LOWES COMPANIES INC (LOW) SEC Filing 10-Q Quarterly report for the period ending Friday, November 2, 2018
November 20, 2018
For 6:00 am ET Release
LOWES 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. Lowes 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 Lowes for long-term success by identifying underperforming or non-core businesses and stores for divestiture, commented Marvin R. Ellison, Lowes 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 companys updated business outlook. The amounts, nature and timing of any additional charges associated with the intended exit of its
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 Companys 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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- 18474206_96Financial - Cash FlowCash 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_163Financial - Cash FlowIf 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_68Financial - EarningsGross 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_65Revenue - ProductThe 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_145Financial - Cash FlowFor 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_73Financial - EarningsGross 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_10Financial - ExpenseThe 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_149Financial - Cash FlowWhen 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_97Financial - DebtWe 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_21Other - OtherWith 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_128Financial - ExpenseThe 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_67Financial - EarningsGross Margin - For the third quarter of 2018, gross margin decreased 157 basis points as a percentage of sales.
- 18474206_20Other - OtherWith 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_12Financial - EarningsDiluted 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_72Financial - EarningsGross margin as a percentage of sales decreased 33 basis points in the first nine months of 2018 compared to 2017.
- 18474206_87Financial - ExpenseInterest - Net - Interest expense for the third quarter of 2018 decreased primarily as a result of the payoff of scheduled debts at maturity.
- 18474206_17Revenue - ProductSeven of 11 product categories generated positive comparable sales with particular strength in Seasonal & Outdoor Living, Appliances, Lawn & Garden, Kitchens, and Rough Plumbing & Electrical.
- 18474206_66Revenue - ProductNew stores also contributed to sales growth during the third quarter.
- 18474206_93Financial - IncomeThe 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_28Other - OtherNote: The Company adopted ASU 2014-09 and all the related amendments using the modified retrospective method, effective February 3, 2018.
- 18474206_172Financial - Cash FlowIn 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_94Financial - IncomeOur effective income tax rates were 23.8% and 36.3% for the nine months ended November 2, 2018 and November 3, 2017, respectively.
- 18474206_164Other - OtherIn 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_89Financial - ExpenseInterest 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_111Other - OtherThe 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_92Financial - IncomeIncome 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_53Other - OtherAccordingly, these non-GAAP measures may not be comparable to the measures used by other companies.
- 18474206_50Other - OtherIn 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_88Financial - IncomeIn addition, interest income increased over the prior year due to higher average interest rates associated with the Company?s cash balances.
- 18474206_90Financial - IncomeIn addition, interest income increased over the prior year due to higher average interest rates associated with the Company?s cash balances.
- 18474206_107Financial - DebtNet 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_16Revenue - ProductDuring 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_15Revenue - ProductNet sales for the third quarter of 2018 increased by 3.8% to $17.4 billion, and comparable sales increased 1.5%.
- 18474206_63Revenue - ProductNet Sales - Net sales in the third quarter of 2018 increased 3.8% to $17.4 billion.
- 18474206_62Financial - DebtAverage debt and equity is defined as average debt, including current maturities and short-term borrowings, plus total equity for the last five quarters.
- 18474206_150Other - OtherAn impairment loss is recognized when the carrying amount of the operating location is not recoverable and exceeds its fair value.
- 18474206_123Financial - Shares / EquityThe 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_24Financial - IncomeConsumer 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_130Financial - DebtOur 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_115Other - OtherThe 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_116Other - OtherAll of our short-term borrowings during the nine months ended November 2, 2018, and November 3, 2017, were under the commercial paper program.
- 18474206_23Other - OtherAlthough 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_14Financial - EarningsExcluding 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_39Other - OtherThe average Lowe?s-branded home improvement store has approximately 112,000 square feet of retail selling space.
- 18474206_81Revenue - ProductThis 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_174Other - OtherFor 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_101Other - OtherCapital 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_86Other - OtherDepreciation 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_52Other - OtherThe 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_11Financial - EarningsImpacted 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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- 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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