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Lowe's Companies, Inc.$160.75($.67)(.42%)

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 Lowe’s Reports Fourth Quarter Sales and Earnings Results
   Wednesday, February 28, 2018 6:00:00 AM ET

Lowe’s Companies, Inc. (LOW ) today reported net earnings of $554 million and diluted earnings per share of $0.67 for the quarter ended Feb. 2, 2018 (a 13-week quarter), compared to net earnings of $663 million and diluted earnings per share of $0.74 in the fourth quarter of 2016 (a 14-week quarter). Excluding certain items described below, adjusted diluted earnings per share1 was $0.74 in the fourth quarter of 2017 compared to adjusted diluted earnings per share1 of $0.86 in the fourth quarter of 2016.

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For the fiscal year ended Feb. 2, 2018 (a 52-week year), net earnings were $3.4 billion and diluted earnings per share was $4.09 compared to net earnings of $3.1 billion and diluted earnings per share of $3.47 in fiscal 2016 (a 53-week year). Excluding certain items described below, adjusted diluted earnings per share1 was $4.39 in fiscal 2017 compared to adjusted diluted earnings per share1 of $3.99 in fiscal 2016.

Lowe’s fiscal year ends on the Friday nearest the end of January; therefore, fourth quarter and fiscal year 2016 included an extra week compared to fiscal 2017. The 53rd week contributed approximately $950 million to sales and $0.08 to diluted and adjusted diluted earnings per share1 in fiscal 2016.

The items referenced above to arrive at adjusted diluted earnings per share1 for the fourth quarter of 2017 consisted of the following:

-- $0.02 per share for a tax charge associated with the Tax Cuts and Jobs Act of 2017; and

-- $0.05 per share for a one-time cash bonus for eligible hourly U.S. employees.

In addition to those items, fiscal 2017 also included the following:

-- $0.34 per share for a loss on extinguishment of debt in the first quarter; and

-- $0.11 per share for a gain from the sale of the company’s interest in its Australian joint venture in the second quarter.

Sales for the fourth quarter were $15.5 billion compared to $15.8 billion in the fourth quarter of 2016, and comparable sales increased 4.1 percent. For the fiscal year, sales were $68.6 billion compared to $65.0 billion in fiscal 2016, and comparable sales increased 4.0 percent. Comparable sales for the U.S. home improvement business increased 3.7 percent for the fourth quarter and 3.9 percent for the fiscal year.

"We achieved comparable sales growth that exceeded our expectations driven by compelling consumer messaging, strong holiday event performance, and our integrated omni-channel customer experiences," commented Robert A. Niblock, Lowe’s chairman, president and CEO. "As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management. Given the rapidly evolving competitive landscape, we are also accelerating our strategic investments leveraging the benefits of tax reform. We continue to build the capabilities required to deliver simple and seamless experiences and strengthen our position as the omni-channel project authority.

"I would like to express my appreciation to our employees for their unwavering commitment to serving customers and the communities in which they live and work," Niblock added.

Delivering on its commitment to return excess cash to shareholders, the company repurchased $133 million of stock under its share repurchase program and paid $341 million in dividends in the fourth quarter. For the fiscal year, the company repurchased $3.1 billion of stock under its share repurchase program and paid $1.3 billion in dividends.

As of Feb. 2, 2018, Lowe’s operated 2,152 home improvement and hardware stores in the United States, Canada and Mexico representing 214.9 million square feet of retail selling space.

A conference call to discuss fourth quarter 2017 operating results is scheduled for today (Wednesday, Feb. 28) at 9:00 am ET. The conference call will be available by webcast and can be accessed by visiting Lowe’s website at www.Lowes.com/investor and clicking on Lowe’s Fourth Quarter 2017 Earnings Conference Call Webcast. Supplemental slides will be available approximately 15 minutes prior to the start of the conference call. A replay of the call will be archived on Lowes.com/investor until May 22, 2018.

Lowe’s Business Outlook

Fiscal Year 2018 (comparisons to fiscal year 2017; based on U.S. GAAP)

-- Total sales are expected to increase approximately 4 percent.

-- Comparable sales are expected to increase approximately 3.5 percent.

-- The company expects to add approximately 10 home improvement and hardware stores.

-- Operating income as a percentage of sales (operating margin) is expected to decrease approximately 30 basis points.2

-- The effective income tax rate is expected to be approximately 25.5%.

-- Diluted earnings per share of $5.40 to $5.50 are expected for the fiscal year ending Feb. 1, 2019.

1 Adjusted diluted earnings per share is a non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures Reconciliation" section of this release for additional information as well as reconciliations between the Company’s GAAP and non-GAAP financial results.

2 Includes 4 basis point net negative impact from the gain on the sale of the company’s interest in its Australian joint venture (2Q 2017) and the one-time bonus paid to eligible hourly U.S. employees (4Q 2017).

Disclosure Regarding Forward-Looking Statements

This press release 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" and similar expressions are forward-looking statements. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Forward-looking statements include, but are not limited to, statements about future financial and operating results, Lowe’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions by Lowe’s and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements 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 the rate of unemployment, interest rate and currency fluctuations, changes to tax laws applicable to corporate multinationals, such as the recently enacted U.S. Tax Cuts and Jobs Act of 2017, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, inflation or deflation of commodity prices, and other factors that can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, a reduced rate of growth in household formation, and slower rates of growth in housing renovation and repair activity, as well as uneven recovery in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes necessary to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence and enhance our efficiency; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems from data security breaches, ransomware and other cyber threats; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax or environmental issues; (ix) positively and effectively manage our public image and reputation and respond appropriately to unanticipated failures to maintain a high level of product and service quality that could result in a negative impact on customer confidence and adversely affect sales; and (x) effectively manage our relationships with selected suppliers of brand name products and key vendors and service providers, including third party installers. In addition, we could experience impairment losses if either the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values, or we are required to reduce the carrying amount of our investment in certain unconsolidated entities. With respect to acquisitions, potential risks include the effect of such transactions on Lowe’s and the target company’s strategic relationships, operating results and businesses generally; our ability to integrate personnel, labor models, financial, IT and others systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing the scope, geographic diversity and complexity of our operations; significant integration costs or unknown liabilities; and failure to realize the expected benefits of the transaction. For more information about these and other risks and uncertainties that we are exposed to, you should read the "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Policies and Estimates" included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC.

The forward-looking statements contained in this news release are expressly qualified in their entirety by the foregoing cautionary statements. The foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. All such forward-looking statements are based upon data available as of the date of this release or other specified date and speak only as of such date. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf about any of the matters covered in this release are qualified by these cautionary statements and in the "Risk Factors" included in our most recent Annual Report on Form 10-K and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, change in circumstances, future events or otherwise, except as may be required by law.

Lowe’s Companies, Inc.

Lowe’s Companies, Inc. (LOW ) is a FORTUNE? 50 home improvement company serving more than 18 million customers a week in the United States, Canada and Mexico. With fiscal year 2017 sales of $68.6 billion, Lowe’s and its related businesses operate or service more than 2,390 home improvement and hardware stores and employ over 310,000 people. Founded in 1946 and based in Mooresville, N.C., Lowe’s supports the communities it serves through programs that focus on K-12 public education and community improvement projects. For more information, visit Lowes.com.

Lowe’s Companies, Inc.
Consolidated Statements of Current and Retained Earnings
In Millions, Except Per Share and Percentage Data
                                                          Three Months Ended                            Year Ended
                                                          (Unaudited)            (Unaudited)            (Unaudited)
                                                          February 2, 2018       February 3, 2017       February 2, 2018       February 3, 2017
Current Earnings                                          Amount    % Sales      Amount    % Sales      Amount    % Sales      Amount    % Sales
Net sales                                               $ 15,494    100.00     $ 15,784    100.00     $ 68,619    100.00     $ 65,017    100.00
Cost of sales                                             10,268    66.27        10,352    65.59        45,210    65.89        42,553    65.45
Gross margin                                              5,226     33.73        5,432     34.41        23,409    34.11        22,464    34.55
Expenses:
Selling, general and administrative                       3,761     24.28        3,789     23.99        15,376    22.40        15,129    23.27
Depreciation and amortization                             367       2.37         374       2.37         1,447     2.11         1,489     2.29
Operating income                                          1,098     7.08         1,269     8.05         6,586     9.60         5,846     8.99
Interest - net                                            154       0.98         159       1.01         633       0.92         645       0.99
Loss on extinguishment of debt                            -         -            -         -            464       0.68         -         -
Pre-tax earnings                                          944       6.10         1,110     7.04         5,489     8.00         5,201     8.00
Income tax provision                                      390       2.52         447       2.84         2,042     2.98         2,108     3.24
Net earnings                                            $ 554       3.58       $ 663       4.20       $ 3,447     5.02       $ 3,093     4.76
Weighted average common shares outstanding - basic        828                    867                    839                    880
Basic earnings per common share (1)                     $ 0.67                 $ 0.74                 $ 4.09                 $ 3.48
Weighted average common shares outstanding - diluted      829                    868                    840                    881
Diluted earnings per common share (1)                   $ 0.67                 $ 0.74                 $ 4.09                 $ 3.47
Cash dividends per share                                $ 0.41                 $ 0.35                 $ 1.58                 $ 1.33
Retained Earnings
Balance at beginning of period                          $ 5,289                $ 6,376                $ 6,241                $ 7,593
Net earnings attributable to Lowe’s Companies, Inc.       554                    663                    3,447                  3,091
Cash dividends declared                                   (340)                  (304)                  (1,324)                (1,169)
Share repurchases                                         (78)                   (494)                  (2,939)                (3,274)
Balance at end of period                                $ 5,425                $ 6,241                $ 5,425                $ 6,241
(1)Under the two-class method, earnings per share is calculated using net earnings allocable to common shares, which is derived by reducing net earnings by the earnings
allocable to participating securities. Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were $553 million for the three
months ended February 2, 2018 and $643 million for the three months ended February 3, 2017. Net earnings allocable to common shares used in the basic and diluted
earnings per share calculation were $3,436 million for the year ended February 2, 2018 and $3,062 million for the year ended February 3, 2017.
Lowe’s Companies, Inc.
Consolidated Statements of Comprehensive Income
In Millions, Except Percentage Data
                                                          Three Months Ended                            Year Ended
                                                          (Unaudited)            (Unaudited)            (Unaudited)
                                                          February 2, 2018       February 3, 2017       February 2, 2018       February 3, 2017
                                                          Amount    % Sales      Amount    % Sales      Amount    % Sales      Amount    % Sales
Net earnings                                            $ 554       3.58       $ 663       4.20       $ 3,447     5.02       $ 3,093     4.76
Foreign currency translation adjustments - net of tax     (26)      (0.17)       (27)      (0.17)       251       0.37         154       0.23
Other comprehensive income/(loss)                         (26)      (0.17)       (27)      (0.17)       251       0.37         154       0.23
Comprehensive income                                    $ 528       3.41       $ 636       4.03       $ 3,698     5.39       $ 3,247     4.99
Lowe’s Companies, Inc.
Consolidated Balance Sheets
In Millions, Except Par Value Data
                                                  (Unaudited)
                                                  February 2, 2018   February 3, 2017
Assets
Current assets:
Cash and cash equivalents                         $        588       $        558
Short-term investments                                     102                100
Merchandise inventory - net                                11,393             10,458
Other current assets                                       689                884
Total current assets                                       12,772             12,000
Property, less accumulated depreciation                    19,721             19,949
Long-term investments                                      408                366
Deferred income taxes - net                                168                222
Goodwill                                                   1,307              1,082
Other assets                                               915                789
Total assets                                      $        35,291    $        34,408
Liabilities and equity
Current liabilities:
Short-term borrowings                             $        1,137     $        510
Current maturities of long-term debt                       294                795
Accounts payable                                           6,590              6,651
Accrued compensation and employee benefits                 747                790
Deferred revenue                                           1,378              1,253
Other current liabilities                                  1,950              1,975
Total current liabilities                                  12,096             11,974
Long-term debt, excluding current maturities               15,564             14,394
Deferred revenue - extended protection plans               803                763
Other liabilities                                          955                843
Total liabilities                                          29,418             27,974
Equity:
Preferred stock - $5 par value, none issued                -                  -
Common stock - $0.50 par value;
Shares issued and outstanding
February 2, 2018                              830
February 3, 2017                              866          415                433
Capital in excess of par value                             22                 -
Retained earnings                                          5,425              6,241
Accumulated other comprehensive income/(loss)              11                 (240)
Total equity                                               5,873              6,434
Total liabilities and equity                      $        35,291    $        34,408
Lowe’s Companies, Inc.
Consolidated Statements of Cash Flows
In Millions
                                                               Year Ended
                                                               (Unaudited)
                                                               February 2, 2018                 February 3, 2017
Cash flows from operating activities:
Net earnings                                                   $                         3,447  $                         3,093
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization                                  1,540                            1,590
Deferred income taxes                                          53                               28
Loss on property and other assets - net                        40                               143
Loss on extinguishment of debt                                 464                              -
(Gain) loss on cost method and equity method investments       (82)                             302
Share-based payment expense                                    99                               90
Changes in operating assets and liabilities:
Merchandise inventory - net                                    (791)                            (178)
Other operating assets                                         250                              (183)
Accounts payable                                               (92)                             653
Other operating liabilities                                    137                              79
Net cash provided by operating activities                      5,065                            5,617
Cash flows from investing activities:
Purchases of investments                                       (981)                            (1,192)
Proceeds from sale/maturity of investments                     1,114                            1,254
Capital expenditures                                           (1,123)                          (1,167)
Proceeds from sale of property and other long-term assets      45                               37
Purchases of derivative instruments                            -                                (103)
Proceeds from settlement of derivative instruments             -                                179
Acquisition of business - net                                  (509)                            (2,356)
Other - net                                                    13                               (13)
Net cash used in investing activities                          (1,441)                          (3,361)
Cash flows from financing activities:
Net change in short-term borrowings                            625                              466
Net proceeds from issuance of long-term debt                   2,968                            3,267
Repayment of long-term debt                                    (2,849)                          (1,173)
Proceeds from issuance of common stock under                   139                              139
share-based payment plans
Cash dividend payments                                         (1,288)                          (1,121)
Repurchase of common stock                                     (3,192)                          (3,595)
Other - net                                                    (10)                             (75)
Net cash used in financing activities                          (3,607)                          (2,092)
Effect of exchange rate changes on cash                        13                               (11)
Net increase in cash and cash equivalents                      30                               153
Cash and cash equivalents, beginning of period                 558                              405
Cash and cash equivalents, end of period                       $                          588   $                          558
Lowe’s Companies, Inc.
Non-GAAP Financial Measures Reconciliation
To provide additional transparency, the company has presented the non-GAAP financial measure of adjusted earnings per share to exclude the impact of certain discrete items, as further
described below, not contemplated in Lowe’s original Business Outlooks for 2017 and 2016 to assist the user in understanding performance relative to that Business Outlook.  The company
believes this non-GAAP financial measure provides useful insight for analysts and investors in evaluating the company’s operational performance.
In the second quarter of 2016, the company settled its foreign currency hedge entered into in advance of the RONA acquisition.  The net impact of the foreign currency
hedge on fiscal 2016 was a net realized gain of $76 million or $0.05 per share.
In the third quarter of 2016, the company recognized $462 million or $0.45 per share of non-cash pre-tax charges which included the following:
- $290 million or $0.33 per share resulting from the wind down of Hydrox, a joint venture in which Lowe’s held a one-third ownership interest.  Hydrox operated Masters Home
Improvement stores and Home Timber and Hardware Group’s retail stores in Australia.
- $96 million or $0.07 per share related to a write-off for projects that were canceled as part of the company’s ongoing review of strategic initiatives in an effort to focus on
critical projects that will drive desired outcomes.
- $76 million or $0.05 per share related to goodwill and long-lived asset impairments associated with the company’s Orchard Supply Hardware operations as part of a strategic
reassessment of this business.
In the fourth quarter of 2016, the company recognized the following charges:
- $84 million or $0.06 per share for severance-related costs associated with the company’s productivity efforts.
- $32 million or $0.04 per share resulting from a tax charge primarily related to the issuance of final Internal Revenue Code Section 987 regulations in December 2016.
- $18 million or $0.02 per share resulting from premium paid to acquire the outstanding RONA preferred shares.
In the first quarter of 2017, the company recognized a $464 million or $0.34 per share loss on extinguishment of debt in connection with a $1.6 billion cash tender offer.
In the second quarter of 2017, the company recognized a $96 million or $0.11 per share gain from the sale of the company’s interest in its Australian joint venture.
In the fourth quarter of 2017, the company recognized the following charges:
- $20 million or $0.02 per share tax charge associated with the Tax Cuts and Jobs Act of 2017.
- $66 million or $0.05 per share related to the one-time cash bonus to eligible hourly U.S. employees.
Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the company’s diluted earnings per share as prepared in accordance with GAAP.
The company’s methods of determining this non-GAAP financial measure may differ from the method used by other companies for this or similar non-GAAP financial measures. Accordingly, this
non-GAAP measure may not be comparable to the measures used by other companies.
Detailed reconciliations between the company’s GAAP and non-GAAP financial results are shown below and available on the company’s website at www.lowes.com/investor.
                                                                  Three Months Ended
                                                                  (Unaudited)                        (Unaudited)
                                                                  February 2, 2018                   February 3, 2017
                                                                  Pre-Tax   Tax     Net Earnings     Pre-Tax   Tax     Net Earnings
                                                                  Earnings                           Earnings
Diluted earnings per share, as reported                                             $          0.67                    $          0.74
Non-GAAP Adjustments
Severance-related costs                                           -         -       -                0.10      (0.04)  0.06
IRC Section 987 charge                                            -         -       -                -         0.04    0.04
Premium on RONA Preferred Shares 1                                -         -       -                -         -       0.02
Impact of tax reform                                              -         0.02    0.02             -         -       -
One-time cash bonus attributable to tax reform                    0.08      (0.03)  0.05             -         -       -
Adjusted diluted earnings per share                                                 $          0.74                    $          0.86
                                                                  Year Ended
                                                                  (Unaudited)
                                                                  February 2, 2018                   February 3, 2017
                                                                  Pre-Tax   Tax     Net Earnings     Pre-Tax   Tax     Net Earnings
                                                                  Earnings                           Earnings
Diluted earnings per share, as reported                                             $          4.09                    $          3.47
Non-GAAP Adjustments
Net gain on foreign currency hedge                                -         -       -                (0.09)    0.04    (0.05)
Australian joint venture impairment                               -         -       -                0.33      -       0.33
Project write-offs                                                -         -       -                0.11      (0.04)  0.07
Orchard Supply Hardware goodwill and long-lived asset impairment  -         -       -                0.08      (0.03)  0.05
Severance-related costs                                           -         -       -                0.09      (0.03)  0.06
IRC Section 987 charge                                            -         -       -                -         0.04    0.04
Premium on RONA Preferred Shares 1                                -         -       -                -         -       0.02
Loss on extinguishment of debt                                    0.55      (0.21)  0.34             -         -       -
Gain on sale of interest in Australian joint venture              (0.11)    -       (0.11)           -         -       -
Impact of tax reform                                              -         0.02    0.02             -         -       -
One-time cash bonus attributable to tax reform                    0.08      (0.03)  0.05             -         -       -
Adjusted diluted earnings per share                                                 $          4.39                    $          3.99
1 Under the two-class method, the premium paid to redeem the RONA preferred shares was deducted from net earnings to compute net earnings allocable to common shareholders.

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