Lowe’s Companies, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended February 3, 2023 (fiscal 2022, 53 weeks), compared with fiscal 2021 ended January 28, 2022 (52 weeks). Although the request metadata says “2021 Q4,” this filing covers fiscal 2022. Amounts are U.S. dollars.
Business context
Lowe’s is a home improvement retailer operating 1,738 U.S. stores at year-end. On February 3, 2023, it completed the sale of its Canadian retail business and stated that it would focus on its U.S. business. Its Total Home strategy prioritizes Pro customers, online sales, installation services, localized assortments, and product assortment.
Financial performance and liquidity
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $97.1 billion | $96.3 billion |
| Gross margin | $32.3 billion; 33.23% | $32.1 billion; 33.30% |
| Operating income | $10.2 billion; 10.47% of sales | $12.1 billion; 12.56% of sales |
| Net earnings | $6.4 billion | $8.4 billion |
| Diluted EPS | $10.17; adjusted $13.81 | $12.04 |
| Operating cash flow | $8.6 billion | $10.1 billion |
| Capital expenditures | $1.8 billion | $1.9 billion |
Sales increased 0.8%, while comparable sales declined 0.9%. The 53rd week contributed approximately 1.4% to sales growth. Comparable transactions fell 7.6%, partly offset by a 6.7% increase in average ticket. Gross margin contracted 7 basis points; SG&A rose to 20.94% of sales, primarily reflecting Canadian divestiture charges. Net interest expense increased to $1.1 billion from $885 million.
At year-end, cash and cash equivalents were $1.3 billion, short-term investments were $384 million, and current liabilities were $19.5 billion. Long-term debt, excluding current maturities, was $32.9 billion; short-term borrowings were $499 million. Revolving credit availability was $3.5 billion, and the company reported compliance with credit covenants. Operating cash flow declined mainly due to working-capital movements, including inventory and accounts payable.
Lowe’s repurchased $14.1 billion of stock and paid $2.4 billion in dividends in fiscal 2022. The quarterly dividend was raised 31% to $1.05 per share, and $20.7 billion remained authorized for repurchases at year-end.
Material changes and unusual items
- The Canadian retail sale generated $491 million in cash proceeds and $21 million of performance-based contingent consideration. Fiscal 2022 included $2.5 billion of pre-tax impairment, sale, and transaction costs, reducing diluted EPS by $3.64. Management’s adjusted diluted EPS of $13.81 excludes these items and is non-GAAP.
- Reported net earnings fell 23.8% and diluted EPS fell 15.5% year over year. Excluding the Canadian transaction costs, adjusted diluted EPS increased 14.7% from fiscal 2021 EPS.
- The company issued $9.8 billion of unsecured notes during the year. Total long-term debt increased from $24.7 billion to $33.5 billion, including current maturities and finance lease obligations.
- Return on invested capital declined to 30.4% from 35.3%; management said the divestiture reduced fiscal 2022 ROIC by approximately 800 basis points.
Outlook, risks, and contingencies
Fiscal 2023 capital expenditure guidance is up to $2.0 billion. The filing does not provide a clear fiscal 2023 sales or EPS outlook. Management expects its Total Home strategy, productivity efforts, and supply-chain investments to support operating-margin productivity and long-term shareholder value. It cited housing equity, aging housing stock, household formation, aging-in-place preferences, and remote work as supportive demand factors, while noting weaker discretionary DIY trends.
Key disclosed risks include economic weakness, inflation and interest rates, reduced home-improvement demand, competition, labor costs and staffing, supply-chain disruptions and tariffs, shrink, technology transformation and cybersecurity, climate and severe-weather events, and access to capital markets. The U.S. Attorney’s Office and EPA are investigating compliance by Lowe’s and independent installers with lead-safe and recordkeeping requirements for certain pre-1978 home projects. The company said current legal proceedings were not expected to be material; the filing does not state an outcome for the investigation. The company also reported $2.3 billion of non-cancellable commitments and $462 million of letters of credit.
Management assessed internal control over financial reporting as effective, and the auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified vendor funds as a critical audit matter because of the volume and varied terms of vendor agreements.
Investor verification checklist
- Reconcile reported versus adjusted EPS and assess the tax and cash-flow implications of the Canadian divestiture charges and contingent consideration.
- Review debt maturities, borrowing costs, credit ratings, and the company’s capacity to sustain large repurchases and dividends.
- Track comparable transactions, average ticket, and sales trends after the 53rd-week benefit, particularly in discretionary DIY categories.
- Assess inventory levels, shrink, transportation costs, and working-capital effects on operating cash flow and gross margin.
- Follow the lead-safe installation investigation and any resulting costs, penalties, or operational changes.
- Monitor execution and costs of the U.S.-focused strategy, supply-chain and technology investments, and fiscal 2023 capital spending.