MOORESVILLE, N.C., – Lowe’s Companies, Inc. (NYSE: LOW) today reported a net loss of $824 million and diluted loss per share of ($1.03) for the quarter ended Feb. 1, 2019, which included pre-tax charges of $1.6 billion, compared to net earnings of $554 million and diluted earnings per share of $0.67 in the fourth quarter of 2017. Excluding certain charges which are described below, adjusted diluted earnings per share1 increased 8.1 percent to $0.80 in the fourth quarter of 2018 compared to adjusted diluted earnings per share1 of $0.74 in the fourth quarter of 2017.
The $1.6 billion in pre-tax charges recognized in the fourth quarter included the following:
$952 million related to a non-cash goodwill impairment charge associated with the company’s Canadian operations;
$208 million of charges, primarily lease obligations, related to the previously announced closing of all Orchard Supply Hardware locations;
$150 million of charges, primarily lease and severance obligations as well as accelerated depreciation and amortization, related to the previously announced closing of certain underperforming stores in the U.S. and Canada as well as other locations in Canada;
$222 million related to asset impairment charges associated with the previously announced exit of retail operations in Mexico;
$32 million of inventory write-down, severance obligations and other costs associated with the wind down of Iris Smart Home; and
$13 million in severance obligations associated with the elimination of the Project Specialists Interiors position.
Sales for the fourth quarter were $15.6 billion compared to $15.5 billion in the fourth quarter of 2017, and comparable sales increased 1.7 percent. Comparable sales for the U.S. home improvement business increased 2.4 percent for the fourth quarter.
“Overall, we are pleased with the progress we are making in our business,” commented Marvin R. Ellison, Lowe’s president and CEO. “Most of the intense work over the past six months to transform our company has been in preparation for an improved spring season and fiscal 2019. Therefore, we are encouraged by an improved comparable sales progression through the fourth quarter, culminating in U.S. home improvement comp growth of 5.8% in January. Although we have remaining work to do, we are pleased with the results we are seeing in early spring categories, which is evidence that we are focused on the right actions at this stage of our transformation.
“U.S. macroeconomic fundamentals remain sound for 2019, and we will continue to implement process and technology improvements to capitalize on the immediate opportunity to improve results. We anticipate continued weakness in the Canadian housing market in the near-term, but remain confident in our market position in Canada and the long-term potential of that business. I would like to thank all of our associates for their commitment and dedication to serving our customers and communities,” added Ellison.
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.
Delivering on its commitment to return excess cash to shareholders, the company repurchased $529 million of stock under its share repurchase program and paid $387 million in dividends in the fourth quarter.
As of Feb. 1, 2019, Lowe’s operated 2,015 home improvement and hardware stores in the United States, Canada and Mexico representing 209.5 million square feet of retail selling space.
A conference call to discuss fourth quarter 2018 operating results is scheduled for today (Wednesday, Feb. 27) 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 2018 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 21, 2019.
Reclassification of Shipping and Handling Costs
During the fourth quarter of fiscal 2018, the company changed its accounting policy for shipping and handling costs from its stores, distribution centers, and other locations to customers. As a result, shipping and handling costs related to the delivery of products from the company to customers are included in cost of sales, whereas previously they were included in selling, general and administrative expense as well as depreciation and amortization. This reclassification resulted in a decrease in gross margin of $289 million in the fourth quarter. The consolidated statements of current and retained earnings reflect the effect of this accounting policy change in all years presented, and this change had no impact on operating income, net earnings, or diluted earnings per share. The consolidated balance sheets and the consolidated statements of comprehensive income and cash flows are not impacted by this accounting policy change.
Accounting Considerations for Fiscal 2019
For fiscal 2019, the company will adopt ASU No. 2016-02, which pertains to accounting for leases. Under the standard, lessees are required to recognize lease right of use assets and lease liabilities on the balance sheet for all leases. The company will adopt this standard and related amendments in the first quarter of fiscal 2019 using a prospective transition approach, which applies the provisions of the new standard at the effective date without adjusting the comparative periods. The company estimates adoption of the standard will result in an increase in lease-related assets of $3.2 billion to $3.6 billion, and an increase in lease-related liabilities of $3.5 billion to $3.9 billion. The difference between the increases in total assets and liabilities will be recorded as an adjustment to beginning retained earnings in fiscal 2019. The standard will have no impact on the company’s debt-covenant compliance under its current agreements.
Lowe’s Business Outlook
Fiscal Year 2019 (comparisons to fiscal year 2018)
Total sales are expected to increase approximately 2 percent.
Comparable sales are expected to increase approximately 3 percent.
Operating income as a percentage of sales (operating margin) is expected to increase 375 to 385 basis points.
Adjusted operating income as a percentage of sales (adjusted operating margin) is expected to increase 85 to 95 basis points.
The effective income tax rate is expected to be approximately 24%.
Diluted earnings per share of $6.00 to $6.10 are expected for the fiscal year ending Jan. 31, 2020.
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 and dispositions 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, 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, recently enacted or proposed tariffs, and disruptions caused by our recent management and key personnel changes, 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, and otherwise successfully execute on our strategy and implement our strategic initiatives, including acquisitions, dispositions and the closing of certain stores and facilities; (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 system outages, 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, environmental issues or privacy and data protection; (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 and other charges 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 and dispositions, potential risks include the effect of such transactions on Lowe’s and the target company’s or operating business’s strategic relationships, operating results and businesses generally; our ability to integrate or divest personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing or decreasing the scope, geographic diversity and complexity of our operations; significant integration or disposition 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 2018 sales of $71.3 billion, Lowe’s and its related businesses operate or service more than 2,200 home improvement and hardware stores and employ approximately 300,000 people. Founded in 1946 and based in Mooresville, N.C., Lowe’s supports its hometown Charlotte region and all communities it serves through programs focused on safe, affordable housing and careers in the skilled trades. For more information, visit Lowes.com.