This summary is based on the third quarter fiscal 2008 earnings call conducted by Lowes Company Inc. (LOW) on November 17, 2008.
Management:
-
Chairman of the Board & Chief Executive Officer: Robert A. Niblock
-
President & Chief Operating Officer: Larry D. Stone
-
Chief Financial Officer & Executive Vice President: Robert F. Hull, Jr.
-
Executive Vice President Business Development: Gregory M. Bridgeford
Key Investors Issues
- Earnings were $488 million or 33 cents a share, down 24% from $643 million or 43 cents per share in 2007.
- Sales were up 1.4% to $11.7 billion from $11.6 billion in the prior year.
Year to Date Highlights:
- Total sales increased 0.9% to $38.2 billion.
- Net earnings declined 15.3% to $2.03 billion or $1.38 a share.
Third Quarter Highlights
Sales were $11.7 billion which represents a 1.4% increase over last year’s $11.6 billion as total customer count increased 3.4% but average ticket decreased 2% to $65.64.
- Comp transactions decreased 3.5% and comp average ticket decreased 2.3% as hurricane related sales positively impacted comp sales by 100 basis points.
– Lowes experienced building material inflation driven by roofing which had approximately 50 basis points positive impact on third quarter comps.
- Gross margins was 34% of sales and decreased 29 basis points from last year driven by a higher fuel prices which increased cost of goods sold and negatively impacted gross margins by 10 basis points.
- Deleverage on distribution fixed cost caused approximately 9 basis points negative impact on gross margin in the quarter.
Store payroll deleveraged 81 basis points driven by negative comps and the firm experienced 46 basis points of deleverage and insurance expense.
- Bonus expense deleveraged by 36 basis points as the firm achieved more performance targets this year versus missing many of itsperformance targets in 2007.
- In addition, rent, property taxes, utilities and other fixed expenses deleveraged approximately 20 basis points due to the comp sales decline.
- It also experienced 11 basis points of deleverage related to proprietary credit due to higher losses than last year, though this was offset slightly by leverage in in-store service and advertising expense.
- Store opening cost of $31 million leveraged 9 basis points to last year as a percentage of sales as the firm opened 39 new stores with no relocations.
Interest expense at $65 million deleveraged 13 basis points as a percentage of sales caused by the additional expense associated with last year’s bond deal and lower capitalized interest costs associated with fewer stores under construction.
- Earnings were $488 million or 33 cents a share, down 24% from $643 million or 43 cents per share in the prior year due to the broad-based external pressures.
- Cash and Cash equivalents balance was $322 million and inventory balance of $8.3 billion increased $552 million or 7.1% due to square footage growth of 10.2% from this time last year, offset by 3.7% lower inventory in comp stores.
- Accounts payable of $4.8 billion represented a 24% increase over the prior year due to ongoing efforts to improve vendor payment terms and the timing of purchases.
- The firm has $249 million of short-term borrowings.
Category and Regional Highlights:
- Only four of the firm’s product categories had positive comps for the quarter, building materials, outdoor power equipment, seasonal living and nursery.
- Performance in building materials and outdoor power equipment was driven by demand of hurricane related products including asphalt, roofing and generators.
- Other categories have performed by the company average include lawn and landscape products that also benefitted from last year’s drought as homeowners completed some of the fall lawn maintenance they put off last year.
- Above average hardware was driven by increased demand for flashlights and batteries in hurricane-impacted markets and reflected consumers desire to make their home more energy efficient and minimize winter heating bills.
The lumber category performed better than company average driven by solid demand of fencing in hurricane-impacted areas.
- While there are recent signs of home price declines are bringing buyers back to the housing market, the pressures of some of the countries weakest housing markets are significantly impacting sales in the Western Division. as all four regions had double digit negative comps in the quarter.
- Florida regions improved slightly during the quarter, but still posted double digit negative comps and two of the Northeastern regions also had double-digit negative comps in the quarter.
- Consumers in these regions remained pressured by weak housing markets and the recent volatility in financial markets and the uncertainty leading up to election appeared to have further impact to consumer’s willingness to tackle home improvement projects.
On the special order sales front, the firm saw pronounced weakness in cabinets and countertops, fashion plumbing and lighting leading to below average comps performance.
- Reflective of the macro pressures weighing on consumers on a regional basis the firm saw the largest year-over-year decline since both installed sales and special order sales in the West and in Florida.
- Commercial business sales continued to post comps above company average with focus on professional trades person, property maintenance professional and repair remodeler continues to drive solid sales results.
Fiscal 2008 Outlook:
