LOWE'S ANNOUNCES THIRD QUARTER 1993 RESULTS SALES UP 17 PERCENT, EARNINGS PER SHARE UP 65 PERCENT
NORTH WILKESBORO, N.C., Nov. 15 /PRNewswire/ -- Lowe's Companies (NYSE: LOW) today announced the following results: FINANCIAL SUMMARY Lowe's third quarter total sales increased 17 percent and comparable stores had a 9 percent gain. Earnings per share were $ .43, a 65 percent improvement over last year's $ .26. Financial Highlights (Dollars in Thousands, except per share data) Pct. Third Quarter Change 1993 1992 Sales + 17 $1,158,370 $ 991,192 Cost of Sales + 16 882,750 759,820 Gross Margin + 19 275,620 231,372 Total Expenses + 12 228,109 203,164 Pre-Tax Earnings + 68 47,511 28,208 Income Tax Provision + 70 15,866 9,308 Net Earnings + 67 31,645 18,900 Dividends + 16 $ 5,911 $ 5,107 Per Share Data:(A) Earnings + 65 $ .43 $ .26 Dividends + 14 $ .08 $ .07 Shares Outstanding + 1 73,953 73,083 (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. Nine Months Year-to-Date Change 1993 1992 Sales + 16 $3,392,173 $2,936,120 Cost of Sales + 15 2,589,906 2,244,792 Gross Margin + 16 802,267 691,328 Total Expenses + 10 642,947 583,950 Pre-Tax Earnings + 48 159,320 107,378 Income Tax Provision + 52 53,267 34,981 Net Earnings + 46 106,053 72,397 Dividends + 15 $ 17,656 $ 15,316 Per Share Data:(A) Earnings + 45 $ 1.44 $ .99 Dividends + 14 $ .24 $ .21 Shares Outstanding + 1 73,592 73,063 (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 We have long viewed Lowe's as a partnership. Our partners are our customers, our employees, our suppliers, our communities, and of course you, our shareholders. Making the partnership more interesting and fulfilling is the fact that so many of our partners share your designation as shareholder partners! Our employees have been shareholders since 1961, now own 24 percent of all our outstanding shares, and have been joined in ownership by many of our customers and suppliers. So since we are all in this together, we are most pleased to report this quarter's results - the result of more partnership teamwork than ever before. Financially, these results came from a 17 percent sales growth, a managed margin increase of 19 percent, and a controlled expense increase of just 12 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 19 percent of our stores two years ago to 45 percent now; From 24 percent of sales two years ago to 55 percent now; From 24 percent of operating earnings two years ago to 56 percent now. In last quarter's report we said, and feel it appropriate to repeat: "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 EXTERNAL ESTIMATES OF OUR '93 EARNINGS Historically, the fourth quarter has been 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. But significantly, in this fourth quarter, we have more store openings scheduled than ever before in a three month period - 25, compared to just 11 in last year's fourth quarter. As is our practice, our pre- opening and grand opening costs are currently expensed, and they range from $400,000 to $450,000 per store. According to Zack's Investment Research, as of November 8, 1993, there are 8 analysts' earnings estimates for the fourth quarter for Lowe's fiscal '93. They range from 16 cents to 20 cents per share. In last year's fourth quarter, we earned 17 cents per share, so these estimates range from 1 cent below last year, to 3 cents higher. We have said throughout this year that our fourth quarter results were likely to be "flattish", because of the store opening schedule. At this point, we have no reason to believe that these external estimates from these research and investment professionals are unreasonable.
Lowe's third quarter sales rose 17 percent to a record $1.2 billion. Retail sales improved 20 percent and contractor sales grew 11 percent, for a 70 percent retail/30 percent contractor mix. Comparable store sales representing an average of 259 stores open more than one year, with comparable square footage, were $953.4 million, a 9 percent increase. Inflation in lumber, building materials and millwork were responsible for 1.6 percent of the sales increase. We experienced deflation in all other product categories. MARGIN ANALYSIS The LIFO gross margin for the third quarter was 23.79 percent compared to 23.34 percent in last year's quarter. This improvement reflects a higher proportion of retail sales versus contractor and favorable changes in our product mix. The continued successful implementation of our Everyday Competitive Pricing (ECP) strategy builds on, in fact goes hand-in-hand with (ecp), everyday customer preference to buy from Lowe's at their convenience without awaiting a "sale". This customer preference translates into our third quarter double digit sales gains in kitchen cabinets and appliances, home decor, millwork, lighting, bathrooms, home water systems, home laundry, consumer electronics, yard, patio and garden, tools, heating/cooling and home care/safety. ECP increases sales and margin dollars and drives down expenses as a percent of sales. The result is the upward leverage on earnings. ECP anniversaried earlier this year. EXPENSES Selling, general and administrative (SG&A) expenses were 15.98 percent of sales in the third quarter compared to 17.00 percent last year. This positive leverage came from several factors. There was a 15 percent store salary increase (excluding those in store opening costs), compared to a 17 percent sales gain. Advertising expense (excluding store opening) declined 17 percent as our strategic plan to increase sales with larger stores and competitive pricing relies 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 14 basis points with the offset in interest and depreciation. Store opening costs were $7.2 million in the quarter versus $3.2 million last year representing costs associated with the opening of 9 stores this year (4 new and 5 relocated) compared to 5 stores in last year's third quarter (5 relocated). Charges in the current quarter for future openings were $2.1 million. In prior years, store opening costs were reported as a component of selling, general and administrative expenses. Depreciation rose 14 percent in the quarter primarily due to fixtures, displays and computer equipment for our store expansion program. Depreciation on real estate is up only 10 percent because many of our new stores are leased. Employee retirement plans expense increased 11 percent due to a 17 percent increase in all salaries countered by a lower eligibility rate. Interest expense was $4.8 million compared to $4.0 million a year ago. Medium-term note interest and interest on the convertible notes has increased while short-term note interest has declined. Also, capitalized interest on construction in progress and short-term interest income rose compared to last year. The income tax rate was 33.39 percent, compared to last year's rate of 33.00 percent. This reflects the change in the federal corporate tax rate from 34 percent to 35 percent offset by an increase in certain projected tax credits. OTHER On October 20, 1993 the co-trustee of Lowe's ESOP (prior plan) successfully sold, on behalf of the participants, 606,704 shares of Lowe's stock held in the prior plan. The prior plan was established in 1957 as Lowe's Companies Profit-Sharing Plan & Trust, a qualified noncontributory employee profit-sharing plan. Contributions were discontinued effective December 31, 1977. Accounts of members in the plan became fully vested at that time. The Employee Stock Ownership Plan was adopted and became effective January 1, 1978. Lowe's employees currently own 16 million shares of Lowe's stock in the Lowe's Companies, Inc. Employee Stock Ownership Plan. EXPANSION Lowe's ended the third quarter with 303 stores and 12.2 million square feet of retail selling space, a 29 percent increase over last year's third quarter. During the first nine months of fiscal 1993 we have added 2.2 million square feet. Our third quarter expansion included four new stores and five relocations representing a total of 691,391 square feet of incremental retail space. Areas of expansion included Greensboro, North Carolina; Houma, Louisiana; Danville, Virginia; Summerville, South Carolina; Gautier, Mississippi; Dover, Delaware; Madison, Tennessee; Joplin, Missouri and Gainesville, Florida. Two old stores were converted to contractor yards in Greensboro and Raleigh, North Carolina. We also sold five stores in Texas, averaging 14,000 square feet. These stores no longer meet our strategic plans. We also closed a store in Charlotte, North Carolina prior to replacing it with a new prototype in that market, which is scheduled for the fourth quarter 1993. Our expansion plans for the fourth quarter include 25 projects consisting of ten new stores in new markets and fifteen relocations, ending the fiscal year with 314 stores and 14.3 million square feet. Among the new markets we plan to enter by fiscal year-end are Gaithersburg, Maryland; Richmond and Kokomo, Indiana; Martinsburg, West Virginia; Ontario, Ohio; Columbus, Mississippi; and State College, Pennsylvania. We have announced plans to open 50 to 55 superstores in 1994 with 50 percent in new markets and 50 percent in relocations. The thrust of our new market expansion will be the midwest and the farmbelt. We have a third distribution facility under construction in North Vernon, Indiana which will service this area. Approximately half of the 1994 projects will be leased and half will be owned. By the close of fiscal 1994 our plans are to double our square footage from the end of fiscal 1992, to approximately 20.0 million square feet. CAPITAL RESOURCES Inventory, our most important current financial asset, has increased $231.1 million this fiscal year primarily due to the increased merchandise assortments in our new and relocated stores. However, at the end of the third quarter, Lowe's vendors were financing 46.7 percent of our inventory, compared to 41.6 percent at October 31, 1992. Net earnings, short-term borrowings in the first half of the year and new long-term borrowings are the primary sources of financing increases in assets. The short-term borrowings were obtained at an average interest rate of 3.3 percent with the maximum outstanding at any month end of $102.0 million in June 1993. In February 1993, Lowe's issued $32 million of medium-term notes. (See Note 8 for details) On July 22, 1993, we sold $287.5 million aggregate principal 3 percent Convertible Subordinated Notes. (See Note 10 for details) A portion of the proceeds was used to repay short-term indebtedness with the remainder, invested in short-term investments and cash equivalents, available to fund a portion of our previously announced expansion plans. In addition to these funds, we have available agreements for up to $140 million in unsecured short-term borrowings and $120 million in lines of credit for issuing documentary and stand-by letters of credit. Another $265 million is available for the purpose of short-term borrowings on a bid basis from various banks. LOWE'S HOME SAFETY COUNCIL During this quarter, we announced the founding of a major new home safety initiative: Lowe's Home Safety Council. The mission of the non profit organization is "to enhance the quality of American home life by helping families improve the comfort and security of their homes through better knowledge and practice of home safety." Citing the annual three million injuries, 20,000 deaths and $21.8 billion in health care costs associated with preventable injuries in the home, as reported by the National Safety Council, Robert Strickland, Lowe's Chairman, announced the company's commitment and leadership role to promote home safety awareness at the National Hardware Show in Chicago. Government leaders, including Jack Kemp, Lamar Alexander, and Dr. Louis Sullivan join representatives from national safety organizations, as well as representatives from the home improvement industry, as charter Council members. The Council will be taking the home safety message to the grass roots level through community programs and projects. Lowe's commitment to the Council will be accentuated by making Lowe's stores, already home improvement stores, into home safety centers where the public will find "encyclopedic answers to home safety questions." 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 Third Quarter Pct. of Pct. Pct. of Pct. Pct. of Total Change Units Total Change Units Total Units Small (B) 24 (24) 74 32 (20) 98 40 122 Medium (C) 31 (16) 93 37 (13) 111 41 128 Large (D) 45 + 43 136 31 + 64 95 19 58 Total 100 303 100 304 100 308 Table 1 Comments: The 74 old stores represent 24 percent of the total, the 93 "mid-sizers" represent 31 percent, and the 136 large stores now account for 45 percent of our total store count. Table 2 Sales Contribution by Store Group, Third Quarter 1993 1992 1991 Pct. of Pct. Pct. of Pct. Pct. of Total Change Total Change Total Small (B) 18 (13) 24 ( 4) 31 Medium (C) 27 (12) 35 ( 2) 45 Large (D) 55 + 55 41 +117 24 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 13 percent is attributable to their reduction in number. Indeed, the average small store in this third quarter of '93 posted a sales increase of about 15 percent. The average mid-sizer achieved an 5 percent sales increase. The average large store's sales increase of 9 percent, combined with their numerical increase, provided 55 percent of total sales, up from 24 percent just two years ago. Table 3 Operating Profits(E) by Store Group, Third Quarter 1993 1992 1991 Pct. of Pct. Pct. of Pct. Pct. of Total Change Total Change Total Small (B) 15 (11) 24 + 26 26 Medium (C) 29 + 19 36 ( 2) 50 Large (D) 56 +102 40 +123 24 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 74 small stores, on average, improved their profit contribution over the average of last year's 98 by 18 percent. The 11 percent decrease shown in the table resulted from the 24 percent reduction in number, as we replace these stores of the 70's. These units are low-cost operations, including some "cash cows" and our 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 22 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 68 percent higher than the average small store, and their average operating profits 110 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 that 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. 9,500 Sq.Ft. .7 1.0 (C)'84 - '88 Stores; Avg. 24,700 Sq.Ft. 2.3 2.7 (D) Post '88 Expansion Stores: Avg. 67,400 Sq.Ft. 9.2 5.8 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 October 31, 1993 October 31, 1992 Current Earnings Amount Percent Amount Percent Net sales $1,158,370 100.00 $991,192 100.00 Cost of sales 882,750 76.21 759,820 76.66 Gross margin 275,620 23.79 231,372 23.34 Expenses: Selling, general and administrative 185,178 15.98 168,574 17.00 Store opening costs 7,217 0.62 3,220 0.32 Depreciation 20,223 1.75 17,720 1.79 Employee retirement plans 10,657 0.92 9,602 0.97 Interest 4,834 0.42 4,048 0.41 Total expenses 228,109 19.69 203,164 20.49 Pre-tax earnings 47,511 4.10 28,208 2.85 Income tax provision 15,866 1.37 9,308 0.94 Net earnings $31,645 2.73 $18,900 1.91 Shares outstanding (weighted average) 73,953 73,083 Earnings per share $0.43 $0.26 Retained earnings Balance at beginning of period $588,183 $505,242 Net earnings 31,645 18,900 Cash dividends (5,911) (5,107) Stock Split Balance at end of period $613,917 $519,035 See accompanying notes to consolidated condensed financial statements Consolidated Condensed Statements of Current and Retained Earnings Lowe's Companies, Inc. and Subsidiary Companies Dollars In Thousands, Except Per Share Data Nine months ended October 31, 1993 October 31, 1992 Current Earnings Amount Percent Amount Percent Net sales $3,392,173 100.00 $2,936,120 100.00 Cost of sales 2,589,906 76.35 2,244,792 76.45 Gross margin 802,267 23.65 691,328 23.55 Expenses: Selling, general and administrative 525,591 15.49 485,171 16.53 Store opening costs 16,666 0.49 8,049 0.27 Depreciation 58,394 1.72 50,864 1.73 Employee retirement plans 30,092 0.89 27,949 0.95 Interest 12,204 0.36 11,917 0.41 Total expenses 642,947 18.95 583,950 19.89 Pre-tax earnings 159,320 4.70 107,378 3.66 Income tax provision 53,267 1.57 34,981 1.19 Net earnings $106,053 3.13 $72,397 2.47 Shares outstanding (weighted average) 73,592 73,063 Earnings per share $1.44 $0.99 Retained earnings Balance at beginning of period $525,520 $461,966 Net earnings 106,053 72,397 Cash dividends (17,656) (15,316) Stock Split (12) Balance at end of period $613,917 $519,035 See accompanying notes to consolidated condensed financial statements -0- 11/15/93 /CONTACT: (Corporate Contacts) W. Cliff Oxford, 919-651-4631, or Clarissa S. Felts, 919-651-4254, both of Lowe's/ /FIRST AND FINAL ADD -- TABULAR MATERIAL -- TO FOLLOW/ (LOW)
CO: Lowe's Companies ST: North Carolina IN: REA SU: ERN
SB-CM -- CH017 -- 4482 11/15/93 13:35 EST