Lowe’s Companies, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three months ended April 30, 2010, compared with the three months ended May 1, 2009. Although the request metadata says “2009 Q1,” the filing itself reports first-quarter fiscal 2010 results.
Business context and results
Lowe’s operates home-improvement stores. Management attributed the quarter’s stronger sales to improving consumer sentiment, favorable weather, and government stimulus programs, including Cash for Appliances and the Homebuyer Tax Credit.
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Net sales | $12.388 billion | $11.832 billion |
| Comparable-store sales | +2.4% | -6.6% |
| Gross margin | 35.18% | 35.46% |
| Operating margin (EBIT) | 7.00% | 7.08% |
| Net earnings | $489 million | $476 million |
| Diluted EPS | $0.34 | $0.32 |
| Operating cash flow | $2.736 billion | $2.345 billion |
| Property acquired | $283 million | $572 million |
Financial position and material changes
- Sales rose 4.7%; comparable transactions increased 4.8%, while comparable average ticket fell 2.3%. Customer transactions totaled 199 million versus 186 million.
- Gross margin declined 28 basis points, mainly from product mix—particularly increased appliance sales—and competitive limits on passing through commodity costs, plus higher promotions. Supply-chain efficiencies and lower inventory shrink partly offset the decline.
- Net earnings increased 2.7%, while net margin eased to 3.95% from 4.02%. SG&A was 24.98% of sales, essentially flat year over year; depreciation expense declined 1.0%.
- Cash and cash equivalents were $2.677 billion at April 30, 2010, versus $682 million a year earlier. Short-term investments were $675 million; current assets were $13.695 billion and current liabilities $10.881 billion.
- Total debt reported on the balance sheet was approximately $6.067 billion, including $536 million of current maturities and $5.531 billion of long-term debt. In April, Lowe’s issued $1.0 billion of senior notes: $500 million at 4.625% due 2020 and $500 million at 5.800% due 2040. It planned to use part of the proceeds to repay $500 million of 8.25% notes due June 1, 2010.
- Operating cash flow improved chiefly due to working-capital movements, including higher accounts payable, partly offset by inventory investment. Investing cash outflow was $1.084 billion, including purchases of investments; financing cash inflow was $391 million, reflecting the notes issuance and share repurchases.
- Lowe’s repurchased 18.6 million shares under its program for $450 million and had approximately $4.6 billion of authorization remaining. The quarterly dividend was $0.09 per share; on May 28, the board declared a subsequent quarterly dividend of $0.11 per share.
- Fiscal 2010 capital expenditures were forecast at approximately $2.2 billion, including $375 million of lease commitments. The company reported no outstanding borrowings or letters of credit under its $1.75 billion senior credit facility at quarter-end and said it was in compliance with its covenants.
Outlook, commentary, and risks
As of May 17, 2010, management expected second-quarter sales growth of 5%–7%, comparable-store sales growth of 2%–4%, operating-margin expansion of approximately 40 basis points, and diluted EPS of $0.57–$0.59. For fiscal 2010, it forecast sales growth of 5%–7%, comparable-store sales growth of 2%–4%, operating-margin expansion of approximately 60 basis points, and diluted EPS of $1.37–$1.47. Both outlooks excluded future share repurchases. Fiscal-year plans included 40–45 new stores and approximately 2% selling-space growth.
Management cited continued unemployment, housing-market weakness, consumer spending and credit conditions, commodity prices, competition, regulation, labor and supply availability, and weather as risks. It cautioned that interim results may not indicate full-year performance. The company reported no material change in risk factors or market risk from its prior annual report, no material off-balance-sheet financing other than operating leases, and no material changes to contractual commitments outside the ordinary course. The independent accountant performed an interim review, not an audit, and reported no material modifications needed for GAAP conformity.
Important facts for investors to verify
- Confirm that the intended period is fiscal Q1 2010, as the filing covers the quarter ended April 30, 2010, not Q1 2009.
- Assess whether comparable-sales improvement can persist without favorable weather or government incentive programs, and whether sales mix and promotions continue to pressure gross margin.
- Review working-capital effects on operating cash flow, particularly inventory and accounts payable movements.
- Track debt repayment and refinancing following the $1.0 billion note issuance, as well as capital spending and planned share repurchases.
- Compare subsequent results with management’s stated sales, margin, and EPS outlook; the filing provides forecasts, not guarantees.