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Category: Stock Market and Lowe's
Date: 27 August 2019 Stock Price: $106.4 We cover the latest earnings report from Lowe's companies, the home improvement company for the 2nd quarter of their 2019 fiscal year.
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About Lowe's
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 and Canada. 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 associates. Founded in 1946 and based in Mooresville, N.C., Lowe’s supports the communities it serves through programs focused on creating safe, affordable housing and helping to develop the next generation of skilled trade experts.
Financial overview of Lowe's latest results
Numbers highlighted in the earnings report:
Numbers we are interested in: (for the quarter):
- Delivered earnings per diluted share of $0.61, up 10.9%.
- Record second quarter sales of $752.5 million, up 6.5% year-over-year
- Positive same-store-sales of 1.5% at Famous Footwear
- On-track to deliver eighth consecutive year of positive back-to-school same-store-sales
- Continued to evolve portfolio, announcing partnership with Veronica Beard and relaunch of Zodiac
Numbers we are interested in: (for the quarter):
- Net sales $ 20.992 billion (up slightly from $ 20.888 billion for the same quarter of the previous year)
- Cost of sales: $14.252 billion (up from $14.003 billion for the same quarter of the previous year)
- Gross margin: $6.740 billion (up from $6.885 billion for the same quarter of the previous year )
- Expenses: Selling, general and administrative: $4.048 billion (down from $4.386 billion for the same quarter of the previous year)
- Operating income: $2.381 billion (up from $2.163 billion for the same quarter of the previous year)
- Net earnings: $ 1.676 billion (up from $ 1.520 billion for the same quarter of the previous year)
- Diluted earnings per common share: $ 2.14 (up from $ 1.86 for the same quarter of the previous year)
- Cash dividends per share: $ 0.55 (up from $ 0.48 for the same quarter of the previous year)
- Dividend yield: 2.07%
- Cash and cash equivalents: $ 1.796 billion (down from $ 2.251 billion for the same quarter of the previous year)
- Cash and cash equivalents per share: $2.50 (2.3% of the group's share price)
- Merchandise inventory - net: $13.730 billion (up from $11.885 billion for the same quarter of the previous year)
- Shares in issue: 718 million
- Total shareholders' equity: $2.640 billion
- Net asset value a share: $3.676
- Cash generated from operations: $ 2.722 billion
- Cash generated from operations per share: $3.79
Lowe's management commentary on the results and earnings guidance
MOORESVILLE, N.C., Aug. 21, 2019 /PRNewswire/ -- Lowe's Companies, Inc. (NYSE: LOW) today reported net earnings of $1.7 billion and diluted earnings per share of $2.14 for the quarter ended Aug. 2, 2019, compared to net earnings of $1.5 billion and diluted earnings per share of $1.86 in the second quarter of 2018. Excluding $14 million of pre-tax operating losses associated with the wind-down of the Company's Mexico retail operations, adjusted diluted earnings per share increased 3.9 percent to $2.15 from adjusted diluted earnings per share of $2.07 in the second quarter of 2018.
Sales for the second quarter increased 0.5 percent to $21.0 billion from $20.9 billion in the second quarter of 2018, and comparable sales increased 2.3 percent. Comparable sales for the U.S. home improvement business increased 3.2 percent. "We capitalized on spring demand, strong holiday event execution and growth in Paint and our Pro business to deliver strong second quarter results. Despite lumber deflation and difficult weather, we are pleased that we delivered positive comparable sales in all 15 geographic regions of the U.S. This is a reflection of a solid macroeconomic backdrop and continued momentum executing our retail fundamentals framework," commented Marvin R. Ellison, Lowe's president and CEO.
"Our transformation is ongoing, and our future is bright. We are confident that we are on the right path to capitalize on solid demand in a healthy home improvement market and generate long-term profitable growth. I would like to thank our associates for their hard work and continued commitment to serving customers," added Ellison. Delivering on its commitment to return excess cash to shareholders, the company repurchased $1.96 billion of stock under its share repurchase program and paid $382 million in dividends in the second quarter. As of Aug. 2, 2019, Lowe's operated 2,003 home improvement and hardware stores in the United States and Canada representing 208.8 million square feet of retail selling space. Lowe's is actively hiring full- and part-time associates at its corporate locations, stores and distribution centers, and has filled more than 14,000 positions since July 1.
Lowe's Business Outlook
Fiscal Year 2019 (comparisons to fiscal year 2018)
Sales for the second quarter increased 0.5 percent to $21.0 billion from $20.9 billion in the second quarter of 2018, and comparable sales increased 2.3 percent. Comparable sales for the U.S. home improvement business increased 3.2 percent. "We capitalized on spring demand, strong holiday event execution and growth in Paint and our Pro business to deliver strong second quarter results. Despite lumber deflation and difficult weather, we are pleased that we delivered positive comparable sales in all 15 geographic regions of the U.S. This is a reflection of a solid macroeconomic backdrop and continued momentum executing our retail fundamentals framework," commented Marvin R. Ellison, Lowe's president and CEO.
"Our transformation is ongoing, and our future is bright. We are confident that we are on the right path to capitalize on solid demand in a healthy home improvement market and generate long-term profitable growth. I would like to thank our associates for their hard work and continued commitment to serving customers," added Ellison. Delivering on its commitment to return excess cash to shareholders, the company repurchased $1.96 billion of stock under its share repurchase program and paid $382 million in dividends in the second quarter. As of Aug. 2, 2019, Lowe's operated 2,003 home improvement and hardware stores in the United States and Canada representing 208.8 million square feet of retail selling space. Lowe's is actively hiring full- and part-time associates at its corporate locations, stores and distribution centers, and has filled more than 14,000 positions since July 1.
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 310 to 340 basis points.
- Adjusted operating income as a percentage of sales (adjusted operating margin) is expected to increase 20 to 50 basis points.
- The effective income tax rate is expected to be approximately 24%.
- The target leverage ratio is 2.75x, therefore the company expects to repurchase approximately $4 billion of stock.
- Diluted earnings per share of $5.54 to $5.74 are expected for the fiscal year ending Jan. 31, 2020.
- Adjusted diluted earnings per share of $5.45 to $5.65 are expected for the fiscal year ending Jan. 31, 2020
Lowe's (NYSE: LOW) stock price history
The image below, obtained from Google shows Lowe's stock chart for the last 5 years. Its been a good time for Lowe shareholders with the stock increasing from roughly $50 a share a years ago to well over $100 it trading at right now. While there has been some significant ups and downs in the group's share price the underlying trend has been upwards.
Lowe's (NYSE: LOW) stock valuation
Based on the group's financial results we value Lowe's stock at $114.99 a share. Our target price (or full value price) for Lowe's is based on their latest financial results as well as the the financial guidance provided by the group for the rest of their 2019 fiscal year. The only concern for us when doing the valuation of the group's stock is the almost $2 billion increase in the value of their inventories which might indicate the group is struggling to move their stock fast enough and this is leading to a build up of inventories shown on their financial statements.