This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Lowe’s Companies, Inc. (LOW: chart) on February 25, 2008.
Management:
President and COO: Larry Stone
Chairman and CEO: Robert Niblock
Executive Vice President and CFO: Bob Hull
Key Investors Issues
- EPS were 28 cents a share compared to 40 cents a share last year.
- Net income was $408 million, down from the year-ago $613 million.
- Sales fell to $10.38 billion from $10.41 billion a year earlier.
Fourth Quarter Highlights
Sales were $10.4 billion decrease over last year’s fourth quarter.
- Comparable store sales were negative 7.6% which is below guidance of negative 3% to 5%. Building materials deflation was offset by lumber inflation. That impacted comparable store sales on the fourth quarter was negative 25 basis points. Looking at the monthly trends comparable store sales were negative 4% in November, negative 9% in December and down 11% for January.
- Total customer count increased 3.8% but average ticket decreased 3.9% to $64.06.
- Comparison transactions declined 3.3% and comparison average ticket decreased 4.2%.
- With regard to product categories the categories that performed above average include rough plumbing, hardware, paint, lighting, seasonal living, outdoor power equipment, lawn and landscape products and appliances. In addition, rough electrical and home environment performed at approximately the overall corporate average.
Gross margin was 34.9% which was a 56 basis point decrease compared with 2006.
- The decrease in gross margin was attributable to a number of factors including seasonal clearance, mark downs related to recent activity and to a lesser degree commodity pricing pressures. The commodity pricing issues is a function of the timing of cost increasing per product relative to the timing of changes in retail prices.
- These items were offset by sales mix and lower inventory shrink.
- SG&A was 24% of sales and de-leverage 153 basis points driven by store payroll and fixed costs. Sales per store decline additional stores are hitting the minimum hours threshold which increases the proportion of fixed to total payroll.
- Total payroll expense de-leveraged 71 basis points. Also, lower sales volumes caused de-leverage in expense lines containing fixed costs.
- Specifically utilities de-leveraged 21 basis points, rent 15 basis points, property taxes 11 basis points in the quarter. Bonus expense de-leveraged.
Partner GE Money manages the accounts and owns the receivables.
Agreement has the company paying some of the expenses directly like promotional financing and interest gives it some limited exposure to losses and allows participating in the portfolio of profits.
Depreciation at 3.6% of sales totaled $370 million and de-leveraged 60 basis points.
- This de-leverage was driven by 15% growth in fixed assets and negative comparable store sales.
- Operating margin defined as gross margin less SG&A and depreciation decreased 269 basis points to 7.3% of sales.
- Store opening costs of $61 million de-leveraged 12 basis points to last year as a percentage of sales.
The company opened 72 new stores including the first six stores in Canada.
This compares to 58 new stores last year. Interest expense at $47 million de-leveraged three basis points as a percent of sales. Interest expense was lower than forecast due to capitalized interest. The company reviewed its accounting policy related to capitalized interest and as a result it capitalized more interest than expected, reducing interest expense by approximately $23 million or a penny a share.
- Total expenses were 28.6% of sales and de-leveraged 228 basis points.
- Pre-tax earnings were 6.3% of sales.
- The effective tax rate was 37.5%.
- Earnings per share were 28 cents was within guided range of 25 cents per share to 29 cents per share but decreased 30% versus last years 40 cents per share.
