This summary is based on the first quarter fiscal 2008 earnings call conducted by Lowe’s Companies Inc. (LOW) on May 19, 2008.
Management:
Chairman and CEO: Robert A Niblock
President and COO: Larry D Stone
CFO and EVP: Robert F Hull Jr.
Key Investor Issues:
- Q1 diluted EPS declined 14.6% to 41 cents from 48 cents in Q1 of 2007.
- Q1 sales dipped 1.3% to $12 billion from $12.2 billion in the last year quarter.
- Diluted EPS are forecast to be in the range of $1.45 to $1.55 for the year ending January 30, 2009.
First-Quarter Financial Highlights
The challenging sales environment experienced in the last six months continued into Q1 of 2008.
- The increasing financial pressures on consumers resulted in top line sales dipping below plans.
- The poor economic outlook included housing pressures, rising food and fuel prices.
- The management reported that the negative employment situation eroded consumer confidence and impacted on discretionary purchases for the home.
- The company however continued to gain market share helped by exceptional service and an appealing range of products.
- The diligent expense control aided in the achievement of respectable earnings despite the headwinds facing the industry.
During the quarter, the company opened 20 new stores.
- As of May 2, 2008, the company operated 1,554 stores in the U.S and Canada, representing 176.4 million square feet of retail selling space.
- According to the management, this represents an 11.1% increase over last year.
The gross margin for the quarter was 34.7% of sales and decreased 30 basis points from the same period last year.
- The decrease in gross margin was driven by higher fuel costs which increased the cost of goods sold and negatively affected gross margin by about 10 basis points.
- The few goods categories meant that it was difficult to pass on price increases hence negatively affecting the gross margin.
- The management also advised that the carpet promotion negatively impacted gross margin by approximately 10 basis points during the quarter.
The EBIT margin was 8.7% of sales and decreased 145 basis points.
- This is better than the expected 170 basis points decline.
- The pre-tax earnings for the quarter were 8.1% of sales.
- The effective tax rate for the quarter was 37.6% versus 38% in the year ago quarter.
- The cash flow from operations exceeded $2.5 billion, representing a $399 million or 18.7% increase over first quarter of 2007.
The quarterly total expenses were $3.2 billion versus $3.1 billion in the same period last year.
- The Q1 total expenses were 26.6% of sales and deleveraged 139 basis points.
- The SG&A quarter-over-quarter were flat at approximately $2.7 billion.
- The SG&A for the quarter was 22.7% of sales, which deleveraged 63 basis points, driven by store payroll and fixed costs.
- The Q1 store opening costs were $18 million compared with $12 million in the same quarter of 2007.
- During the quarter, rent and property tax expenses deleveraged approximately 10 basis points each.
- The depreciation expense increased from $323 million in the last year quarter to $375 million for the current quarter while net interest expense jumped from $47 million in Q1 of 2007 to $76 million in Q1 of 2008.
- The interest expense at $76 million deleveraged 24 basis points as a percent of sales.
- The deleverage was caused by the additional expense associated with the $1.3 billion of senior unsecured bonds issued in the Q3 of 2007 and short-term borrowings outstanding during the quarter.
The quarter end cash and cash equivalents balance was $913 million.
- The inventory turnover was 3.92, representing a decrease of 16 basis points from Q1 of 2007.
- The first quarter inventory balance dipped $63 million or 0.7% compared with the same period last year.
- The debt-to-equity ratio was 34.6% versus 27.7% for the year ago quarter. The increase was a result of last year’s bond deal and short-term borrowings to fund the Canadian expansion.
- The return on assets decreased 215 basis points to 8.7% for the quarter.
The compared declared a quarterly cash dividend of 8 cents compared with 5 cents same quarter last year.
- This resulted in total dividend cash outlay of $117 million for the quarter compared with $75 million in the first quarter of 2007.
- Whilst the management spent $548 million on share repurchases in the last year quarter, no purchases were done in the current quarter.
