LOWES COMPANIES INC [LOW] Filings

10-Q 1 low-20220729.htm FORM 10-Q low-20220729

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 29, 2022


☐			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)


North Carolina						56-0578072
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1000 Lowes Blvd., Mooresville, North Carolina						28117
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code:						(704) 758-1000

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:


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.

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.


CLASS						OUTSTANDING AT 8/23/2022
Common Stock, $0.50 par value						620,700,567

LOWE’S COMPANIES, INC.

- TABLE OF CONTENTS -


			Page No.
Forward-Looking Statements			ii
PART I - Financial Information			1
	Item 1.	Financial Statements	1
		Consolidated Statements of Earnings	1
		Consolidated Statements of Comprehensive Income	1
		Consolidated Balance Sheets	2
		Consolidated Statements of Shareholders’ Deficit	3
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6
		Note 1: Summary of Significant Accounting Policies	6
		Note 2: Revenue	6
		Note 3: Restricted Investments	8
		Note 4: Fair Value Measurements	8
		Note 5: Debt	9
		Note 6: Derivative Instruments	10
		Note 7: Shareholders’ Deficit	11
		Note 8: Earnings Per Share	11

		Note 9: Supplemental Disclosure	12
		Report of Independent Registered Public Accounting Firm	13
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
	Item 4.	Controls and Procedures	21
PART II - Other Information			22
	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 6.	Exhibits	23
		Signature	24


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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 7 - 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.


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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


	Three Months Ended								Six Months Ended
	July 29, 2022				July 30, 2021				July 29, 2022				July 30, 2021
Current Earnings	Amount		% Sales		Amount		% Sales		Amount		% Sales		Amount		% Sales
Net sales	$	27,476	100.00	%	$	27,570	100.00	%	$	51,135	100.00	%	$	51,993	100.00	%
Cost of sales	18,343		66.76		18,258		66.22		33,952		66.40		34,551		66.45
Gross margin	9,133		33.24		9,312		33.78		17,183		33.60		17,442		33.55
Expenses:
Selling, general and administrative	4,455		16.22		4,693		17.02		8,758		17.12		9,187		17.67
Depreciation and amortization	449		1.63		409		1.49		894		1.75		800		1.54
Operating income	4,229		15.39		4,210		15.27		7,531		14.73		7,455		14.34
Interest – net	264		0.96		216		0.78		507		0.99		427		0.82

Pre-tax earnings	3,965		14.43		3,994		14.49		7,024		13.74		7,028		13.52
Income tax provision	973		3.54		976		3.54		1,699		3.33		1,688		3.25
Net earnings	$	2,992	10.89	%	$	3,018	10.95	%	$	5,325	10.41	%	$	5,340	10.27	%


Weighted average common shares outstanding – basic	638				705				649				711
Basic earnings per common share	$	4.68			$	4.27			$	8.18			$	7.48
Weighted average common shares outstanding – diluted	639				707				651				713
Diluted earnings per common share	$	4.67			$	4.25			$	8.16			$	7.46

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

In Millions, Except Percentage Data


	Three Months Ended								Six Months Ended
	July 29, 2022				July 30, 2021				July 29, 2022				July 30, 2021
	Amount		% Sales		Amount		% Sales		Amount		% Sales		Amount		% Sales
Net earnings	$	2,992	10.89	%	$	3,018	10.95	%	$	5,325	10.41	%	$	5,340	10.27	%
Foreign currency translation adjustments – net of tax	12		0.05		(44)		(0.17)		(5)		(0.02)		58		0.11
Cash flow hedges – net of tax	(38)		(0.14)		(9)		(0.03)		181		0.36		15		0.03
Other	(1)		—		(1)		—		(3)		0.01		(2)		—
Other comprehensive (loss)/income	(27)		(0.09)		(54)		(0.20)		173		0.35		71		0.14
Comprehensive income	$	2,965	10.80	%	$	2,964	10.75	%	$	5,498	10.76	%	$	5,411	10.41	%

See accompanying notes to the consolidated financial statements (unaudited).


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Lowe’s Companies, Inc.

Consolidated Balance Sheets (Unaudited)

In Millions, Except Par Value Data


	July 29, 2022		July 30, 2021		January 28, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,482	$	4,835	$	1,133
Short-term investments	450		1,420		271
Merchandise inventory – net	19,329		17,322		17,605
Other current assets	1,406		1,506		1,051
Total current assets	22,667		25,083		20,060
Property, less accumulated depreciation	18,713		19,031		19,071
Operating lease right-of-use assets	4,158		3,820		4,108
Long-term investments	56		225		199
Deferred income taxes – net	104		221		164
Other assets	1,027		1,024		1,038
Total assets	$	46,725	$	49,404	$	44,640

Liabilities and shareholders' deficit
Current liabilities:
Short-term borrowings	$	—	$	1,000	$	—
Current maturities of long-term debt	121		1,344		868
Current operating lease liabilities	652		557		636
Accounts payable	12,631		12,011		11,354
Accrued compensation and employee benefits	1,227		1,331		1,561
Deferred revenue	1,968		2,041		1,914
Other current liabilities	3,767		3,380		3,335
Total current liabilities	20,366		21,664		19,668
Long-term debt, excluding current maturities	28,763		21,967		23,859
Noncurrent operating lease liabilities	4,069		3,841		4,021
Deferred revenue – Lowe's protection plans	1,169		1,097		1,127
Other liabilities	800		1,010		781
Total liabilities	55,167		49,579		49,456

Shareholders' deficit:
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 – 631 million, 699 million, and 670 million shares, respectively	316		350		335
Capital in excess of par value	—		—		—
Accumulated deficit	(8,895)		(460)		(5,115)
Accumulated other comprehensive income/(loss)	137		(65)		(36)
Total shareholders' deficit	(8,442)		(175)		(4,816)
Total liabilities and shareholders' deficit	$	46,725	$	49,404	$	44,640

See accompanying notes to the consolidated financial statements (unaudited).


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Lowe’s Companies, Inc.

Consolidated Statements of Shareholders’ Deficit (Unaudited)

In Millions


	Three Months Ended July 29, 2022
	Common Stock			Capital in Excess of Par Value		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
	Shares	Amount
Balance April 29, 2022	652	$	326	$	—	$	(7,367)	$	164	$	(6,877)

Net earnings	—	—		—		2,992		—		2,992
Other comprehensive loss	—	—		—		—		(27)		(27)
Cash dividends declared, $1.05 per share	—	—		—		(666)		—		(666)
Share-based payment expense	—	—		65		—		—		65
Repurchases of common stock	(22)	(11)		(137)		(3,854)		—		(4,002)
Issuance of common stock under share-based payment plans	1	1		72		—		—		73
Balance July 29, 2022	631	$	316	$	—	$	(8,895)	$	137	$	(8,442)

	Six Months Ended July 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)

Net earnings	—	—		—		5,325		—		5,325
Other comprehensive income	—	—		—		—		173		173
Cash dividends declared, $1.85 per share	—	—		—		(1,190)		—		(1,190)
Share-based payment expense	—	—		110		—		—		110
Repurchases of common stock	(41)	(20)		(183)		(7,915)		—		(8,118)
Issuance of common stock under share-based payment plans	2	1		73		—		—		74
Balance July 29, 2022	631	$	316	$	—	$	(8,895)	$	137	$	(8,442)


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	Three Months Ended July 30, 2021
	Common Stock			Capital in Excess of Par Value		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance April 30, 2021	715	$	358	$	—	$	98	$	(11)	$	445
Net earnings	—	—		—		3,018		—		3,018
Other comprehensive loss	—	—		—		—		(54)		(54)
Cash dividends declared, $0.80 per share	—	—		—		(563)		—		(563)
Share-based payment expense	—	—		63		—		—		63
Repurchases of common stock	(16)	(8)		(117)		(3,013)		—		(3,138)
Issuance of common stock under share-based payment plans	—	—		54		—		—		54
Balance July 30, 2021	699	$	350	$	—	$	(460)	$	(65)	$	(175)

	Six Months Ended July 30, 2021
	Common Stock			Capital in Excess of Par Value		Retained Earnings/(Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance January 29, 2021	731	$	366	$	90	$	1,117	$	(136)	$	1,437

Net earnings	—	—		—		5,340		—		5,340
Other comprehensive income	—	—		—		—		71		71
Cash dividends declared, $1.40 per share	—	—		—		(993)		—		(993)
Share-based payment expense	—	—		113		—		—		113
Repurchase of common stock	(33)	(17)		(265)		(5,924)		—		(6,206)
Issuance of common stock under share-based payment plans	1	1		62		—		—		63
Balance July 30, 2021	699	$	350	$	—	$	(460)	$	(65)	$	(175)

See accompanying notes to the consolidated financial statements (unaudited).


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Lowe’s Companies, Inc.

Consolidated Statements of Cash Flows (Unaudited)

In Millions


	Six Months Ended
	July 29, 2022		July 30, 2021
Cash flows from operating activities:
Net earnings	$	5,325	$	5,340
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,007		907
Noncash lease expense	273		252
Deferred income taxes	—		110
Loss on property and other assets – net	32		1

Share-based payment expense	110		115
Changes in operating assets and liabilities:
Merchandise inventory – net	(1,728)		(1,096)
Other operating assets	(120)		(203)
Accounts payable	1,279		1,115
Deferred revenue	97		511
Other operating liabilities	(263)		(139)
Net cash provided by operating activities	6,012		6,913

Cash flows from investing activities:
Purchases of investments	(330)		(1,635)
Proceeds from sale/maturity of investments	290		692
Capital expenditures	(687)		(846)
Proceeds from sale of property and other long-term assets	19		78

Other – net	(1)		(134)
Net cash used in investing activities	(709)		(1,845)

Cash flows from financing activities:

Net proceeds from issuance of debt	4,964		2,988
Repayment of debt	(799)		(568)
Proceeds from issuance of common stock under share-based payment plans	72		63
Cash dividend payments	(1,061)		(870)
Repurchases of common stock	(8,128)		(6,174)
Other – net	(2)		(366)
Net cash used in financing activities	(4,954)		(4,927)

Effect of exchange rate changes on cash	—		4

Net increase in cash and cash equivalents	349		145
Cash and cash equivalents, beginning of period	1,133		4,690
Cash and cash equivalents, end of period	$	1,482	$	4,835

See accompanying notes to the consolidated financial statements (unaudited).


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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 July 29, 2022, and July 30, 2021, and the statements of earnings, comprehensive income, and shareholders’ deficit for the three and six months ended July 29, 2022, and July 30, 2021, and cash flows for the six months ended July 29, 2022, and July 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:


(In millions)	Three Months Ended				Six Months Ended
	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
Products	$	26,477	$	26,365	$	49,360	$	49,887
Services	588		629		1,125		1,209
Other	411		576		650		897
Net sales	$	27,476	$	27,570	$	51,135	$	51,993

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:


(In millions)	Classification	July 29, 2022		July 30, 2021		January 28, 2022
Anticipated sales returns	Other current liabilities	$	302	$	303	$	245
Right of return assets	Other current assets	183		194		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


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returned merchandise credits that have not yet been redeemed. Deferred revenue for retail and stored-value cards are as follows:


(In millions)	July 29, 2022		July 30, 2021		January 28, 2022
Retail deferred revenue	$	1,397	$	1,538	$	1,285
Stored-value cards deferred revenue	571		503		629
Deferred revenue	$	1,968	$	2,041	$	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.


(In millions)	July 29, 2022		July 30, 2021		January 28, 2022
Deferred revenue - Lowe’s protection plans	$	1,169	$	1,097	$	1,127


	Three Months Ended				Six Months Ended
(In millions)	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
Lowe’s protection plans deferred revenue recognized into sales	$	129	$	120	$	256	$	237
Lowe’s protection plans claim expenses	48		44		93		97

Disaggregation of Revenues

The following table presents the Company’s net sales disaggregated by merchandise division:


	Three Months Ended								Six Months Ended
	July 29, 2022				July 30, 2021				July 29, 2022				July 30, 2021
(In millions)	Net Sales		%		Net Sales		%		Net Sales		%		Net Sales		%
Home Décor 1	$	9,073	33.0	%	$	9,159	33.2	%	$	17,372	34.0	%	$	17,466	33.6	%
Building Products 2	8,890		32.4		9,040		32.8		15,585		30.5		16,790		32.3
Hardlines 3	8,810		32.1		8,690		31.5		16,981		33.2		16,632		32.0
Other	703		2.5		681		2.5		1,197		2.3		1,105		2.1
Total	$	27,476	100.0	%	$	27,570	100.0	%	$	51,135	100.0	%	$	51,993	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:


(In millions)	Three Months Ended				Six Months Ended
	July 29, 2022		July 30, 2021		July 29, 2022		July 30, 2021
United States	$	25,817	$	25,655	$	48,243	$	48,587
Canada	1,659		1,915		2,892		3,406
Net Sales	$	27,476	$	27,570	$	51,135	$	51,993


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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:


(In millions)	July 29, 2022		July 30, 2021		January 28, 2022
Short-term restricted investments	$	450	$	520	$	271
Long-term restricted investments	56		225		199
Total restricted investments	$	506	$	745	$	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 July 29, 2022, July 30, 2021, and January 28, 2022:


			Fair Value Measurements at
(In millions)	Classification	Measurement Level	July 29, 2022		July 30, 2021		January 28, 2022


Available-for-sale debt securities:
U.S. Treasury securities	Short-term investments	Level 1	$	214	$	139	$	75
Money market funds	Short-term investments	Level 1	119		131		120
Corporate debt securities	Short-term investments	Level 2	54		50		8
Commercial paper	Short-term investments	Level 2	35		117		30
Foreign government debt securities	Short-term investments	Level 2	14		10		14
Municipal obligations	Short-term investments	Level 2	10		—		10
Certificates of deposit	Short-term investments	Level 1	4		959		14
Agency securities	Short-term investments	Level 2	—		14		—
U.S. Treasury securities	Long-term investments	Level 1	31		148		132
Corporate debt securities	Long-term investments	Level 2	23		49		50
Municipal obligations	Long-term investments	Level 2	2		13		3

Foreign government debt securities	Long-term investments	Level 2	—		15		14


Derivative instruments:
Forward interest rate swaps	Other current assets	Level 2	$	216	$	—	$	66
Fixed-to-floating interest rate swaps	Other assets	Level 2	—		3