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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 29, 2022
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission File Number 1-7898
LOWE’S COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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North Carolina | | 56-0578072 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1000 Lowes Blvd., Mooresville, North Carolina | | 28117 |
(Address of principal executive offices) | | (Zip Code) |
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Registrant’s telephone number, including area code: | | (704) 758-1000 |
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Former name, former address and former fiscal year, if changed since last report: Not Applicable |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.50 per share | LOW | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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CLASS | | OUTSTANDING AT 5/24/2022 |
Common Stock, $0.50 par value | | 639,128,830 |
LOWE’S COMPANIES, INC.
- TABLE OF CONTENTS -
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 6. | | |
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FORWARD-LOOKING STATEMENTS
This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “believe”, “expect”, “anticipate”, “plan”, “desire”, “project”, “estimate”, “intend”, “will”, “should”, “could”, “would”, “may”, “strategy”, “potential”, “opportunity”, “outlook”, “scenario”, “guidance”, and similar expressions are forward-looking statements. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business outlook, priorities, sales growth, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for products and services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. Such statements involve risks and uncertainties and we can give no assurance that they will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.
A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as volatility and/or lack of liquidity from time to time in U.S. and world financial markets and the consequent reduced availability and/or higher cost of borrowing to Lowe’s and its customers, slower rates of growth in real disposable personal income that could affect the rate of growth in consumer spending, inflation and its impacts on discretionary spending and on our costs, shortages, and other disruptions in the labor supply, interest rate and currency fluctuations, home price appreciation or decreasing housing turnover, the availability of consumer credit and of mortgage financing, trade policy changes or additional tariffs, outbreaks of pandemics, fluctuations in fuel and energy costs, inflation or deflation of commodity prices, natural disasters, armed conflicts, acts of both domestic and international terrorism, and other factors that can negatively affect our customers.
Investors and others should carefully consider the foregoing factors and other uncertainties, risks and potential events including, but not limited to, those described in “Item 1A - Risk Factors” and “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in our most recent Annual Report on Form 10-K and as may be updated from time to time in our quarterly reports on Form 10-Q or other subsequent filings with the SEC. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Lowe’s Companies, Inc.
Consolidated Statements of Earnings (Unaudited)
In Millions, Except Per Share and Percentage Data
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| Three Months Ended | | |
| April 29, 2022 | | April 30, 2021 | | | | |
Current Earnings | Amount | | % Sales | | Amount | | % Sales | | | | | | | | |
Net sales | $ | 23,659 | | | 100.00 | % | | $ | 24,422 | | | 100.00 | % | | | | | | | | |
Cost of sales | 15,609 | | | 65.97 | | | 16,292 | | | 66.71 | | | | | | | | | |
Gross margin | 8,050 | | | 34.03 | | | 8,130 | | | 33.29 | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | |
Selling, general and administrative | 4,303 | | | 18.19 | | | 4,494 | | | 18.40 | | | | | | | | | |
Depreciation and amortization | 445 | | | 1.88 | | | 391 | | | 1.60 | | | | | | | | | |
Operating income | 3,302 | | | 13.96 | | | 3,245 | | | 13.29 | | | | | | | | | |
Interest – net | 243 | | | 1.03 | | | 211 | | | 0.87 | | | | | | | | | |
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Pre-tax earnings | 3,059 | | | 12.93 | | | 3,034 | | | 12.42 | | | | | | | | | |
Income tax provision | 726 | | | 3.07 | | | 713 | | | 2.92 | | | | | | | | | |
Net earnings | $ | 2,333 | | | 9.86 | % | | $ | 2,321 | | | 9.50 | % | | | | | | | | |
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Weighted average common shares outstanding – basic | 660 | | | | | 718 | | | | | | | | | | | |
Basic earnings per common share | $ | 3.52 | | | | | $ | 3.22 | | | | | | | | | | | |
Weighted average common shares outstanding – diluted | 662 | | | | | 720 | | | | | | | | | | | |
Diluted earnings per common share | $ | 3.51 | | | | | $ | 3.21 | | | | | | | | | | | |
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See accompanying notes to the consolidated financial statements (unaudited).
Lowe’s Companies, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
In Millions, Except Percentage Data
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| Three Months Ended | | |
| April 29, 2022 | | April 30, 2021 | | | | |
| Amount | | % Sales | | Amount | | % Sales | | | | | | | | |
Net earnings | $ | 2,333 | | | 9.86 | % | | $ | 2,321 | | | 9.50 | % | | | | | | | | |
Foreign currency translation adjustments – net of tax | (17) | | | (0.07) | | | 102 | | | 0.41 | | | | | | | | | |
Cash flow hedges – net of tax | 219 | | | 0.93 | | | 24 | | | 0.10 | | | | | | | | | |
Other | (2) | | | (0.01) | | | (1) | | | — | | | | | | | | | |
Other comprehensive income | 200 | | | 0.85 | | | 125 | | | 0.51 | | | | | | | | | |
Comprehensive income | $ | 2,533 | | | 10.71 | % | | $ | 2,446 | | | 10.01 | % | | | | | | | | |
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See accompanying notes to the consolidated financial statements (unaudited).
Lowe’s Companies, Inc.
Consolidated Balance Sheets (Unaudited)
In Millions, Except Par Value Data
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| | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 3,414 | | | $ | 6,692 | | | $ | 1,133 | |
Short-term investments | | 368 | | | 454 | | | 271 | |
Merchandise inventory – net | | 20,239 | | | 18,382 | | | 17,605 | |
Other current assets | | 1,590 | | | 1,288 | | | 1,051 | |
Total current assets | | 25,611 | | | 26,816 | | | 20,060 | |
Property, less accumulated depreciation | | 18,890 | | | 19,059 | | | 19,071 | |
Operating lease right-of-use assets | | 4,131 | | | 3,886 | | | 4,108 | |
Long-term investments | | 76 | | | 197 | | | 199 | |
Deferred income taxes – net | | 33 | | | 213 | | | 164 | |
Other assets | | 984 | | | 1,029 | | | 1,038 | |
Total assets | | $ | 49,725 | | | $ | 51,200 | | | $ | 44,640 | |
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Liabilities and shareholders' (deficit)/equity | | | | | | |
Current liabilities: | | | | | | |
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Current maturities of long-term debt | | $ | 121 | | | $ | 1,338 | | | $ | 868 | |
Current operating lease liabilities | | 639 | | | 551 | | | 636 | |
Accounts payable | | 13,831 | | | 13,964 | | | 11,354 | |
Accrued compensation and employee benefits | | 1,190 | | | 1,312 | | | 1,561 | |
Deferred revenue | | 2,094 | | | 2,022 | | | 1,914 | |
Other current liabilities | | 3,956 | | | 3,705 | | | 3,335 | |
Total current liabilities | | 21,831 | | | 22,892 | | | 19,668 | |
Long-term debt, excluding current maturities | | 28,776 | | | 21,906 | | | 23,859 | |
Noncurrent operating lease liabilities | | 4,061 | | | 3,925 | | | 4,021 | |
Deferred revenue – Lowe's protection plans | | 1,137 | | | 1,050 | | | 1,127 | |
Other liabilities | | 797 | | | 982 | | | 781 | |
Total liabilities | | 56,602 | | | 50,755 | | | 49,456 | |
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Shareholders' (deficit)/equity: | | | | | | |
Preferred stock, $5 par value: Authorized – 5.0 million shares; Issued and outstanding – none | | — | | | — | | | — | |
Common stock, $0.50 par value: Authorized – 5.6 billion shares; Issued and outstanding – 652 million, 715 million, and 670 million shares, respectively | | 326 | | | 358 | | | 335 | |
Capital in excess of par value | | — | | | — | | | — | |
(Accumulated deficit)/retained earnings | | (7,367) | | | 98 | | | (5,115) | |
Accumulated other comprehensive income/(loss) | | 164 | | | (11) | | | (36) | |
Total shareholders' (deficit)/equity | | (6,877) | | | 445 | | | (4,816) | |
Total liabilities and shareholders' (deficit)/equity | | $ | 49,725 | | | $ | 51,200 | | | $ | 44,640 | |
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See accompanying notes to the consolidated financial statements (unaudited).
Lowe’s Companies, Inc.
Consolidated Statements of Shareholders’ (Deficit)/Equity (Unaudited)
In Millions
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| Three Months Ended April 29, 2022 |
| Common Stock | | Capital in Excess of Par Value | | Accumulated Deficit | | Accumulated Other Comprehensive (Loss)/Income | | | | | | Total |
| Shares | | Amount | | | | | | |
Balance January 28, 2022 | 670 | | | $ | 335 | | | $ | — | | | $ | (5,115) | | | $ | (36) | | | | | | | $ | (4,816) | |
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Net earnings | — | | | — | | | — | | | 2,333 | | | — | | | | | | | 2,333 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 200 | | | | | | | 200 | |
Cash dividends declared, $0.80 per share | — | | | — | | | — | | | (524) | | | — | | | | | | | (524) | |
Share-based payment expense | — | | | — | | | 46 | | | — | | | — | | | | | | | 46 | |
Repurchases of common stock | (19) | | | (9) | | | (47) | | | (4,061) | | | — | | | | | | | (4,117) | |
Issuance of common stock under share-based payment plans | 1 | | | — | | | 1 | | | — | | | — | | | | | | | 1 | |
Balance April 29, 2022 | 652 | | | $ | 326 | | | $ | — | | | $ | (7,367) | | | $ | 164 | | | | | | | $ | (6,877) | |
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| Three Months Ended April 30, 2021 |
| Common Stock | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | | | | Total |
| Shares | | Amount | | | | | | |
Balance January 29, 2021 | 731 | | | $ | 366 | | | $ | 90 | | | $ | 1,117 | | | $ | (136) | | | | | | | $ | 1,437 | |
Net earnings | — | | | — | | | — | | | 2,321 | | | — | | | | | | | 2,321 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 125 | | | | | | | 125 | |
Cash dividends declared, $0.60 per share | — | | | — | | | — | | | (430) | | | — | | | | | | | (430) | |
Share-based payment expense | — | | | — | | | 50 | | | — | | | — | | | | | | | 50 | |
Repurchases of common stock | (17) | | | (9) | | | (148) | | | (2,910) | | | — | | | | | | | (3,067) | |
Issuance of common stock under share-based payment plans | 1 | | | 1 | | | 8 | | | — | | | — | | | | | | | 9 | |
Balance April 30, 2021 | 715 | | | $ | 358 | | | $ | — | | | $ | 98 | | | $ | (11) | | | | | | | $ | 445 | |
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See accompanying notes to the consolidated financial statements (unaudited).
Lowe’s Companies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
In Millions
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| Three Months Ended |
| April 29, 2022 | | April 30, 2021 |
Cash flows from operating activities: | | | |
Net earnings | $ | 2,333 | | | $ | 2,321 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 503 | | | 443 | |
Noncash lease expense | 135 | | | 124 | |
Deferred income taxes | 59 | | | 110 | |
Loss/(gain) on property and other assets – net | 4 | | | (15) | |
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Share-based payment expense | 50 | | | 54 | |
Changes in operating assets and liabilities: | | | |
Merchandise inventory – net | (2,646) | | | (2,123) | |
Other operating assets | (212) | | | (343) | |
Accounts payable | 2,479 | | | 3,058 | |
Deferred revenue | 191 | | | 442 | |
Other operating liabilities | 81 | | | 421 | |
Net cash provided by operating activities | 2,977 | | | 4,492 | |
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Cash flows from investing activities: | | | |
Purchases of investments | (109) | | | (293) | |
Proceeds from sale/maturity of investments | 132 | | | 347 | |
Capital expenditures | (343) | | | (461) | |
Proceeds from sale of property and other long-term assets | 10 | | | 64 | |
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Other – net | — | | | (134) | |
Net cash used in investing activities | (310) | | | (477) | |
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Cash flows from financing activities: | | | |
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Net proceeds from issuance of debt | 4,964 | | | 1,988 | |
Repayment of debt | (773) | | | (543) | |
Proceeds from issuance of common stock under share-based payment plans | 1 | | | 9 | |
Cash dividend payments | (537) | | | (440) | |
Repurchases of common stock | (4,037) | | | (3,038) | |
Other – net | (4) | | | 4 | |
Net cash used in financing activities | (386) | | | (2,020) | |
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Effect of exchange rate changes on cash | — | | | 7 | |
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Net increase in cash and cash equivalents | 2,281 | | | 2,002 | |
Cash and cash equivalents, beginning of period | 1,133 | | | 4,690 | |
Cash and cash equivalents, end of period | $ | 3,414 | | | $ | 6,692 | |
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See accompanying notes to the consolidated financial statements (unaudited).
Lowe’s Companies, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements (unaudited) and notes to the condensed consolidated financial statements (unaudited) are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements (unaudited), in the opinion of management, contain all normal recurring adjustments necessary to present fairly the consolidated balance sheets as of April 29, 2022, and April 30, 2021, and the statements of earnings, comprehensive income, shareholders’ (deficit)/equity, and cash flows for the three months ended April 29, 2022, and April 30, 2021. The January 28, 2022 consolidated balance sheet was derived from the audited financial statements.
These interim condensed consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Lowe’s Companies, Inc. (the Company) Annual Report on Form 10-K for the fiscal year ended January 28, 2022 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.
Accounting Pronouncements Not Yet Adopted
Recent accounting pronouncements pending adoption not discussed in this Form 10-Q or in the 2021 Form 10-K are either not applicable to the Company or are not expected to have a material impact on the Company.
Note 2: Revenue
Net sales consists primarily of revenue, net of sales tax, associated with contracts with customers for the sale of goods and services in amounts that reflect consideration the Company is entitled to in exchange for those goods and services.
The following table presents the Company’s sources of revenue:
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(In millions) | | | Three Months Ended |
| | | | April 29, 2022 | | April 30, 2021 |
Products | | | | | $ | 22,884 | | | $ | 23,522 | |
Services | | | | | 536 | | | 579 | |
Other | | | | | 239 | | | 321 | |
Net sales | | | | | $ | 23,659 | | | $ | 24,422 | |
A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. The merchandise return reserve is presented on a gross basis, with a separate asset and liability included in the consolidated balance sheets. The balances and classification within the consolidated balance sheets for anticipated sales returns and the associated right of return assets are as follows:
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(In millions) | Classification | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
Anticipated sales returns | Other current liabilities | $ | 363 | | | $ | 374 | | | $ | 245 | |
Right of return assets | Other current assets | 218 | | | 240 | | | 151 | |
Deferred revenue - retail and stored-value cards
Retail deferred revenue consists of amounts received for which customers have not yet taken possession of the merchandise or for which installation has not yet been completed. The majority of revenue for goods and services is recognized in the quarter following revenue deferral. Stored-value cards deferred revenue includes outstanding stored-value cards such as gift cards and
returned merchandise credits that have not yet been redeemed. Deferred revenue for retail and stored-value cards are as follows:
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(In millions) | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
Retail deferred revenue | $ | 1,521 | | | $ | 1,525 | | | $ | 1,285 | |
Stored-value cards deferred revenue | 573 | | | 497 | | | 629 | |
Deferred revenue | $ | 2,094 | | | $ | 2,022 | | | $ | 1,914 | |
Deferred revenue - Lowe’s protection plans
The Company defers revenues for its separately-priced long-term extended protection plan contracts (Lowe’s protection plans) and recognizes revenue on a straight-line basis over the respective contract term. Expenses for claims are recognized in cost of sales when incurred.
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(In millions) | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
Deferred revenue - Lowe’s protection plans | $ | 1,137 | | | $ | 1,050 | | | $ | 1,127 | |
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| | | Three Months Ended |
(In millions) | | | | | April 29, 2022 | | April 30, 2021 |
Lowe’s protection plans deferred revenue recognized into sales | | | | | $ | 127 | | | $ | 116 | |
Lowe’s protection plans claim expenses | | | | | 45 | | | 54 | |
Disaggregation of Revenues
The following table presents the Company’s net sales disaggregated by merchandise division:
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| Three Months Ended | | |
| April 29, 2022 | | April 30, 2021 | | | | |
(In millions) | Net Sales | | % | | Net Sales | | % | | | | | | | | |
Home Décor 1 | $ | 8,298 | | | 35.1 | % | | $ | 8,307 | | | 34.0 | % | | | | | | | | |
Building Products 2 | 8,171 | | | 34.5 | | | 7,942 | | | 32.5 | | | | | | | | | |
Hardlines 3 | 6,695 | | | 28.3 | | | 7,750 | | | 31.8 | | | | | | | | | |
Other | 495 | | | 2.1 | | | 423 | | | 1.7 | | | | | | | | | |
Total | $ | 23,659 | | | 100.0 | % | | $ | 24,422 | | | 100.0 | % | | | | | | | | |
Note: Merchandise division net sales for the prior period have been reclassified to conform to the current period presentation.
1 Home Décor includes the following product categories: Appliances, Décor, Flooring, Kitchens & Bath, and Paint
2 Building Products includes the following product categories: Building Materials, Electrical, Lighting, Lumber, Millwork, and Rough Plumbing
3 Hardlines includes the following product categories: Hardware, Lawn & Garden, Seasonal & Outdoor Living, and Tools
The following table presents the Company’s net sales disaggregated by geographical area:
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(In millions) | Three Months Ended | | |
April 29, 2022 | | April 30, 2021 | | | | |
United States | $ | 22,426 | | | $ | 22,932 | | | | | |
Canada | 1,233 | | | 1,490 | | | | | |
Net Sales | $ | 23,659 | | | $ | 24,422 | | | | | |
Note 3: Restricted Investments
Short-term and long-term investments include restricted balances pledged as collateral primarily for the Lowe’s protection plans program and are as follows:
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(In millions) | | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
Short-term restricted investments | | $ | 368 | | | $ | 454 | | | $ | 271 | |
Long-term restricted investments | | 76 | | | 197 | | | 199 | |
Total restricted investments | | $ | 444 | | | $ | 651 | | | $ | 470 | |
Note 4: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows:
•Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities
•Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
•Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of April 29, 2022, April 30, 2021, and January 28, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at |
(In millions) | Classification | Measurement Level | | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
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Available-for-sale debt securities: | | | | | | | | |
U.S. Treasury securities | Short-term investments | Level 1 | | $ | 176 | | | $ | 190 | | | $ | 75 | |
Money market funds | Short-term investments | Level 1 | | 135 | | | 86 | | | 120 | |
Foreign government debt securities | Short-term investments | Level 2 | | 28 | | | — | | | 14 | |
Corporate debt securities | Short-term investments | Level 2 | | 15 | | | 148 | | | 8 | |
Municipal obligations | Short-term investments | Level 2 | | 10 | | | — | | | 10 | |
Certificates of deposit | Short-term investments | Level 1 | | 4 | | | — | | | 14 | |
Agency securities | Short-term investments | Level 2 | | — | | | 30 | | | — | |
Commercial paper | Short-term investments | Level 2 | | — | | | — | | | 30 | |
Corporate debt securities | Long-term investments | Level 2 | | 43 | | | 50 | | | 50 | |
U.S. Treasury securities | Long-term investments | Level 1 | | 31 | | | 128 | | | 132 | |
Municipal obligations | Long-term investments | Level 2 | | 2 | | | 13 | | | 3 | |
Agency securities | Long-term investments | Level 2 | | — | | | 6 | | | — | |
Foreign government debt securities | Long-term investments | Level 2 | | — | | | — | | | 14 | |
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Derivative instruments: | | | | | | | | |
Forward interest rate swaps | Other current assets | Level 2 | | $ | 261 | | | $ | 22 | | | $ | 66 | |
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Forward interest rate swaps | Other assets | Level 2 | | — | | | — | | | 48 | |
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Fixed-to-floating interest rate swaps | Other liabilities | Level 2 | | 65 | | | — | | | 21 | |
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There were no transfers between Levels 1, 2, or 3 during any of the periods presented.
When available, quoted prices were used to determine fair value. When quoted prices in active markets were available, investments were classified within Level 1 of the fair value hierarchy. When quoted prices in active markets were not available, fair values were determined using pricing models, and the inputs to those pricing models were based on observable
market inputs. The inputs to the pricing models were typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads, and benchmark securities, among others.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
During the three months ended April 29, 2022, and April 30, 2021, the Company had no material measurements of assets and liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
Other Fair Value Disclosures
The Company’s financial assets and liabilities not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable, and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to their short-term nature. As further described in Note 6, certain long-term debt is associated with a fair value hedge and the changes in fair value of the hedged debt is included in the carrying value of long-term debt on the consolidated balance sheets. The fair values of the Company’s unsecured notes were estimated using quoted market prices. The fair values of the Company’s mortgage notes were estimated using discounted cash flow analyses, based on the future cash outflows associated with these arrangements and discounted using the applicable incremental borrowing rate.
Carrying amounts and the related estimated fair value of the Company’s long-term debt, excluding finance lease obligations, are as follows:
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| April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
(In millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Unsecured notes (Level 1) | $ | 28,224 | | | $ | 26,095 | | | $ | 22,585 | | | $ | 24,774 | | | $ | 24,056 | | | $ | 25,425 | |
Mortgage notes (Level 2) | 4 | | | 5 | | | 5 | | | 5 | | | 5 | | | 5 | |
Long-term debt (excluding finance lease obligations) | $ | 28,228 | | | $ | 26,100 | | | $ | 22,590 | | | $ | 24,779 | | | $ | 24,061 | | | $ | 25,430 | |
Note 5: Debt
Commercial Paper Program
The $2.0 billion five-year unsecured revolving credit agreement entered into in March 2020, and amended in December 2021, (2020 Credit Agreement) and the $2.0 billion five-year unsecured third amended and restated credit agreement (Third Amended and Restated Credit Agreement) entered into in December 2021 support the Company’s commercial paper program. The amounts available to be drawn under the 2020 Credit Agreement and the Third Amended and Restated Credit Agreement are reduced by the amount of borrowings under the commercial paper program. As of April 29, 2022, April 30, 2021, and January 28, 2022, there were no outstanding borrowings under the Company’s commercial paper program, the 2020 Credit Agreement, or the Third Amended and Restated Credit Agreement. Total combined availability under the 2020 Credit Agreement and the Third Amended and Restated Credit Agreement was $4.0 billion as of April 29, 2022.
Long-Term Debt
On March 24, 2022, the Company issued $5.0 billion of unsecured fixed rate notes (March 2022 Notes) as follows:
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Principal Amount (in millions) | | Maturity Date | | Interest Rate | | Discount (in millions) |
$ | 750 | | | April 2027 | | 3.350% | | $ | 3 | |
$ | 1,500 | | | April 2032 | | 3.750% | | $ | 7 | |
$ | 1,500 | | | April 2052 | | 4.250% | | $ | 14 | |
$ | 1,250 | | | April 2062 | | 4.450% | | $ | 12 | |
Interest on the March 2022 Notes is payable semiannually in arrears in April and October of each year until maturity.
The indenture governing the March 2022 Notes contains a provision that allows the Company to redeem these notes at any time, in whole or in part, at specified redemption prices, plus accrued and unpaid interest, if any, up to, but excluding, the date
of redemption. The indenture also contains a provision that allows the holders of the notes to require the Company to repurchase all or any part of their notes if a change of control triggering event occurs. If elected under the change of control provisions, the repurchase of the notes will occur at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such notes up to, but excluding, the date of purchase. The indenture governing the March 2022 Notes does not limit the aggregate principal amount of debt securities that the Company may issue and does not require the Company to maintain specified financial ratios or levels of net worth or liquidity.
Note 6: Derivative Instruments
The Company utilizes forward interest rate swap agreements to hedge its exposure to changes in benchmark interest rates on forecasted debt issuances. The Company also utilizes fixed-to-floating interest rate swap agreements as fair value hedges on certain debt. The notional amounts for the Company’s material derivative instruments are as follows:
| | | | | | | | | | | | | | | | | |
(In millions) | April 29, 2022 | | April 30, 2021 | | January 28, 2022 |
Cash flow hedges: | | | | | |
Forward interest rate swap agreement notional amounts | $ | 1,760 | | | $ | 375 | | | $ | 2,560 | |
Fair value hedges: | | | | | |
Fixed-to-floating interest rate swap agreement notional amounts | $ | 850 | | | $ | — | | | $ | 850 | |
See Note 4 for the gross fair values of the Company’s outstanding derivative financial instruments and corresponding fair value classifications. The cash flows related to settlement of the Company’s hedging derivative financial instruments are classified in the consolidated statements of cash flows based on the nature of the underlying hedged items.
The Company accounts for the forward interest rate swap contracts as cash flow hedges, thus the effective portion of gains and losses resulting from changes in fair value are recognized in other comprehensive income, net of tax effects, in the consolidated statements of comprehensive income and is amortized to interest expense over the term of the respective debt. During the three months ended April 29, 2022, in connection with the issuance of our March 2022 Notes, we settled forward interest rate swap contracts with a combined notional amount of $1.5 billion and received a payment of $143 million. The gain/(loss) from forward interest rate swap agreements, both settled and outstanding, designated as cash flow hedges recorded in other comprehensive income and earnings for the three months ended April 29, 2022, and April 30, 2021, including its line item in the financial statements, is as follows:
| | | | | | | | | | | | | | | |
(In millions) | Three Months Ended | | |
April 29, 2022 | | April 30, 2021 | | | | |
Other comprehensive income: | | | | | | | |
Cash flow hedges – net of tax expense of $73 million and $9 million, respectively | $ | 218 | | | $ | 27 | | | | | |
Net earnings: | | | | | | | |
Interest – net | $ | (1) | | | $ | (3) | | | | | |
The Company accounts for the fixed-to-floating interest rate swap agreements as fair value hedges using the shortcut method of accounting under which the hedges are assumed to be perfectly effective. Thus, the change in fair value of the derivative instruments offsets the change in fair value on the hedged debt, and there is no net impact in the consolidated statements of earnings from the fair value of the derivatives.
Note 7: Shareholders’ (Deficit)/Equity
The Company has a share repurchase program that is executed through purchases made from time to time either in the open market, which may be made under pre-set trading plans meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934, or through private off-market transactions. Shares purchased under the repurchase program are returned to authorized and unissued status. As of April 29, 2022, the Company had $15.7 billion remaining in its share repurchase program.
In February 2022, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase $750 million of the Company’s common stock. The terms of the ASR agreement entered into during the three months ended April 29, 2022, are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
Agreement Execution Date | Agreement Settlement Date | ASR Agreement Amount | | | | Initial Shares Delivered at Inception | Additional Shares Delivered at Settlement | Total Shares Delivered |
Q1 2022 | Q1 2022 | $ | 750 | | | | | 2.8 | | 0.6 | | 3.4 |
| | | | | | | | |
| | | | | | | | |
In addition, the Company repurchased shares of its common stock through the open market as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | April 29, 2022 |
(In millions) | | | | | Shares | | Cost |
Open market share repurchases | | | | | 15.2 | | | $ | 3,251 | |
The Company also withholds shares from employees to satisfy either the exercise price of stock options exercised or the statutory withholding tax liability resulting from the vesting of share-based awards.
Total shares repurchased for the three months ended April 29, 2022, and April 30, 2021, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| April 29, 2022 | | April 30, 2021 |
(In millions) | Shares | | Cost 1 | | Shares | | Cost 1 |
Share repurchase program | 18.6 | | | $ | 4,001 | | | 16.5 | | | $ | 3,000 | |
Shares withheld from employees | 0.6 | | | 116 | | | 0.3 | | | 67 | |
Total share repurchases | 19.2 | | | $ | 4,117 | | | 16.8 | | | $ | 3,067 | |
1 Reductions of $4.1 billion and $2.9 billion were recorded to (accumulated deficit)/retained earnings, after capital in excess of par value was depleted, for the three months ended April 29, 2022, and April 30, 2021, respectively.
Note 8: Earnings Per Share - The Company calculates basic and diluted earnings per common share using the two-class method. The following table reconciles earnings per common share for the three months ended April 29, 2022, and April 30, 2021:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(In millions, except per share data) | | | | | April 29, 2022 | | April 30, 2021 |
Basic earnings per common share: | | | | | | | |
Net earnings | | | | | $ | 2,333 | | | $ | 2,321 | |
Less: Net earnings allocable to participating securities | | | | | (8) | | | (9) | |
Net earnings allocable to common shares, basic | | | | | $ | 2,325 | | | $ | 2,312 | |
Weighted-average common shares outstanding | | | | | 660 | | | 718 | |
Basic earnings per common share | | | | | $ | 3.52 | | | $ | 3.22 | |
Diluted earnings per common share: | | | | | | | |
Net earnings | | | | | $ | 2,333 | | | $ | 2,321 | |
Less: Net earnings allocable to participating securities | | | | | (8) | | | (9) | |
Net earnings allocable to common shares, diluted | | | | | $ | 2,325 | | | $ | 2,312 | |
Weighted-average common shares outstanding | | | | | 660 | | | 718 | |
Dilutive effect of non-participating share-based awards | | | | | 2 | | | 2 | |
Weighted-average common shares, as adjusted | | | | | 662 | | | 720 | |
Diluted earnings per common share | | | | | $ | 3.51 | | | $ | 3.21 | |
| | | | | | | |
Anti-dilutive securities excluded from diluted weighted-average common shares | | | | | 0.4 | | | 0.4 | |
Note 9: Supplemental Disclosure
Net interest expense is comprised of the following:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(In millions) | | | | | April 29, 2022 | | April 30, 2021 |
Long-term debt | | | | | $ | 230 | | | $ | 200 | |
Lease obligations | | | | | 7 | | | 8 | |
Short-term borrowings | | | | | 1 | | | — | |
| | | | | | | |
Interest income | | | | | (2) | | | (3) | |
Interest capitalized | | | | | (1) | | | — | |
Interest on tax uncertainties | | | | | 3 | | | — | |
Other | | | | | 5 | | | 6 | |
Interest – net | | | | | $ | 243 | | | $ | 211 | |
Supplemental disclosures of cash flow information:
| | | | | | | | | | | |
| Three Months Ended |
(In millions) | April 29, 2022 | | April 30, 2021 |
Cash paid for interest, net of amount capitalized | $ | 375 | | | $ | 219 | |
Cash paid for income taxes – net | $ | 57 | | | $ | 115 | |
Non-cash investing and financing activities: | | | |
Leased assets obtained in exchange for new finance lease liabilities | $ | 2 | | | $ | 14 | |
Leased assets obtained in exchange for new operating lease liabilities 1 | $ | 174 | | | $ | 155 | |
| | | |
Cash dividends declared but not paid | $ | 524 | | | $ | 430 | |
1 Excludes $637 million of leases signed but not yet commenced as of April 29, 2022.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Lowe’s Companies, Inc.
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheets of Lowe’s Companies, Inc. and subsidiaries (the “Comp