LOWE'S ANNOUNCES SECOND QUARTER 1993 RESULTS; SALES UP 17 PERCENT, EARNINGS UP 51 PERCENT
NORTH WILKESBORO, N.C., Aug. 12 /PRNewswire/ -- Lowes Companies, Inc. (NYSE: LOW) today announced the following second quarter results. FINANCIAL SUMMARY Lowe's second quarter total sales increased 17 percent and comparable stores had a 11 percent gain. Earnings per share were $ .61, a 50 percent improvement over last year's $.41. Financial Highlights (Dollars in Thousands, except per share data) Pct. Second Quarter Change 1993 1992 Sales + 17 $1,241,691 $1,061,645 Cost of Sales + 16 949,211 814,904 Gross Margin + 19 292,480 246,741 Total Expenses + 11 223,929 202,285 Pre-Tax Earnings + 54 68,551 44,456 Income Tax Provision + 60 23,591 14,738 Net Earnings + 51 44,960 29,718 Dividends + 15 $ 5,886 $ 5,105 Per Share Data:(A) Earnings + 50 $ .61 $ .41 Dividends + 14 $ .08 $ .07 Shares Outstanding + 1 73,653 73,075 (A)(Weighted Average in Thousands) Adjusted for a 2-for-1 stock split in the form of a dividend effective June 29, 1992. NM - Not meaningful Pct. Six Months Year-to-Date Change 1993 1992 Sales + 15 $2,233,803 $1,944,928 Cost of Sales + 15 1,707,156 1,484,972 Gross Margin + 14 526,647 459,956 Total Expenses + 9 414,838 380,786 Pre-Tax Earnings + 41 111,809 79,170 Income Tax Provision + 46 37,401 25,673 Net Earnings + 39 74,408 53,497 Dividends + 15 $ 11,745 $ 10,208 Per Share Data:(A) Earnings + 38 $ 1.01 $ .73 Dividends + 14 $ .16 $ .14 Shares Outstanding + 1 73,476 73,061 (A) (Weighted Average in Thousands) Adjusted for a 2-for-1 stock split in the form of a dividend effective June 29, 1992. NM - Not meaningful MANAGEMENT COMMENTARY ON THE QUARTER Continuing good customers' response to our continuing team efforts to deserve to be their first choice home improvement store, has enabled Lowe's to post better earnings results again this quarter. Financially, the improved results came from our 17 percent sales increase, a managed margin increase of 19 percent and a controlled expense increase of just 11 percent. Structurally, and with major implications for the future, this is a successful transformation story. As shown in Tables 1,2, and 3, our large store chain has reached critical mass: From 17 percent of our stores two years ago to 42 percent now; From 22 percent of sales two years ago to 52 percent now; From 22 percent of operating earnings two years ago to 56 percent now. As we view this performance alongside our continued plans to accelerate our large store rollout, we are reminded of Arthur Clarke's great line, "Even the future is not what it used to be!" UPDATE ON '93 EARNINGS ESTIMATES According to Zack's Investment Research, as of August 11, 1993, there are 19 analysts' earnings estimates for Lowe's fiscal 1993, ranging from $1.25 to $1.55, with an average of $1.41. While we are presently comfortable with the range between the average and high estimates, we believe that our fourth quarter results may be no better than flattish. In the fourth quarter we have 22 store openings planned. Pre-opening expenses range between $400,000 to $450,000 per store. This will complete our 1993 expansion program adding 55-60 stores and approximately 4.6 million incremental square feet of retail selling space. Historically the fourth quarter is our least significant quarter in terms of earnings. In the last six years (excluding 1991, due to the restructuring charge) the fourth quarter on average has represented 11 percent of total earnings for the year. SALES ANALYSIS Lowe's record second quarter sales increased 17 percent to $1.2 billion. Retail sales improved 23 percent and contractor sales grew 3 percent, for a 74 percent retail / 26 percent contractor mix. Comparable store sales representing an average of 263 stores open more than one year, with comparable square footage, were $1 billion, an 11 percent increase. These results demonstrate the success of our store transformation as well as our positioning for future growth. Lumber and plywood prices increased about 13 percent over last year's quarter, however we experienced deflation in most other categories, providing a blended overall inflation rate of less than 3 percent. This demonstrates the declining pressure of the cyclical lumber market on Lowe's sales results, as our customer and product mixes change for the better. MARGIN ANALYSIS The LIFO gross margin for the second quarter was 23.55 percent compared to 23.24 percent in last year's quarter. The successful implementation of our Everyday Competitive Pricing (ECP) strategy is self-evident as customers are buying with confidence every day, increasing sales and margin dollars and driving down expenses as a percent of sales. The result is the upward leverage on earnings. ECP anniversaried with the beginning of this quarter. We experienced a favorable product mix with increased sales in home water systems, yard, patio and garden, kitchen cabinets, home decor, tools, fans and air conditioners. EXPENSES Selling, general and administrative (SG&A) expenses were 14.78 percent of sales in the second quarter compared to 15.89 percent last year. This positive leverage came from several factors. There was a 13 percent salary increase, compared to a 17 percent sales gain. Advertising expense declined 10 percent because of our strategic plan to increase sales with larger stores and competitive pricing; and rely less on promotional advertising. Our retail credit program produced a favorable variance in the quarter. Sales promotions declined, demonstrating planned cost controls in this area. As a higher proportion of our stores are leased, SG&A was increased by 9 basis points with the offset in interest and depreciation. Store opening costs were $6.5 million in the quarter versus $2.6 million last year representing costs associated with the opening of 16 stores this year (6 new and 10 relocated) compared to 10 stores in last year's second quarter (10 relocated). In prior years, store opening costs were reported as a component of selling, general an administrative expenses. Depreciation was up 15 percent in the quarter primarily due to fixtures, displays and computer equipment for our store expansion program. Depreciation on real estate is up only 6 percent because many of our new stores are leased. Employee retirement plans expense increased 8 percent due to a 13 percent increase in salaries and a lower eligibility rate, both of which are positive in relation to our 17 percent sales gain. Interest expense was $3.5 million compared to $4.2 million a year ago. Medium-term note interest has increased while short-term note interest has declined. Also, capitalized interest on construction in progress has increased compared to last year. The income tax rate was 34.41 percent, compared to last year's rate of 33.15 percent. This reflects the change in the federal corporate tax rate from 34 percent to 35 percent, both for the quarter and the six months. Also there are certain tax credits that are relatively fixed compared to higher levels of profitability. EXPANSION Lowe's ended the second quarter with 304 stores and 11.6 million square feet of retail selling space, a 26 percent increase over last year's second quarter. During the first six months of fiscal 1993 we have added 1.6 million square feet. Our second quarter expansion included six new stores and ten relocations representing a total of 1,209,351 square feet of incremental retail space. Areas of expansion included Terre Haute and Anderson, Indiana; Savannah and Albany, Georgia; Spartanburg, South Carolina; Winchester, Virginia; Tallahassee, Florida; Findlay, Marion and Wooster, Ohio; Mechanicsburg, Pennsylvania; New Bern, North Carolina; Charles County, Maryland; Hot Springs, Arkansas; Tuscaloosa, Alabama and Decatur, Illinois. We also closed five older stores, averaging 15,000 square feet, that no longer meet our strategic plans. Our expansion plans for the remainder of the year include 15 projects in the third quarter and 22 projects in the fourth quarter. We have announced plans to open 50 to 55 superstores in 1994 proceeding with our ongoing multiyear, multimillion dollar strategy to transform our chain of small stores into a chain of large stores. CONVERTIBLE NOTES On July 22, 1993, Lowe's sold $287.5 million aggregate principal of its 3 percent Convertible Subordinated Notes due July 22, 2003. The Notes are convertible into Lowe's Common Stock at the conversion rate of 19.16 shares of common stock per each $1,000 principal amount. The Notes were issued at an original price of $880.27 per $1,000 principal amount, which represented an Original Issue Discount of 11.973 percent payable at maturity. Annual interest on the Notes at 3 percent and accrual of Original Issue Discount represents an annual yield to maturity of 4.5 percent. The Notes are potentially dilutive securities for purposes of calculating earnings per share; however, the effect of the Notes is not material for the three-month and six-month periods ended July 31, 1993, and therefore is not included in the calculation. STORE PERFORMANCE PERSPECTIVE To further enhance understanding and analysis of the relative pace, progress, and performance of our new family of stores, compared to two older and smaller store groups, we are providing the information in the following tables on a quarterly basis. Table 1 Store Group Unit Totals, End of Second Quarter 1993 1992 1991 Pct. of Pct. of Pct. of Total Units Total Units Total Units Small (B) 26 78 33 100 41 126 Medium (C) 32 98 37 114 42 128 Large (D) 42 128 30 90 17 53 Total 100 304 100 304 100 307
Table 1 Comments: The 78 old stores represent 26 percent of the total, the 98 "mid-sizers" represent 32 percent, and the 128 large stores now account for 42 percent of our total store count.
Table 2 Sales Contribution by Store Group, Second Quarter 1993 1992 1991 Pct. of Pct. Pct. of Pct. Pct. of Total Change Total Change Total Small (B) 18 (11) 24 ( 9) 32 Medium (C) 30 ( 7) 38 46 Large (D) 52 + 58 38 +116 22 Total 100 100 100
Table 2 Comments: The results shown in Table 2 need to be read in conjunction with the changing store numbers in Table 1 because these are aggregate totals, not comparable store results. The small store sales decrease of 11 percent is attributable to their reduction in number. Indeed, the average small store in this second quarter of '93 posted a sales increase of about 15 percent. The average mid-sizer achieved an 8 percent sales increase. The average large store's sales increase of 11 percent, combined with their numerical increase, provided 52 per total sales, up from 22 percent just two years ago.
Table 3 Operating Profits(E) by Store Group, Second Quarter 1993 1992 1991 Pct. of Pct. Pct. of Pct. Pct. of Total Change Total Change Total Small (B) 14 + 1 21 (13) 29 Medium (C) 30 + 10 39 ( 5) 49 Large (D) 56 +101 40 +115 22 Total 100 100 100 (E) Profits before corporate expense and intercompany charges, interest, restructuring, LIFO and income taxes.
Table 3 Comments: Here's the report card on profitability and growth. Again, these are not comparable store results but group totals. The 78 small stores, on average, improved their profit contribution over the average of last year's 100 by 28 percent. The 1 percent increase shown in the table resulted from the 22 percent reduction in number, as we replace these stores of the 70's. These units are low cost operations, including some "cash cows" and some focused contractor yards, and are obviously able to do well in this business climate.
The mid-sizers are stores of the mid-80's. Their average sales per store were 29 percent higher than that of the small stores in the quarter, and they too, on average, increased their profit over last year.
The large stores are designed for our customers of the '90's, and these results are gratifying. With an average sales per store 74 percent higher than the average small store, and their average operating profits 137 percent greater than the average of the small stores, the large stores contributed 56 percent of this quarter's operating profits.
With further reference to Table 3 we are pleased to advise th operating profits are determined with consistency period-to-period, and without any subsidization of stores or groups. Therefore, the performance shown in Table 3 is a hard proxy for the relative pre-tax profit contribution of these store groups.
1993 1992 Total Total Sq.Ft.Sq.Ft. (millions) (B)Pre 1984 Stores;Contractor Yds: Avg. 10,000 Sq.Ft. .8 1.1 (C)'84 - '88 Stores; Avg. 24,300 Sq.Ft. 2.4 2.7 (D) Post '88 Expansion Stores: Avg. 65,800 Sq.Ft. 8.4 5.4 Consolidated Condensed Statements of Current and Retained Earnings Lowe's Companies, Inc. and Subsidiary Companies Dollars In Thousands, Except Per Share Data Three months ended July 31, 1993 July 31, 1992 Current Earnings Amount Percent Amount Percent Net sales $1,241,691 100.00 $1,061,645 100.00 Cost of sales 949,211 76.45 814,904 76.76 Gross margin 292,480 23.55 246,741 23.24 Expenses: Selling, general and administrative 183,751 14.78 168,729 15.89 Store opening costs 6,520 0.53 2,557 0.24 Depreciation 19,484 1.57 16,913 1.59 Employee retirement plans 10,629 0.86 9,864 0.93 Interest 3,545 0.29 4,222 0.40 Total expenses 223,929 18.03 202,285 19.05 Pre-tax earnings 68,551 5.52 44,456 4.19 Income tax provision 23,591 1.90 14,738 1.39 Net earnings $44,960 3.62 $29,718 2.80 Shares outstanding (weighted average) 73,653 73,075 Earnings per share $0.61 $0.41 Retained earnings Balance at beginning of period $549,109 $480,636 Net earnings 44,960 29,718 Cash dividends (5,886) (5,105) Stock Split (7) Balance at end of period $588,183 $505,242
See accompanying notes to consolidated condensed financial statements.
-0- 8/12/93 /CONTACT: (Corporate Contacts) W. Cliff Oxford or Clarissa of Lowe's Companies, 919-651-4631 or 919-651-4254/ /FIRST AND FINAL ADD - ADDITIONAL TABULAR MATERIAL - TO FOLLOW/ (LOW)
CO: Lowe's Companies, Inc. ST: North Carolina IN: REA SU: ERN
CM -- CH004 -- 2294 08/12/93 17:03 EDT
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|Date:||Aug 12, 1993|
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