This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Lowe’s Companies Inc. (LOW) on February 20, 2009.
Management:
Chairman and CEO: Robert Niblock
President and COO: Larry Stone
EVP and CFO: Bob Hull
EVP, Business Development: Greg Bridgeford
Key Investor Issues:
- Full year net earnings dipped 21.9% to $2.2 billion while EPS declined 19.9% to $1.49.
- No share repurchases were made both during the quarter and full year.
- The company expects comparable store sales to decline 6% to 10% in Q1 of 2009.
Fourth Quarter Highlights:
Sales for the quarter decreased 3.8% versus last year and comp sales were negative 9.9%.
- Comp sales were weakest in November and relatively better in December.
- However, comp sales weakened again in January.
- According to independent estimates, the company gained 110 basis points of total store unit market share in Q4.
For the year, total sales declined fractionally and comp sales declined 7.2%.
- Sales for the year were nearly $1.5 billion less than the original estimate.
- The EPS of $1.49 fell only a 1 cent below the low end of the year ago guidance.
- The decline reflects diligent efforts to control expenses during the third consecutive year of soft sales in the industry.
Over the past three years, the company has managed corporate staffing to match the slowing environment primarily through attrition.
- The company left almost 400 positions unfilled at the corporate office in 2008.
- The management has made further cuts including a recent reduction in the real estate department reflecting the significantly low work store opening plans.
- The store count and selling square footage have both grown by more than 19%.
- However, corporate staff has grown by less than 5%.
- The management announced reductions in the level of planned merit increases for the rest of the organization in light of the current economic environment.
- These actions are anticipated to save in excess of $40 million in the year.
The company has further reduced store opening plans to 60 to 70 for the year.
- This includes 5 stores in Canada and 2 stores expected to open late in the year in Monterrey, Mexico.
- The revised 2009 store opening plan is down approximately 15 stores from the September plan and down some 40% from the 115 stores opened in 2008.
- The management is also rationalizing other capital spending including store remerchandising efforts to ensure an appropriate return on investment.
- The changes have reduced the capital plan to $2.5 billion, down $600 million from a few months ago and down $1.1 billion in 2008.
Regional Analysis:
- Western division continued to experience very weak demand.
- All four regions delivered double digit aided comps.
- The management reported double digit aided comps across much of the Southeast in the quarter.
- The company is still experiencing lower sales for big-ticket projects in this part of the country.
- The sales in the Northeast continued to slow and part driven by the extreme winter weather.
- The management announced positive comps in the areas of the South Central Division.
- The positive regional comps were most impacted by last year’s hurricanes as rebuilding continues.
- The company also has relatively better comps along the Gulf Coast and in parts of Ohio Valley.
Fourth quarter sales were $10 billion, a 3.8% decrease over last year’s fourth quarter.
- Q4 average ticket decreased 4.6% to $61.05, the results set slightly by 0.9% increase in total customer count.
- For 2008, total sales of $48.2 billion were essentially flat to last year.
- Comp sales were negative 9.9% for the quarter which was at the low end of the guided range of negative 5% to negative 10%.
- On a monthly basis, comps were negative 12% in November, negative 7.9% in December and negative 9.9% in January.
- For the quarter, comp transactions decreased 5.3% and comp average ticket decreased 4.9%.
- Full year comp sales were negative 7.2%.
- Fiscal 2008 comp transactions decreased 4.1% and comp average ticket decreased 3.1%.
Gross margins for the quarter was 33.7% of sales and decreased 115 basis points from last year’s fourth quarter.
- The decrease in gross margin was driven by several factors.
- To protect customer franchise enterprise image, the management matched various competitor offers in the quarter.
- This negatively impacted gross margin by approximately 50 basis points.
- Higher fuel prices increased cost of goods sold and negatively impacted gross margins by approximately 10 basis points.
- These items were offset by the positive impact of 14 basis points and lower inventory ratio rate.
- For the year, gross margin of 34.2% represents a decrease of 43 basis points from fiscal 2007.
SG&A for Q4 was 26.2% of sales which deleveraged 218 basis points.
- This was driven by store payroll, write-offs associated with discontinued projects, store impairment charge and fixed expenses.
- For the quarter, store payrolls deleveraged 125 basis points driven by negative comps and the lowest volume quarter of the year.
- The company incurred $19 million in expense in write-off of new store project that is no longer being pursued compared with $2 million in Q4 2007.
- The company also had 15 basis points of deleverage in the quarter related to a long life asset impairment charge for open stores.
- The rent, profit, cash, utilities and other fixed expenses deleveraged approximately 50 basis points due to the comp sales decline.
- This deleverage was offset slightly by leverage in store service and bonus expense in the quarter.
- For the year, SG&A was 23% of sales and deleveraged 118 basis points in 2007.
- The store opening costs of $32 million leveraged 27 basis points to last year as a percentage of sales.
- The company opened 33 new stores in Q4 versus 72 new stores opened in Q4 last year.
- Depreciation at 4% of sales totaled $397 million and deleveraged 40 basis points compared with last year’s fourth quarter.
- This was primarily due to negative comp sales and the addition of 150 stores over the past 12 months.
