% Sales

Net earnings

$

1,049


6.04


$

629


3.61


$

3,771


6.72


$

3,138


5.64

Foreign currency translation adjustments - net of tax

24


0.13


(21)


(0.13)


60


0.11


(176)


(0.32)

Other

(1)



(1)



(15)


(0.03)


(1)


Other comprehensive income/(loss)

23


0.13


(22)


(0.13)


45


0.08


(177)


(0.32)

Comprehensive income

$

1,072


6.17


$

607


3.48


$

3,816


6.80


$

2,961


5.32

















Lowe's Companies, Inc.

Consolidated Balance Sheets

In Millions, Except Par Value Data





(Unaudited)


(Unaudited)






November 1, 2019


November 2, 2018


February 1, 2019

Assets








Current assets:








Cash and cash equivalents



$

794


$

1,668


$

511

Short-term investments



127


208


218

Merchandise inventory - net



13,716


12,365


12,561

Other current assets



1,025


897


938

Total current assets



15,662


15,138


14,228

Property, less accumulated depreciation



18,371


18,923


18,432

Operating lease right-of-use assets



3,873



Long-term investments



363


290


256

Deferred income taxes - net



479


285


294

Goodwill



303


1,272


303

Other assets



713


805


995

Total assets



$

39,764


$

36,713


$

34,508









Liabilities and shareholders' equity








Current liabilities:








Short-term borrowings



$

637


$


$

722

Current maturities of long-term debt



574


1,117


1,110

Current operating lease liabilities



499



Accounts payable



8,822


9,283


8,279

Accrued compensation and employee benefits



779


806


662

Deferred revenue



1,222


1,356


1,299

Other current liabilities



2,530


2,507


2,425

Total current liabilities



15,063


15,069


14,497

Long-term debt, excluding current maturities



16,635


14,460


14,391

Noncurrent operating lease liabilities



3,942



Deferred revenue - extended protection plans



875


827


827

Other liabilities



791


963


1,149

Total liabilities



37,306


31,319


30,864









Shareholders' equity:








Preferred stock - $5 par value, none issued





Common stock - $0.50 par value;








Shares issued and outstanding








November 1, 2019

768








November 2, 2018

806








February 1, 2019

801



384


403


401

Capital in excess of par value





Retained earnings



2,238


5,156


3,452

Accumulated other comprehensive loss



(164)


(165)


(209)

Total shareholders' equity



2,458


5,394


3,644

Total liabilities and shareholders' equity



$

39,764


$

36,713


$

34,508









Lowe's Companies, Inc.

Consolidated Statements of Cash Flows (Unaudited)

In Millions



Nine Months Ended


November 1, 2019


November 2, 2018

Cash flows from operating activities:




Net earnings

$

3,771


$

3,138

Adjustments to reconcile net earnings to net cash provided by operating activities:




Depreciation and amortization

1,029


1,206

Noncash lease expense

341


Deferred income taxes

(88)


(139)

Loss on property and other assets - net

93


400

Loss on cost method and equity method investments

12


6

Share-based payment expense

75


79

Changes in operating assets and liabilities:




Merchandise inventory - net

(1,129)


(1,030)

Other operating assets

(108)


(94)

Accounts payable

523


2,708

Other operating liabilities

(408)


524

Net cash provided by operating activities

4,111


6,798





Cash flows from investing activities:




Purchases of investments

(563)


(1,298)

Proceeds from sale/maturity of investments

556


1,309

Capital expenditures

(927)


(846)

Proceeds from sale of property and other long-term assets

71


50

Other - net


(3)

Net cash used in investing activities

(863)


(788)





Cash flows from financing activities:




Net change in short-term borrowings

(85)


(1,137)

Net proceeds from issuance of long-term debt

2,972


Repayment of long-term debt

(1,092)


(288)

Proceeds from issuance of common stock under share-based payment plans

78


73

Cash dividend payments

(1,195)


(1,068)

Repurchase of common stock

(3,649)


(2,498)

Other - net

(7)


(3)

Net cash used in financing activities

(2,978)


(4,921)





Effect of exchange rate changes on cash

1


(9)





Net increase in cash and cash equivalents, including cash

classified within current assets held for sale

271


1,080

Less: Net decrease in cash classified within current assets

held for sale

12


Net increase in cash and cash equivalents

283


1,080

Cash and cash equivalents, beginning of period

511


588

Cash and cash equivalents, end of period

$

794


$

1,668





Lowe’s Companies, Inc.
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 Lowe’s original Business Outlook for 2019 to assist the user in understanding performance relative to that Business Outlook.

In addition, in the Business Outlook for fiscal 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 Lowe’s original Business Outlook for 2018, to assist the user in further understanding the Company’s forecasted performance for fiscal 2019 in comparison to fiscal 2018.

The Company believes these non-GAAP financial measures provide useful insight for analysts and investors in evaluating the company’s operational performance.

Fiscal 2019 Impacts

For fiscal 2019, the Company has recognized, or expects to recognize, financial impacts from the following discrete items, not contemplated in the Company’s original Business Outlook for 2019:

Fiscal 2018 Impacts

During fiscal 2018, the Company recognized financial impacts from the following discrete items, not contemplated in the Company’s original Business Outlook for 2018:

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 these non-GAAP financial measures may differ from the method used by other companies for this or similar non-GAAP financial measures. Accordingly, these non-GAAP measures 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)


November 1, 2019


November 2, 2019

(in millions, except per share data)

Pre-Tax
Earnings


Tax


Net
Earnings


Pre-Tax
Earnings


Tax


Net
Earnings

Diluted earnings per share, as reported





$

1.36






$

0.78

Non-GAAP adjustments - per share impacts












2019 Canada restructuring

0.07


(0.02)


0.05




Orchard Supply Hardware charges




0.15


(0.03)


0.12

U.S. & Canada closing charges




0.15


(0.04)


0.11

Mexico impairment charges




0.02



0.02

Non-core activities charges




0.02


(0.01)


0.01

Adjusted diluted earnings per share





$

1.41






$

1.04






























Fiscal 2019 Lowe's Business Outlook


Low End of Guidance Range


High End of Guidance Range

(in millions, except per share data)

Pre-Tax
Earnings


Tax


Net
Earnings


Pre-Tax
Earnings


Tax


Net
Earnings

Forecasted diluted earnings per share





$

5.35






$

5.47

Non-GAAP adjustments - per share impacts












2019 Canada restructuring

0.36


(0.01)


0.35


0.30


0.00


0.30

Mexico adjustments

0.03


(0.10)


(0.07)


0.03


(0.10)


(0.07)

Forecasted adjusted diluted earnings per share





$

5.63






$

5.70


Year Ended


(Audited)

(in millions, except operating margin)

February 1, 2019

Operating income, as reported

$

4,018


Non-GAAP adjustments


Canadian goodwill impairment

952


Orchard Supply Hardware charges

561


U.S. and Canada store closure charges

271


Mexico impairment charges

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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SOURCE Lowe’s Companies, Inc.