Lowe’s Soars with Better-than-expected Sales, Earnings

Completes the acquisition of Canadian retailer RONA in May 2016

l1Home improvement retailer Lowe’s Companies Inc. (NYSE: LOW) announced its Q2 FY16 financial results on August 17th, 2016. The Mooresville, North Carolina-based company offers products for home maintenance, repair, remodeling, and decorating, in various categories such as lumber and building materials, tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, lawn and garden. It also offers installation services through independent contractors in various product categories; and in-warranty and out-of-warranty repair services. The company also sells its products through Lowes.com, Lowes.ca, and ATGstores.com, as well as mobile applications. Read more about Lowe’s financial results below.

Q2 FY16 financial highlights

l2Lowe’s net sales during Q2 FY16 grew 5.3% to $18.3 billion from $17.3 billion in the year-ago period, but fell short of estimates of $18.72 billion. Comparable sales grew 2% during the reporting quarter. For H1 FY16, sales grew 6.4% to $33.5 billion over the same period a year ago, and comparable sales increased 4.4%. Comparable sales for the U.S. home improvement business increased 1.9% for Q2 FY16 and 4.4% percent for H1 FY16.l3

Lowe’s Q2 FY16 results include a loss on a foreign currency hedge entered into ahead of Lowe’s acquisition of RONA Inc., which dented pre-tax earnings by $84 million and diluted EPS by $0.06. For H1 FY16, Lowe’s benefitted from a net gain on the settlement of the foreign currency hedge, which increased pre-tax earnings by $76 million and diluted EPS by $0.05.

l4Lowe’s net earnings grew 3.7% to $1.2 billion for Q2 FY16 over the same period a year ago. Diluted EPS increased 9.2% to $1.31 from $1.20 in the prior-year period. For H1 FY16, net earnings jumped 14% to $2.1 billion versus the year-ago period, and diluted EPS zoomed 20.5% to $2.29.

Capital expenditure

Being well positioned to capitalize on favorable macroeconomic tailwinds for home improvement in H2 FY16, Lowe’s priorities will be to provide better omni-channel experiences, deepen relationships with professional customers, and drive productivity and profitability.

Store update

l5As of July 29th, 2016, Lowe’s operated 2,108 home improvement and hardware stores in the U.S., Canada, and Mexico, representing 211.9 million square feet of retail selling space.

The company plans to open about 45 home improvement and hardware outlets in FY16, in contrast to other specialty retailers that are closing down stores during FY16.

RONA acquisition

On May 20th, 2016, Lowe’s announced the completion of its acquisition of RONA Inc. for US$2.4 billion. The acquisition represents a key step in Lowe’s growth strategy since it creates one of the largest home improvement retailers in Canada, with 539 store locations and pro forma revenues from Canadian operations of approximately C$6 billion. Lowe’s Canada and RONA together would be better able to tap synergies to serve Canada’s over C$45 billion and growing home improvement market.

Share repurchases and dividends

Lowe’s repurchased $1.2 billion worth of shares under its buyback program and paid $251 million in dividends in Q2 FY16. In H1 FY16, the Company repurchased $2.4 billion of stock under its share repurchase program and paid $506 million in dividends.

Guidance for full year FY16 and beyond

For FY16, Lowe’s is updating its guidance for FY16 on account of the Rona acquisition completed in May 2016 as well as bullish trends in the housing market because of rising home prices, housing turnover, and new household formations. Lowe’s now expects earnings of approximately $4.06 per share for FY16. Management anticipates total sales growth of roughly 10% (including the 53rd week), while comparable sales are expected to grow 4% in FY16. Its strategy overview for FY17 is shown in the chart below.l6

Stock Performance

l7Lowe’s stock ended the day at $76.43, slipping 0.59%, at the close on Thursday, August 18th, 2016, having vacillated between an intraday high of $77.00 and a low of $76.35 during the session. The stock’s trading volume was at 7,751,222 for the day. The Company’s market cap was at $67.63 billion as of Thursday’s close.

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