LOWES COMPANIES INC (LOW) SEC Filing 10-Q Quarterly report for the period ending Friday, November 2, 2018

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Exhibit 99.1

 

LOGO

 

 

November 20, 2018

For 6:00 am ET Release

LOWE’S REPORTS THIRD QUARTER SALES AND EARNINGS RESULTS

— Intends to Exit Retail Operations in Mexico, Alacrity Renovation Services, and Iris Smart Home —

— Diluted Earnings Per Share of $0.78 —

— Adjusted Diluted Earnings Per Share1 of $1.04 –

— Updates Fiscal 2018 Business Outlook —

MOORESVILLE, N.C. – Lowe’s Companies, Inc. (NYSE: LOW) today reported net earnings of $629 million and diluted earnings per share of $0.78 for the quarter ended Nov. 2, 2018, which included pre-tax charges of $280 million further described below, compared to net earnings of $872 million and diluted earnings per share of $1.05 in the third quarter of 2017. Excluding the impact of the charges, adjusted diluted earnings per share1 decreased 1.0 percent to $1.04 compared to the prior year.

Management has substantially completed its strategic reassessment of the business and identified actions to drive focus on its core home improvement business and improve profitability. The company intends to exit its Mexico retail operations and is exploring strategic alternatives. The company has also identified certain non-core activities within its U.S. home improvement business to exit, including Alacrity Renovation Services and Iris Smart Home. These actions are in addition to the previously announced decisions to exit its Orchard Supply Hardware operations, and close 20 underperforming stores in the U.S. and 31 stores and other locations in Canada.

“Our top priority in the third quarter was positioning Lowe’s for long-term success by identifying underperforming or non-core businesses and stores for divestiture,” commented Marvin R. Ellison, Lowe’s president and CEO. “With our strategic reassessment substantially completed, we can now intensify our focus on the core retail business.

The $280 million in pre-tax charges recognized in the third quarter and referenced above related to this strategic reassessment, and included the following:

 

   

$123 million of accelerated depreciation and amortization, lease and severance obligations, and other costs related to the decision to close all Orchard Supply Hardware locations;

 

   

$121 million of long-lived asset impairment and severance obligations related to the decision to close certain underperforming stores in the U.S. and Canada and other locations in Canada;

 

   

$22 million of long-lived asset impairment related to the decision to exit retail operations in Mexico, and;

 

   

$14 million of long-lived asset impairment and inventory write-down related to the decision to exit certain non-core activities, including Alacrity Renovation Services and Iris Smart Home.

Additional pre-tax charges of $460 to $580 million related to these decisions and consisting of lease obligations, accelerated depreciation and amortization, severance and other costs are expected to be incurred in the fourth quarter of fiscal 2018, and have been reflected in the company’s updated business outlook. The amounts, nature and timing of any additional charges associated with the intended exit of its

 

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.


The following information was filed by LOWES COMPANIES INC on Tuesday, November 20, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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Click a sentiment analysis snippet below from LOWES COMPANIES INC's Management Discussions to find these positive and negative remarks within their 10-Q Quarterly report:
  • 18474206_96
    Financial - Cash Flow
    Cash flows from operations, supplemented with our short-term and long-term borrowings, have been sufficient to fund our operations while allowing us to make strategic investments that will grow our business, and to return excess cash to shareholders in the form of dividends and share repurchases.
  • 18474206_163
    Financial - Cash Flow
    If the actual results are not consistent with the assumptions and judgments we have made in determining whether it is more likely than not that a location will be closed significantly before the end of its useful life or in estimating future cash flows and determining asset fair values, our actual impairment losses could vary positively or negatively from our estimated impairment losses.
  • 18474206_68
    Financial - Earnings
    Gross margin was negatively impacted by approximately 180 basis points by our inventory rationalization efforts to eliminate less productive SKUs and reduce clutter in our stores.
  • 18474206_65
    Revenue - Product
    The adoption of the revenue recognition accounting standard ASU 2014-09 contributed 1.4% to sales growth, primarily due to the reclassification of profit sharing income associated with the proprietary credit program from SG&A; to sales.
  • 18474206_145
    Financial - Cash Flow
    For operating locations, our primary indicator that assets may not be recoverable is consistently negative cash flow for a 12-month period for those locations that have been open in the same location for a sufficient period of time to allow for meaningful analysis of ongoing operating results.
  • 18474206_73
    Financial - Earnings
    Gross margin was negatively impacted by approximately 60 basis points due to our efforts to rationalize inventory, as well as approximately 15 basis points of deleverage from reset-related clearance activity.
  • 18474206_10
    Financial - Expense
    The Company expects additional pre-tax charges associated with these decisions during the fourth quarter of fiscal 2018, of $460 to $580 million, primarily associated with lease obligation costs and accelerated depreciation and amortization.
  • 18474206_149
    Financial - Cash Flow
    When determining the stream of projected future cash flows associated with an individual operating location, management makes assumptions, incorporating local market conditions, about key store variables including sales growth rates, gross margin and controllable expenses, such as store payroll and occupancy expense, as well as asset residual values or lease rates.
  • 18474206_97
    Financial - Debt
    We believe that our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due, pay dividends, and fund our share repurchases over the next 12 months.
  • 18474206_21
    Other - Other
    With our new leadership team, we have begun to design and implement store operations and merchandising strategies to address some of the issues we experienced during the third quarter, such as reset execution and out-of-stocks, and have developed plans to drive sustainable improvements.
  • 18474206_128
    Financial - Expense
    The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios.
  • 18474206_67
    Financial - Earnings
    Gross Margin - For the third quarter of 2018, gross margin decreased 157 basis points as a percentage of sales.
  • 18474206_20
    Other - Other
    With the substantial completion of our strategic reassessment of the business, we can now intensify our attention on improving execution in our retail stores and online.
  • 18474206_12
    Financial - Earnings
    Diluted earnings per common share decreased 25.7% in the third quarter of 2018 to $0.78 from $1.05 in the third quarter of the prior year.
  • 18474206_72
    Financial - Earnings
    Gross margin as a percentage of sales decreased 33 basis points in the first nine months of 2018 compared to 2017.
  • 18474206_87
    Financial - Expense
    Interest - Net - Interest expense for the third quarter of 2018 decreased primarily as a result of the payoff of scheduled debts at maturity.
  • 18474206_17
    Revenue - Product
    Seven of 11 product categories generated positive comparable sales with particular strength in Seasonal & Outdoor Living, Appliances, Lawn & Garden, Kitchens, and Rough Plumbing & Electrical.
  • 18474206_66
    Revenue - Product
    New stores also contributed to sales growth during the third quarter.
  • 18474206_93
    Financial - Income
    The decrease in the effective income tax rate is primarily due to the enactment of the Tax Act, effective January 1, 2018, which lowered the federal tax rate from 35% to 21%.
  • 18474206_28
    Other - Other
    Note: The Company adopted ASU 2014-09 and all the related amendments using the modified retrospective method, effective February 3, 2018.
  • 18474206_172
    Financial - Cash Flow
    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.
  • 18474206_94
    Financial - Income
    Our effective income tax rates were 23.8% and 36.3% for the nine months ended November 2, 2018 and November 3, 2017, respectively.
  • 18474206_164
    Other - Other
    In the event that our estimates vary from actual results, we may record additional impairment losses, which could be material to our results of operations.
  • 18474206_89
    Financial - Expense
    Interest expense for the first nine months of 2018 decreased primarily as a result of the prior year cash tender offer to purchase and retire $1.6 billion aggregate principal amount of our outstanding notes in the first quarter of 2017 and the payoff of scheduled debts at maturity.
  • 18474206_111
    Other - Other
    The Company may request borrowings under the 364-Day Credit Agreement that are denominated in U.S. Dollar, Euro, Sterling, Canadian Dollar and other currencies approved by the administrative agent and the lenders.
  • 18474206_92
    Financial - Income
    Income Tax Provision - Our effective income tax rates were 21.8% and 37.1% for the three months ended November 2, 2018 and November 3, 2017, respectively.
  • 18474206_53
    Other - Other
    Accordingly, these non-GAAP measures may not be comparable to the measures used by other companies.
  • 18474206_50
    Other - Other
    In addition, during the third quarter of 2018, the Company recorded $123 million of pre-tax charges, consisting of accelerated depreciation and amortization, severance, and lease obligations related to the decision to close all Orchard locations (Orchard Supply Hardware charges).
  • 18474206_88
    Financial - Income
    In addition, interest income increased over the prior year due to higher average interest rates associated with the Company?s cash balances.
  • 18474206_90
    Financial - Income
    In addition, interest income increased over the prior year due to higher average interest rates associated with the Company?s cash balances.
  • 18474206_107
    Financial - Debt
    Net cash used in financing activities primarily consist of transactions related to our short-term borrowings, long-term debt, share repurchases, and cash dividend payments.
  • 18474206_16
    Revenue - Product
    During the quarter, 11 of 14 U.S. regions generated comparable sales increases with the Tampa, Florida and Houston, Texas markets experiencing the weakest comparable sales, primarily due to comparisons to prior year Hurricanes Harvey and Irma.
  • 18474206_15
    Revenue - Product
    Net sales for the third quarter of 2018 increased by 3.8% to $17.4 billion, and comparable sales increased 1.5%.
  • 18474206_63
    Revenue - Product
    Net Sales - Net sales in the third quarter of 2018 increased 3.8% to $17.4 billion.
  • 18474206_62
    Financial - Debt
    Average debt and equity is defined as average debt, including current maturities and short-term borrowings, plus total equity for the last five quarters.
  • 18474206_150
    Other - Other
    An impairment loss is recognized when the carrying amount of the operating location is not recoverable and exceeds its fair value.
  • 18474206_123
    Financial - Shares / Equity
    The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for the nine months ended November 2, 2018, and November 3, 2017: As of November 2, 2018, we had $4.5 billion remaining available under our share repurchase program with no expiration date.
  • 18474206_24
    Financial - Income
    Consumer confidence continues to hover at high levels as consumers remain upbeat about their employment and income prospects, suggesting that we should see continued gains in consumer spending supported by stronger real disposable personal income growth.
  • 18474206_130
    Financial - Debt
    Our debt ratings have enabled, and should continue to enable, us to refinance our debt as it becomes due at favorable rates in capital markets.
  • 18474206_115
    Other - Other
    The amount available to be drawn under the Second Amended and Restated Credit Agreement and the 364-Day Credit Agreement is reduced by the amount of borrowings under our commercial paper program.
  • 18474206_116
    Other - Other
    All of our short-term borrowings during the nine months ended November 2, 2018, and November 3, 2017, were under the commercial paper program.
  • 18474206_23
    Other - Other
    Although interest rates have ticked up and housing turnover has been pressured, the home improvement backdrop remains strong, driven by robust real residential investment and home price appreciation which continues to encourage homeowners to engage in discretionary projects.
  • 18474206_14
    Financial - Earnings
    Excluding the impact of these items, adjusted diluted earnings per common share decreased 1.0% to $1.04 in the third quarter of 2018 from adjusted diluted earnings per common share of $1.05 in the same period of the prior year (see discussion of non-GAAP financial measures beginning on page 22).
  • 18474206_39
    Other - Other
    The average Lowe?s-branded home improvement store has approximately 112,000 square feet of retail selling space.
  • 18474206_81
    Revenue - Product
    This was driven primarily by 81 basis points of deleverage due to the adoption of the revenue recognition accounting standard ASU 2014-09, 75 basis points of deleverage due to the Company?s strategic reassessment, 18 basis points of deleverage due primarily to the prior year sale of our interest in the Australian joint venture, 11 basis points of deleverage in customer delivery to meet increased demand in Appliances, and 11 basis points of deleverage in external labor.
  • 18474206_174
    Other - Other
    For more information about these and other risks and uncertainties that we are exposed to, you should read "Item 1A - Risk Factors" and "Item 7 - 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.
  • 18474206_101
    Other - Other
    Capital expenditures Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, existing stores, and expansion plans.
  • 18474206_86
    Other - Other
    Depreciation and amortization deleveraged 1 basis point for the first nine months of 2018 compared to 2017 primarily due to accelerated depreciation related to the exit of Orchard partially offset by assets becoming fully depreciated.
  • 18474206_52
    Other - Other
    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.
  • 18474206_11
    Financial - Earnings
    Impacted by the charges associated with the strategic actions discussed above, net earnings for the third quarter of 2018 decreased 27.9% to $629 million.

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Exhibit 10.5 - RETIREMENT AGREEMENT BETWEEN LOWE'S COMPANIES, INC. AND MARSHALL A. CROOM

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Exhibit 10.6 - FORM OF LOWE'S COMPANIES, INC. DIRECTOR INDEMNIFICATION AGREEMENT

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Exhibit 15.1 - DELOITTE & TOUCHE LLP LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION

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Exhibit 31.1 - SECTION 302 CERTIFICATION

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Exhibit 31.2 - SECTION 302 CERTIFICATION

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Exhibit 32.1 - SECTION 906 CERTIFICATION

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Exhibit 32.2 - SECTION 906 CERTIFICATION

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  • Form Type: Quarterly
  • Number of times amended: 0
  • Accession Number: 0000060667-18-000203
  • Submitted to the SEC: Thursday, December 6, 2018 9:03:40 AM EST
  • Accepted by the SEC: Thursday, December 6, 2018
  • Period ending: November 2018
  • Industry: Retail Lumber And Other Building Materials Dealers
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LOWES COMPANIES INC

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