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Lowe’s Reports Fourth Quarter Sales and Earnings Results

MOORESVILLE, N.C., Feb. 28, 2018 /PRNewswire/ — Lowe’s Companies, Inc. (NYSE: LOW) today reported net earnings of $554 million and diluted earnings per share of $0.67 for the quarter ended Feb. 2, 2018 (a 13-week quarter), compared to net earnings of $663 million and diluted earnings per share of $0.74 in the fourth quarter of 2016 (a 14-week quarter).  Excluding certain items described below, adjusted diluted earnings per share1 was $0.74 in the fourth quarter of 2017 compared to adjusted diluted earnings per share1 of $0.86 in the fourth quarter of 2016.

For the fiscal year ended Feb. 2, 2018 (a 52-week year), net earnings were $3.4 billion and diluted earnings per share was $4.09 compared to net earnings of $3.1 billion and diluted earnings per share of $3.47 in fiscal 2016 (a 53-week year).  Excluding certain items described below, adjusted diluted earnings per share1 was $4.39 in fiscal 2017 compared to adjusted diluted earnings per share1 of $3.99 in fiscal 2016.

Lowe’s fiscal year ends on the Friday nearest the end of January; therefore, fourth quarter and fiscal year 2016 included an extra week compared to fiscal 2017.  The 53rd week contributed approximately $950 million to sales and $0.08 to diluted and adjusted diluted earnings per share1 in fiscal 2016.

The items referenced above to arrive at adjusted diluted earnings per share1 for the fourth quarter of 2017 consisted of the following:

  • $0.02 per share for a tax charge associated with the Tax Cuts and Jobs Act of 2017; and
  • $0.05 per share for a one-time cash bonus for eligible hourly U.S. employees.

In addition to those items, fiscal 2017 also included the following:

  • $0.34 per share for a loss on extinguishment of debt in the first quarter; and
  • $0.11 per share for a gain from the sale of the company’s interest in its Australian joint venture in the second quarter.

Sales for the fourth quarter were $15.5 billion compared to $15.8 billion in the fourth quarter of 2016, and comparable sales increased 4.1 percent.  For the fiscal year, sales were $68.6 billion compared to $65.0 billion in fiscal 2016, and comparable sales increased 4.0 percent. Comparable sales for the U.S. home improvement business increased 3.7 percent for the fourth quarter and 3.9 percent for the fiscal year.

“We achieved comparable sales growth that exceeded our expectations driven by compelling consumer messaging, strong holiday event performance, and our integrated omni-channel customer experiences,” commented Robert A. Niblock, Lowe’s chairman, president and CEO.  “As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management.  Given the rapidly evolving competitive landscape, we are also accelerating our strategic investments leveraging the benefits of tax reform.  We continue to build the capabilities required to deliver simple and seamless experiences and strengthen our position as the omni-channel project authority.

“I would like to express my appreciation to our employees for their unwavering commitment to serving customers and the communities in which they live and work,” Niblock added.

Delivering on its commitment to return excess cash to shareholders, the company repurchased $133 million of stock under its share repurchase program and paid $341 million in dividends in the fourth quarter. For the fiscal year, the company repurchased $3.1 billion of stock under its share repurchase program and paid $1.3 billion in dividends.

As of Feb. 2, 2018, Lowe’s operated 2,152 home improvement and hardware stores in the United States, Canada and Mexico representing 214.9 million square feet of retail selling space.

A conference call to discuss fourth quarter 2017 operating results is scheduled for today (Wednesday, Feb. 28) at 9:00 am ET.  The conference call will be available by webcast and can be accessed by visiting Lowe’s website at www.Lowes.com/investor and clicking on Lowe’s Fourth Quarter 2017 Earnings Conference Call Webcast.  Supplemental slides will be available approximately 15 minutes prior to the start of the conference call. A replay of the call will be archived on Lowes.com/investor until May 22, 2018.

Lowe’s Business Outlook

Fiscal Year 2018 (comparisons to fiscal year 2017; based on U.S. GAAP)

  • Total sales are expected to increase approximately 4 percent.
  • Comparable sales are expected to increase approximately 3.5 percent.
  • The company expects to add approximately 10 home improvement and hardware stores.
  • Operating income as a percentage of sales (operating margin) is expected to decrease approximately 30 basis points.2
  • The effective income tax rate is expected to be approximately 25.5%.
  • Diluted earnings per share of $5.40 to $5.50 are expected for the fiscal year ending Feb. 1, 2019.

1 Adjusted diluted earnings per share is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures Reconciliation” section of this release for additional information as well as reconciliations between the Company’s GAAP and non-GAAP financial results.

2 Includes 4 basis point net negative impact from the gain on the sale of the company’s interest in its Australian joint venture (2Q 2017) and the one-time bonus paid to eligible hourly U.S. employees (4Q 2017).

Disclosure Regarding Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “believe”, “expect”, “anticipate”, “plan”, “desire”, “project”, “estimate”, “intend”, “will”, “should”, “could”, “would”, “may”, “strategy”, “potential”, “opportunity” and similar expressions are forward-looking statements. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties.  Forward-looking statements include, but are not limited to, statements about future financial and operating results, Lowe’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions by Lowe’s and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts.  Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.

A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, changes to tax laws applicable to corporate multinationals, such as the recently enacted U.S. Tax Cuts and Jobs Act of 2017, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, inflation or deflation of commodity prices, and other factors that can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, a reduced rate of growth in household formation, and slower rates of growth in housing renovation and repair activity, as well as uneven recovery in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes necessary to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence and enhance our efficiency; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems from data security breaches, ransomware and other cyber threats; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax or environmental issues; (ix) positively and effectively manage our public image and reputation and respond appropriately to unanticipated failures to maintain a high level of product and service quality that could result in a negative impact on customer confidence and adversely affect sales; and (x) effectively manage our relationships with selected suppliers of brand name products and key vendors and service providers, including third party installers. In addition, we could experience impairment losses if either the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values, or we are required to reduce the carrying amount of our investment in certain unconsolidated entities. With respect to acquisitions, potential risks include the effect of such transactions on Lowe’s and the target company’s strategic relationships, operating results and businesses generally; our ability to integrate personnel, labor models, financial, IT and others systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing the scope, geographic diversity and complexity of our operations; significant integration costs or unknown liabilities; and failure to realize the expected benefits of the transaction. For more information about these and other risks and uncertainties that we are exposed to, you should read the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC.

The forward-looking statements contained in this news release are expressly qualified in their entirety by the foregoing cautionary statements. The foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. All such forward-looking statements are based upon data available as of the date of this release or other specified date and speak only as of such date. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf about any of the matters covered in this release are qualified by these cautionary statements and in the “Risk Factors” included in our most recent Annual Report on Form 10-K and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, change in circumstances, future events or otherwise, except as may be required by law.

Lowe’s Companies, Inc.

Lowe’s Companies, Inc. (NYSE: LOW) is a FORTUNE® 50 home improvement company serving more than 18 million customers a week in the United States, Canada and Mexico. With fiscal year 2017 sales of $68.6 billion, Lowe’s and its related businesses operate or service more than 2,390 home improvement and hardware stores and employ over 310,000 people. Founded in 1946 and based in Mooresville, N.C., Lowe’s supports the communities it serves through programs that focus on K-12 public education and community improvement projects. For more information, visit Lowes.com.

Lowe’s Companies, Inc.

Consolidated Statements of Current and Retained Earnings

In Millions, Except Per Share and Percentage Data

Three Months Ended

Year Ended

(Unaudited)

(Unaudited)

(Unaudited)

February 2, 2018

February 3, 2017

February 2, 2018

February 3, 2017

Current Earnings

Amount

% Sales

Amount

% Sales

Amount

% Sales

Amount

% Sales

Net sales

$

15,494

100.00

$

15,784

100.00

$

68,619

100.00

$

65,017

100.00

Cost of sales

10,268

66.27

10,352

65.59

45,210

65.89

42,553

65.45

Gross margin

5,226

33.73

5,432

34.41

23,409

34.11

22,464

34.55

Expenses:

Selling, general and administrative

3,761

24.28

3,789

23.99

15,376

22.40

15,129

23.27

Depreciation and amortization

367

2.37

374

2.37

1,447

2.11

1,489

2.29

Operating income

1,098

7.08

1,269

8.05

6,586

9.60

5,846

8.99

Interest – net

154

0.98

159

1.01

633

0.92

645

0.99

Loss on extinguishment of debt

464

0.68

Pre-tax earnings

944

6.10

1,110

7.04

5,489

8.00

5,201

8.00

Income tax provision

390

2.52

447

2.84

2,042

2.98

2,108

3.24

Net earnings

$

554

3.58

$

663

4.20

$

3,447

5.02

$

3,093

4.76

Weighted average common shares outstanding – basic

828

867

839

880

Basic earnings per common share (1)

$

0.67

$

0.74

$

4.09

$

3.48

Weighted average common shares outstanding – diluted

829

868

840

881

Diluted earnings per common share (1)

$

0.67

$

0.74

$

4.09

$

3.47

Cash dividends per share

$

0.41

$

0.35

$

1.58

$

1.33

Retained Earnings

Balance at beginning of period

$

5,289

$

6,376

$

6,241

$

7,593

Net earnings attributable to Lowe’s Companies, Inc.

554

663

3,447

3,091

Cash dividends declared

(340)

(304)

(1,324)

(1,169)

Share repurchases

(78)

(494)

(2,939)

(3,274)

Balance at end of period

$

5,425

$

6,241

$

5,425

$

6,241

(1)Under the two-class method, earnings per share is calculated using net earnings allocable to common shares, which is derived by reducing net earnings by the earnings
allocable to participating securities. Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were $553 million for the three
months ended February 2, 2018 and $643 million for the three months ended February 3, 2017. Net earnings allocable to common shares used in the basic and diluted
earnings per share calculation were $3,436 million for the year ended February 2, 2018 and $3,062 million for the year ended February 3, 2017.

Lowe’s Companies, Inc.

Consolidated Statements of Comprehensive Income

In Millions, Except Percentage Data

Three Months Ended

Year Ended

(Unaudited)

(Unaudited)

(Unaudited)

February 2, 2018

February 3, 2017

February 2, 2018

February 3, 2017

Amount

% Sales

Amount

% Sales

Amount

% Sales

Amount

% Sales

Net earnings

$

554

3.58

$

663

4.20

$

3,447

5.02

$

3,093

4.76

Foreign currency translation adjustments – net of tax

(26)

(0.17)

(27)

(0.17)

251

0.37

154

0.23

Other comprehensive income/(loss)

(26)

(0.17)

(27)

(0.17)

251

0.37

154

0.23

Comprehensive income

$

528

3.41

$

636

4.03

$

3,698

5.39

$

3,247

4.99

Lowe’s Companies, Inc.

Consolidated Balance Sheets

In Millions, Except Par Value Data

(Unaudited)

February 2, 2018

February 3, 2017

Assets

Current assets:

Cash and cash equivalents

$

588

$

558

Short-term investments

102

100

Merchandise inventory – net

11,393

10,458

Other current assets

689

884

Total current assets

12,772

12,000

Property, less accumulated depreciation

19,721

19,949

Long-term investments

408

366

Deferred income taxes – net

168

222

Goodwill

1,307

1,082

Other assets

915

789

Total assets

$

35,291

$

34,408

Liabilities and equity

Current liabilities:

Short-term borrowings

$

1,137

$

510

Current maturities of long-term debt

294

795

Accounts payable

6,590

6,651

Accrued compensation and employee benefits

747

790

Deferred revenue

1,378

1,253

Other current liabilities

1,950

1,975

Total current liabilities

12,096

11,974

Long-term debt, excluding current maturities

15,564

14,394

Deferred revenue – extended protection plans

803

763

Other liabilities

955

843

Total liabilities

29,418

27,974

Equity:

Preferred stock – $5 par value, none issued

Common stock – $0.50 par value;

Shares issued and outstanding

February 2, 2018

830

February 3, 2017

866

415

433

Capital in excess of par value

22

Retained earnings

5,425

6,241

Accumulated other comprehensive income/(loss)

11

(240)

Total equity

5,873

6,434

Total liabilities and equity

$

35,291

$

34,408

Lowe’s Companies, Inc.

Consolidated Statements of Cash Flows

In Millions

Year Ended

(Unaudited)

February 2, 2018

February 3, 2017

Cash flows from operating activities:

Net earnings

$                         3,447

$                         3,093

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Depreciation and amortization

1,540

1,590

Deferred income taxes

53

28

Loss on property and other assets – net

40

143

Loss on extinguishment of debt

464

(Gain) loss on cost method and equity method investments

(82)

302

Share-based payment expense

99

90

Changes in operating assets and liabilities:

Merchandise inventory – net

(791)

(178)

Other operating assets

250

(183)

Accounts payable

(92)

653

Other operating liabilities

137

79

Net cash provided by operating activities

5,065

5,617

Cash flows from investing activities:

Purchases of investments

(981)

(1,192)

Proceeds from sale/maturity of investments

1,114

1,254

Capital expenditures

(1,123)

(1,167)

Proceeds from sale of property and other long-term assets

45

37

Purchases of derivative instruments

(103)

Proceeds from settlement of derivative instruments

179

Acquisition of business – net

(509)

(2,356)

Other – net

13

(13)

Net cash used in investing activities

(1,441)

(3,361)

Cash flows from financing activities:

Net change in short-term borrowings

625

466

Net proceeds from issuance of long-term debt

2,968

3,267

Repayment of long-term debt

(2,849)

(1,173)

Proceeds from issuance of common stock under
share-based payment plans

139

139

Cash dividend payments

(1,288)

(1,121)

Repurchase of common stock

(3,192)

(3,595)

Other – net

(10)

(75)

Net cash used in financing activities

(3,607)

(2,092)

Effect of exchange rate changes on cash

13

(11)

Net increase in cash and cash equivalents

30

153

Cash and cash equivalents, beginning of period

558

405

Cash and cash equivalents, end of period

$                          588

$                          558

Lowe’s Companies, Inc.

Non-GAAP Financial Measures Reconciliation

To provide additional transparency, the company has presented the non-GAAP financial measure of adjusted earnings per share to exclude the impact of certain discrete items, as further
described below, not contemplated in Lowe’s original Business Outlooks for 2017 and 2016 to assist the user in understanding performance relative to that Business Outlook.  The company
believes this non-GAAP financial measure provides useful insight for analysts and investors in evaluating the company’s operational performance.

In the second quarter of 2016, the company settled its foreign currency hedge entered into in advance of the RONA acquisition.  The net impact of the foreign currency
hedge on fiscal 2016 was a net realized gain of $76 million or $0.05 per share.

In the third quarter of 2016, the company recognized $462 million or $0.45 per share of non-cash pre-tax charges which included the following:

– $290 million or $0.33 per share resulting from the wind down of Hydrox, a joint venture in which Lowe’s held a one-third ownership interest.  Hydrox operated Masters Home
Improvement stores and Home Timber and Hardware Group’s retail stores in Australia.

– $96 million or $0.07 per share related to a write-off for projects that were canceled as part of the company’s ongoing review of strategic initiatives in an effort to focus on
critical projects that will drive desired outcomes.

– $76 million or $0.05 per share related to goodwill and long-lived asset impairments associated with the company’s Orchard Supply Hardware operations as part of a strategic
reassessment of this business.

In the fourth quarter of 2016, the company recognized the following charges:

– $84 million or $0.06 per share for severance-related costs associated with the company’s productivity efforts.

– $32 million or $0.04 per share resulting from a tax charge primarily related to the issuance of final Internal Revenue Code Section 987 regulations in December 2016.

– $18 million or $0.02 per share resulting from premium paid to acquire the outstanding RONA preferred shares.

In the first quarter of 2017, the company recognized a $464 million or $0.34 per share loss on extinguishment of debt in connection with a $1.6 billion cash tender offer.

In the second quarter of 2017, the company recognized a $96 million or $0.11 per share gain from the sale of the company’s interest in its Australian joint venture.

In the fourth quarter of 2017, the company recognized the following charges:

– $20 million or $0.02 per share tax charge associated with the Tax Cuts and Jobs Act of 2017.

– $66 million or $0.05 per share related to the one-time cash bonus to eligible hourly U.S. employees.

Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the company’s diluted earnings per share as prepared in accordance with GAAP.
The company’s methods of determining this non-GAAP financial measure may differ from the method used by other companies for this or similar non-GAAP financial measures. Accordingly, this
non-GAAP measure may not be comparable to the measures used by other companies.

Detailed reconciliations between the company’s GAAP and non-GAAP financial results are shown below and available on the company’s website at www.lowes.com/investor.

Three Months Ended

(Unaudited)

(Unaudited)

February 2, 2018

February 3, 2017

Pre-Tax
Earnings

Tax

Net Earnings

Pre-Tax
Earnings

Tax

Net Earnings

Diluted earnings per share, as reported

$          0.67

$          0.74

Non-GAAP Adjustments

Severance-related costs

0.10

(0.04)

0.06

IRC Section 987 charge

0.04

0.04

Premium on RONA Preferred Shares 1

0.02

Impact of tax reform

0.02

0.02

One-time cash bonus attributable to tax reform

0.08

(0.03)

0.05

Adjusted diluted earnings per share

$          0.74

$          0.86

Year Ended

(Unaudited)

February 2, 2018

February 3, 2017

Pre-Tax
Earnings

Tax

Net Earnings

Pre-Tax
Earnings

Tax

Net Earnings

Diluted earnings per share, as reported

$          4.09

$          3.47

Non-GAAP Adjustments

Net gain on foreign currency hedge

(0.09)

0.04

(0.05)

Australian joint venture impairment

0.33

0.33

Project write-offs

0.11

(0.04)

0.07

Orchard Supply Hardware goodwill and long-lived asset impairment

0.08

(0.03)

0.05

Severance-related costs

0.09

(0.03)

0.06

IRC Section 987 charge

0.04

0.04

Premium on RONA Preferred Shares 1

0.02

Loss on extinguishment of debt

0.55

(0.21)

0.34

Gain on sale of interest in Australian joint venture

(0.11)

(0.11)

Impact of tax reform

0.02

0.02

One-time cash bonus attributable to tax reform

0.08

(0.03)

0.05

Adjusted diluted earnings per share

$          4.39

$          3.99

1 Under the two-class method, the premium paid to redeem the RONA preferred shares was deducted from net earnings to compute net earnings allocable to common shareholders.

SOURCE Lowe’s Companies, Inc.