Lowe’s Companies, Inc. — Form 10-K Summary
Business context and reporting period
Lowe’s operates home improvement and hardware stores, with 1,857 locations in the U.S., Canada, and Mexico at January 29, 2016. The filing covers fiscal 2015, ended January 29, 2016, and compares results with fiscal 2014. This differs from the request metadata’s “2014 Q4”; the filing includes fourth-quarter data for fiscal 2015.
Key financial metrics
| Metric | Fiscal 2015 | Prior comparable period |
|---|---|---|
| Net sales | $59.074 billion | $56.223 billion; up 5.1% |
| Comparable sales | Up 4.8% | Up 4.3% |
| Gross margin | 34.82% | 34.79% |
| Net earnings | $2.546 billion | $2.698 billion; down 5.6% |
| Diluted EPS | $2.73 | $2.71 |
| Operating margin | 9.31% adjusted | 8.53% reported |
| Cash from operations | $4.784 billion | $4.929 billion |
| Capital expenditures | $1.197 billion | $880 million |
Fiscal 2015 net earnings included a $530 million non-cash impairment charge on the Australian joint venture. Excluding it, adjusted net earnings were $3.076 billion and adjusted diluted EPS was $3.29; these are non-GAAP measures. Fourth-quarter net earnings were $11 million, versus $450 million in fourth-quarter 2014, primarily reflecting the impairment.
At year-end, cash and cash equivalents were $405 million, short-term investments were $307 million, total current assets were $10.561 billion, and current liabilities were $10.492 billion. Total debt was $12.606 billion, including current maturities; long-term debt excluding current maturities was $11.545 billion. Debt to equity plus debt rose to 62.3% from 53.3%. The company had a $1.75 billion revolving credit facility, $43 million of commercial paper outstanding, and reported compliance with debt covenants.
Material changes versus fiscal 2014
- Sales growth accelerated to 5.1% from 5.3%? Comparable sales improved to 4.8% from 4.3%; growth in total sales was driven by comparable sales and new stores.
- Net earnings declined despite higher sales, chiefly because of the Australian investment impairment and a higher effective tax rate (42.4% versus 36.9%).
- Gross margin edged up 3 basis points. SG&A rose to 23.90% of sales from 23.62%, including the impairment effect.
- Operating cash flow decreased by $145 million, with management citing working-capital changes; inventory increased $582 million in the cash flow statement.
- Share repurchases totaled $3.8 billion and cash dividends paid were $957 million. Dividends declared were $991 million; dividends per share rose to $1.07 from $0.87.
Guidance, outlook, risks and unusual items
Management’s fiscal 2016 outlook, issued February 24, 2016, projected total sales growth of approximately 6% (including an estimated 1.5% contribution from the 53rd week), comparable-sales growth of about 4%, operating-margin expansion of 80–90 basis points, an effective tax rate of approximately 38.1%, and diluted EPS of approximately $4.00. The outlook assumed $3.5 billion of share repurchases and approximately 45 new stores.
On February 2, 2016, Lowe’s agreed to acquire Canadian retailer RONA for approximately C$3.2 billion, subject to shareholder and regulatory approvals; the company expected to finance the transaction through debt markets. The company also decided to exit its Australian joint venture; Woolworths was required under the agreement to purchase Lowe’s one-third interest, with final valuation and sale completion expected in 2016.
Management described the home improvement outlook as positive, supported by jobs, incomes, home prices, and housing turnover. Key risks include competition and changing shopping behavior, execution of omni-channel technology initiatives, cybersecurity and payment-system exposures, supply-chain disruption, hiring and retaining skilled employees, economic and housing-market weakness, international operations, and integration or financing risks from strategic transactions. Ordinary-course legal proceedings were not considered material. The filing states that internal control over financial reporting was effective and the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the Australian joint-venture sale proceeds and final purchase price differ materially from management’s estimate underlying the $530 million impairment.
- Whether RONA receives required approvals, closes on expected terms, and affects leverage, interest expense, or the planned repurchases.
- Whether fiscal 2016 sales, margin, EPS, store-opening, and buyback guidance is achieved, including the 53rd-week effect.
- How working capital, capital spending, and debt maturities affect cash generation and liquidity.
- Whether the higher effective tax rate and non-GAAP adjustments materially affect comparisons with reported earnings.