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Lowe’s First Quarter Earnings Call Highlights

Author: 123jump.com Staff
Last Update: 10:30 AM ET May 30 2012
The do-it-yourself and appliance retailer Lowe’s said promotion and calendar shift played a key role in the first quarter as comparable sales stores rose 2.6%. The retailer reiterated its comparable sales increase outlook between 1% and 3% for the year.

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Lowe’s Companies, Inc. (LOW), the home improvement retailer first quarter net sales increased 7.9% to $13.15 billion from $12.18 billion a year ago. Comparable same store sales for the quarter rose 2.6% and for the U.S. stores increased 2.7%.

Net earnings in the quarter soared 14.3% to $527 million or 43 cents per diluted share compared to $461 million or 34 cents per share in the same period of fiscal 2011.

Quarterly Financial Performance

- At the time of the fourth quarter call, Lowe’s provided annual comp guidance between 1% and 3%, and expected all quarters in 2012 to fall within that range. That guidance was predicated on transaction growth and for the first quarter and assumed better weather conditions in the year from a year ago.

- Solid comp transaction growth in the quarter and continue to see stabilization in comp average ticket. Geographically, all divisions of the U.S. delivered positive comps in the quarter with the strongest performance in the North division.

- Net sales grew 7.9% to $17.81 billion from a year ago and the calendar shift included one less week of winter and one more week of spring than last year.
- The shift in week aided first quarter sales by 4.2% or $514 million in sales increase in the quarter.

- Comparable sales increased 2.4% in February, 8% in March and declined 3.1% in April from a year ago.
- Promotional financing aided first quarter comps by approximately 130 basis points.
- April comps were negatively affected by the decision to reduce the promotional intensity for big ticket categories.

- Comparable same store sales for the quarter rose 2.6% and average ticket was flat to last year.
- U.S. stores comparable sales increased 2.7% benefited by warmest winter with positive. North division in the U.S. delivered the strongest comparable performance.

- Gross margin contracted, but the year-over-year impact was significantly less than in the third and fourth quarters of 2011. We believe we are now beyond the peak of gross margin declines.

- Total gross margin declined by 74 basis points to 34.7% for the quarter from a year ago. The margins were negatively affected by 39 basis points on proprietary credit value proposition but this was more than offset by leverage in tender and other costs associated with credit program.

- We are working to lessen promotional activity and reemphasize everyday low prices and that impacted gross margin by 15 basis points. Inflation negatively affected gross margin by 12 basis points after prices of paint, lumber and building materials rose. Lastly, higher fuel prices also impacted negatively gross margin in the quarter.

- SG&A for the first quarter was 24.65% of sales which were 63 basis points better because of proprietary credit program and a combination of fewer losses and lower promotion financing and higher portfolio income. In addition, tender costs were lower as the penetration of proprietary credit increased roughly 540 basis points over the last year’s first quarter to 22.8%.

Store payroll leveraged 23 basis points on the higher sales associated with the shift in the week and advertising expenses leveraged 21 basis points due to the timing of spend this year.

- For the quarter, total expenses were 28.24% of sales and leveraged 113 basis points and pre-tax earnings were 6.46% of sales. The effective tax rate for the quarter was 38% compared to 37.7% in the quarter a year ago.

- Earnings per share were 43 cents in the quarter and up 26.5% from a year ago. The company estimated the shift in week increased earnings by 5 cents a share and the voluntary separation program decreased earnings by 1 cent.

- At the end of the quarter, cash and equivalent were $3.1 billion and total assets were $37.2 billion. Higher cash balance was driven by $2 billion of bond sale completed in mid-April.

- Inventory at the end of the quarter increased 1.3% or $125 million from a year ago to $9.8 billion and increased 18 basis points from a year ago. Inventory turnover was 3.68%, based on trailing four quarters of cost of sales divided by average inventory for the last five quarters.

- Return on assets decreased 18 basis points to 5.45% and was determined using trailing 4 quarters of earnings divided by average assets for the last five quarters.

- Return on invested capital was 8.97%, 6 basis points higher than the first quarter a year ago.

- Accounts payable increased 4.2% from a year ago to $7 billion and the increase in accounts payable is greater than 1.3% increase in inventory which related to the timing of the purchase in the quarter.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc