Lowe’s Companies, Inc. (NYSE:LOW)  reported net earnings of $11 million and diluted earnings share of $0.01 for the quarter ended January 29, 2016, which includes a non-cash impairment charge of $530 million related to the Company’s decision to exit its joint venture in Australia. Excluding the impact of this charge, adjusted net earnings1 for the fourth quarter were $541 million, a 20.2 percent increase over the same period a year ago, and adjusted diluted earnings per share1 increased 28.3 percent to $0.59 from $0.46 in the fourth quarter of 2014.

For the fiscal year ended January 29, 2016, net earnings were $2.5 billion and diluted earnings per share were $2.73, including the impairment charge.  Excluding the impact of this charge, adjusted net earnings1were $3.1 billion, an increase of 14.0 percent from the same period a year ago, and adjusted diluted earnings per share1 increased 21.4 percent to $3.29.

As previously announced, the Company provided notification to Woolworths Limited, its joint venture partner in Australia, of its intent to begin the process of exiting its investment in the joint venture, which operates Masters Home Improvement stores and Home Timber and Hardware Group’s retail stores and wholesale distribution in Australia.  Woolworth’s owns two-thirds of the joint venture, and Lowe’s owns one-third.  The$530 million non-cash impairment charge, which includes the cumulative impact of the strengthening U.S. dollar over the life of the investment, was based on the Company’s best estimate of the value of its portion of the joint venture, and is subject to possible adjustment based on completion of the valuation process.

The decision to exit the joint venture in Australia was made as part of the Company’s ongoing analysis of its portfolio of businesses.  The Company will continue to focus its resources on areas of the business where there is greater potential return on investment.

Sales for the fourth quarter increased 5.6 percent to $13.2 billion from $12.5 billion in the fourth quarter of 2014, and comparable sales increased 5.2 percent. For the fiscal year, sales were $59.1 billion, a 5.1 percent increase over the same period a year ago, and comparable sales increased 4.8 percent. Comparable sales for the U.S. home improvement business increased 5.5 percent for the fourth quarter and 5.1 percent for the fiscal year.

“I am pleased that we delivered another solid quarter, driving increased traffic through competitive offers and creating strong value for customers,” commented Robert A. Niblock, Lowe’s chairman, president and CEO. “We capitalized on increased demand for exterior products as a result of warmer weather, while at the same time helped customers tackle interior projects, allowing us to deliver positive comps in all product categories. 

“I would like to thank our employees for the incredible contributions they make every day through their hard work and commitment to delivering outstanding customer service,” Niblock added.  “In 2016, we will continue to leverage the favorable macroeconomic backdrop for home improvement, providing customers with complete solutions for their home improvement projects.”

Delivering on its commitment to return excess cash to shareholders, the Company repurchased $562 millionof stock under its share repurchase program and paid $257 million in dividends in the fourth quarter. For the fiscal year, the Company repurchased $3.8 billion of stock under its share repurchase program and paid$957 million in dividends.

As of January 29, 2016, Lowe’s operated 1,857 home improvement and hardware stores in the United States, Canada and Mexico representing 202.1 million square feet of retail selling space.

A conference call to discuss fourth quarter 2015 operating results is scheduled for today (Wednesday, February 24) 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 2015 Earnings Conference Call Webcast.  Supplemental slides will be available fifteen minutes prior to the start of the conference call. A replay of the call will be archived on Lowes.com/investor until May 17, 2016.

1 Adjusted net earnings and adjusted diluted earnings per share are non-GAAP financial measures. 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. 

Lowe’s Business Outlook

Fiscal Year 2016 — a 53-week Year (comparisons to fiscal year 2015 — a 52-week year; based on U.S. GAAP unless otherwise noted) 

  • Total sales are expected to increase approximately 6 percent, including the 53rd week
  • The 53rd week is expected to increase total sales by approximately 1.5 percent
  • Comparable sales are expected to increase approximately 4 percent
  • The company expects to add approximately 45 home improvement and hardware stores.
  • Earnings before interest and taxes as a percentage of sales (operating margin) are expected to increase 80 to 90 basis points.2
  • The effective income tax rate is expected to be approximately 38.1%.
  • Diluted earnings per share of approximately $4.00 are expected for the fiscal year ending February 3, 2017.  

2 Operating margin growth excludes the impact of the non-cash impairment charge on the Australian joint venture.

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)
January 29, 2016 January 30, 2015 January 29, 2016 January 30, 2015
Current Earnings  Amount  % Sales  Amount  % Sales  Amount  % Sales  Amount  % Sales
Net sales $ 13,236 100.00 $ 12,540 100.00 $ 59,074 100.00 $ 56,223 100.00
Cost of sales 8,648 65.34 8,194 65.34 38,504 65.18 36,665 65.21
Gross margin 4,588 34.66 4,346 34.66 20,570 34.82 19,558 34.79
Expenses:
Selling, general and administrative 3,780 28.56 3,165 25.24 14,115 23.90 13,281 23.62
Depreciation 369 2.79 362 2.89 1,484 2.51 1,485 2.64
Interest – net 144 1.08 132 1.05 552 0.93 516 0.92
Total expenses 4,293 32.43 3,659 29.18 16,151 27.34 15,282 27.18
Pre-tax earnings  295 2.23 687 5.48 4,419 7.48 4,276 7.61
Income tax provision  284 2.14 237 1.90 1,873 3.17 1,578 2.81
Net earnings $ 11 0.09 $ 450 3.58 $ 2,546 4.31 $ 2,698 4.80
Weighted average common shares outstanding – basic 910 964 927 988
Basic earnings per common share (1) $ 0.01 $ 0.46 $ 2.73 $ 2.71
Weighted average common shares outstanding – diluted 912 967 929 990
Diluted earnings per common share (1) $ 0.01 $ 0.46 $ 2.73 $ 2.71
Cash dividends per share $ 0.28 $ 0.23 $ 1.07 $ 0.87
Retained Earnings
Balance at beginning of period $ 8,298 $ 10,271 $ 9,591 $ 11,355
Net earnings 11 450 2,546 2,698
Cash dividends (255) (222) (991) (858)
Share repurchases (461) (908) (3,553) (3,604)
Balance at end of period $ 7,593 $ 9,591 $ 7,593 $ 9,591
(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 $10 million for the three months ended January 29, 2016 and $447 million for the three months ended January 30, 2015.  Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were $2,534 million for the year ended January 29, 2016 and $2,682 million for the year ended January 30, 2015.

 

 

Lowe’s Companies, Inc.
Consolidated Statements of Comprehensive Income
In Millions, Except Percentage Data
Three months ended Year ended
 (Unaudited)   (Unaudited)   (Unaudited) 
January 29, 2016 January 30, 2015 January 29, 2016 January 30, 2015
 Amount  % Sales  Amount  % Sales  Amount  % Sales  Amount  % Sales
Net earnings $ 11 0.09 $ 450 3.58 $ 2,546 4.31 $ 2,698 4.80
Foreign currency translation adjustments – net of tax (15) (0.11) (75) (0.59) (291) (0.49) (86) (0.15)
Other comprehensive loss (15) (0.11) (75) (0.59) (291) (0.49) (86) (0.15)
Comprehensive income/(loss) $ (4) (0.02) $ 375 2.99 $ 2,255 3.82 $ 2,612 4.65

 

 

Lowe’s Companies, Inc.
Consolidated Balance Sheets
In Millions, Except Par Value Data
 (Unaudited) 
January 29, 2016 January 30, 2015
Assets
Current assets:
Cash and cash equivalents $ 405 $ 466
Short-term investments  307 125
Merchandise inventory – net 9,458 8,911
Other current assets 391 349
Total current assets 10,561 9,851
Property, less accumulated depreciation   19,577 20,034
Long-term investments  222 354
Deferred income taxes – net 241 133
Other assets 665 1,349
Total assets $ 31,266 $ 31,721
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings $ 43 $
Current maturities of long-term debt 1,061 552
Accounts payable 5,633 5,124
Accrued compensation and employee benefits  820 773
Deferred revenue 1,078 979
Other current liabilities 1,857 1,920
Total current liabilities 10,492 9,348
Long-term debt, excluding current maturities  11,545 10,806
Deferred revenue – extended protection plans 729 730
Other liabilities  846 869
Total liabilities 23,612 21,753
Shareholders’ equity:
Preferred stock – $5 par value, none issued
Common stock – $.50 par value; 
   Shares issued and outstanding
   January 29, 2016 910
   January 30, 2015 960 455 480
Capital in excess of par value
Retained earnings 7,593 9,591
Accumulated other comprehensive loss (394) (103)
Total shareholders’ equity 7,654 9,968
Total liabilities and shareholders’ equity $ 31,266 $ 31,721

 

 

Lowe’s Companies, Inc.
Consolidated Statements of Cash Flows
In Millions
Year Ended
(Unaudited)
January 29, 2016 January 30, 2015
Cash flows from operating activities:
Net earnings  $                        2,546 $                      2,698
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 1,587 1,586
Deferred income taxes (68) (124)
Loss on property and other assets – net 33 25
Loss on equity method investments 591 57
Share-based payment expense 117 119
Changes in operating assets and liabilities:
Merchandise inventory – net (582) 170
Other operating assets (34) 83
Accounts payable  524 127
Other operating liabilities 70 188
Net cash provided by operating activities 4,784 4,929
Cash flows from investing activities:
Purchases of investments (934) (820)
Proceeds from sale/maturity of investments 884 805
Capital expenditures (1,197) (880)
Contributions to equity method investments – net (125) (241)
Proceeds from sale of property and other long-term assets 57 52
Other – net (28) (4)
Net cash used in investing activities (1,343) (1,088)
Cash flows from financing activities:
Net change in short-term borrowings 43 (386)
Net proceeds from issuance of long-term debt 1,718 1,239
Repayment of long-term debt (552) (48)
Proceeds from issuance of common stock under
   share-based payment plans
125 137
Cash dividend payments (957) (822)
Repurchase of common stock (3,925) (3,905)
Other – net 55 24
Net cash used in financing activities (3,493) (3,761)
Effect of exchange rate changes on cash (9) (5)
Net increase/(decrease) in cash and cash equivalents (61) 75
Cash and cash equivalents, beginning of period 466 391
Cash and cash equivalents, end of period $                          405 $                       466

 

 

Lowe’s Companies, Inc.
Non-GAAP Financial Measures Reconciliation
To provide additional transparency, we have disclosed non-GAAP adjusted net earnings and adjusted diluted earnings per common share. These metrics exclude the impact of the $530 million non-cash impairment charge recognized in connection with the Company’s decision to exit its joint venture with Woolworths Limited in Australia. We believe these non-GAAP financial measures provide useful insight for analysts and investors in evaluating what management considers the Company’s core financial performance. These measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States.

 

Adjusted net earnings and adjusted diluted earnings per common share should be considered in addition to, not as a substitute for, net earnings and diluted earnings per common share prepared in accordance with GAAP. The Company’s methods of determining these non-GAAP financial measures may differ from the methods used by other companies for these or similar non-GAAP financial measures. Accordingly, these non-GAAP measures may not be comparable to the measures used by other companies.

 

Pursuant to the requirements of SEC Regulation G, detailed reconciliations between the Company’s GAAP and non-GAAP financial results are shown below.

Three months ended Year ended
(Unaudited) (Unaudited)
January 29, 2016 January 29, 2016
In Millions, Except Per Share and Percentage Data  Amount  % Sales  Amount  % Sales
Net earnings, as reported $ 11 0.09 $ 2,546 4.31
Non-cash impairment charge 530 4.01 530 0.90
Adjusted net earnings $ 541 4.10 $ 3,076 5.21
Diluted earnings per common share, as reported $ 0.01 $ 2.73
Non-cash impairment charge 0.58 0.56
Adjusted diluted earnings per common share $ 0.59 $ 3.29

 (Original Source)

Shares of Lowe’s Companies closed yesterday at $67.9. LOW has a 1-year high of $78.13 and a 1-year low of $62.62. The stock’s 50-day moving average is $69.04 and its 200-day moving average is $71.32.

On the ratings front, Lowe’s  has been the subject of a number of recent research reports. In a report issued on February 12, Oppenheimer analyst Brian Nagel maintained a Buy rating on LOW, with a price target of $77, which implies an upside of 13.4% from current levels. Separately, on February 4, Deutsche Bank’s Michael Baker maintained a Buy rating on the stock and has a price target of $80.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Brian Nagel and Michael Baker have a total average return of 5.0% and -3.1% respectively. Nagel has a success rate of 55.8% and is ranked #181 out of 3664 analysts, while Baker has a success rate of 53.4% and is ranked #2913.

Overall, one research analyst has assigned a Hold rating and 5 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $85.25 which is 25.6% above where the stock closed yesterday.

Lowe’s Companies Inc is a home improvement retailer, which serves home-owners, renters and Commercial Business Customers.