Lowe's Reports Record Second Quarter Earnings

MOORESVILLE, N.C., Aug. 20 /PRNewswire-FirstCall/ -- Lowe's Companies, Inc. , the world's second largest home improvement retailer, today reported net earnings of $1.02 billion for the quarter ended August 3, 2007, a 9.0 percent increase over the same period a year ago. Diluted earnings per share increased 11.7 percent to $0.67 from $0.60 in the second quarter of 2006. For the six months ended August 3, 2007, net earnings declined 1.0 percent to $1.76 billion while diluted earnings per share increased 1.8 percent to $1.15.

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Sales for the quarter increased 5.8 percent to $14.2 billion, up from $13.4 billion in the second quarter of 2006. For the six months ended August 3, 2007, sales increased 4.1 percent to $26.3 billion. Comparable store sales for the second quarter declined 2.6 percent and declined 4.4 percent in the first half of 2007.

"Despite the external pressures impacting our results, our continued focus on serving customers and executing our initiatives produced comparable store sales within our guidance range," explained Robert A. Niblock, Lowe's chairman and CEO. "Solid gross margin gains drove earnings that exceeded our guidance.

"Macro economic factors, including the many aspects of the housing market, continue to result in regionally disparate performance," Niblock added. "Markets in California and Florida, generally considered most pressured by housing, continue to perform significantly worse than average; markets in the Northeast, while still producing negative comparable store sales, are showing encouraging signs of improvement; and the many areas of the country where housing did not accelerate at an unsustainable rate over the past several years delivered positive comparable store sales. As expected, many of the difficult comparisons we faced during the last four quarters are beginning to lessen as we cycle hurricane recovery spending and deflationary price pressures from lumber and plywood.

"Although macro economic factors pressure the home improvement industry, we continue to capture market share in this challenging sales environment, and we remain committed to investing in our business to drive profitability and capitalize on long-term opportunities," Niblock added. "As evidenced by our market share gains, the experience of the tenured and talented management team at Lowe's allows us to capitalize on the opportunities provided in the current environment."

During the quarter, Lowe's opened 26 new stores including two relocations. As of August 3, 2007, Lowe's operated 1,424 stores in 49 states representing 161.6 million square feet of retail selling space, an 11.1 percent increase over last year.

A conference call to discuss second quarter 2007 operating results is scheduled for today (Monday, August 20) at 9:00 a.m. EDT. Please dial 888- 817-4020 (international callers dial 706-679-8762) to participate. A webcast of the call will take place simultaneously and can be accessed by visiting Lowe's website at http://www.lowes.com/investor and clicking on Lowe's Second Quarter 2007 Earnings Conference Call Webcast. A replay of the call will be archived on Lowes.com until November 18, 2007.

Lowe's Business Outlook Third Quarter 2007 (comparisons to third quarter 2006) -- The company expects to open 40 new stores reflecting square footage growth of approximately 10 percent -- Total sales are expected to increase 7 to 8 percent -- The company expects approximately flat comparable store sales -- Operating margin (defined as gross margin less SG&A and depreciation) is expected to decline approximately 140 basis points driven by bonus, retirement and insurance expenses that had significant leverage in last year's third quarter -- Store opening costs are expected to be approximately $47 million -- Diluted earnings per share of $0.43 to $0.45 are expected -- Lowe's third quarter ends on November 2, 2007 with operating results to be publicly released on Monday, November 19, 2007 Fiscal Year 2007 (comparisons to fiscal year 2006) -- The company expects to open 150 to 160 stores in 2007 reflecting total square footage growth of approximately 11 percent -- Total sales are expected to increase approximately 6 percent -- The company expects comparable store sales to decline approximately 2 percent -- Operating margin (defined as gross margin less SG&A and depreciation) is expected to decline 70 to 80 basis points -- Store opening costs are expected to be $135 to $140 million -- Diluted earnings per share of $1.97 to $2.01 are expected for the fiscal year ending February 1, 2008 Disclosure Regarding Forward-Looking Statements

This news release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Statements of the company's expectations for sales growth, comparable store sales, earnings and performance, capital expenditures, store openings, the housing market, demand for services, and any statement of an assumption underlying any of the foregoing, constitute "forward-looking statements" under the Act. Although the company believes that the expectations, opinions, projections, and comments reflected in its forward-looking statements are reasonable, it can give no assurance that such statements will prove to be correct. A wide-variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results expressed or implied by our forward-looking statements including, but not limited to, changes in general economic conditions, such as interest rate and currency fluctuations, fuel and other energy costs, slower growth in personal income, the availability of mortgage financing and other factors which can negatively affect our customers as well as our ability to: (i) respond to decreases in the number of new housing starts and the level of repairs, remodeling, and additions to existing homes, as well as general reduction in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes designed to enhance our efficiency and competitiveness; (iii) attract, train, and retain highly-qualified associates; (iv) locate, secure, and develop new sites for store development; (v) respond to fluctuations in the prices and availability of services, supplies, and products; (vi) respond to the growth and impact of competition; (vii) address legal and regulatory matters; and (viii) respond to unanticipated weather conditions. For more information about these and other risks and uncertainties that we are exposed to, you should read the "Risk Factors" included in our Annual Report on Form 10-K to the United States Securities and Exchange Commission and the descriptions of any material changes in those "Risk Factors" included in our subsequent Quarterly Reports on Form 10-Q.

The forward-looking statements contained in this news release speak only as of the date of this release and the company does not assume any obligation to update any such statements.

With fiscal year 2006 sales of $46.9 billion, Lowe's Companies, Inc. is a FORTUNE(R) 50 company that serves approximately 13 million customers a week at more than 1,425 home improvement stores in 49 states. Founded in 1946 and based in Mooresville, N.C., Lowe's is the second-largest home improvement retailer in the world. For more information, visit Lowes.com.

Lowe's Companies, Inc. Consolidated Statements of Current and Retained Earnings (Unaudited) In Millions, Except Per Share Data Three Months Ended August 3, 2007 August 4, 2006 Current Earnings Amount Percent Amount Percent Net sales $14,167 100.00 $13,389 100.00 Cost of sales 9,284 65.53 8,911 66.56 Gross margin 4,883 34.47 4,478 33.44 Expenses: Selling, general and administrative 2,839 20.04 2,617 19.54 Store opening costs 26 0.18 28 0.21 Depreciation 332 2.35 283 2.11 Interest - net 50 0.35 30 0.23 Total expenses 3,247 22.92 2,958 22.09 Pre-tax earnings 1,636 11.55 1,520 11.35 Income tax provision 617 4.36 585 4.37 Net earnings $1,019 7.19 $935 6.98 Weighted average shares outstanding - basic 1,490 1,541 Basic earnings per share $0.68 $0.61 Weighted average shares outstanding - diluted 1,518 1,571 Diluted earnings per share $0.67 $0.60 Cash dividends per share $0.08 $0.05 Retained Earnings Balance at beginning of period $14,968 $12,985 Cumulative effect adjustment 1 - - Net earnings 1,019 935 Cash dividends (119) (77) Share repurchases (658) - Balance at end of period $15,210 $13,843 Six Months Ended August 3, 2007 August 4, 2006 Current Earnings Amount Percent Amount Percent Net sales $26,338 100.00 $25,310 100.00 Cost of sales 17,195 65.29 16,664 65.84 Gross margin 9,143 34.71 8,646 34.16 Expenses: Selling, general and administrative 5,524 20.97 5,083 20.09 Store opening costs 38 0.14 53 0.20 Depreciation 656 2.49 557 2.20 Interest - net 97 0.37 65 0.26 Total expenses 6,315 23.97 5,758 22.75 Pre-tax earnings 2,828 10.74 2,888 11.41 Income tax provision 1,070 4.07 1,112 4.39 Net earnings $1,758 6.67 $1,776 7.02 Weighted average shares outstanding - basic 1,500 1,549 Basic earnings per share $1.17 $1.15 Weighted average shares outstanding - diluted 1,530 1,580 Diluted earnings per share $1.15 $1.13 Cash dividends per share $0.13 $0.08 Retained Earnings Balance at beginning of period $14,860 $12,191 Cumulative effect adjustment 1 (8) - Net earnings 1,758 1,776 Cash dividends (194) (124) Share repurchases (1,206) - Balance at end of period $15,210 $13,843 (1) The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes, effective February 3, 2007. Lowe's Companies, Inc. Consolidated Balance Sheets In Millions, Except Par Value Data (Unaudited) (Unaudited) August 3, August 4, February 2, 2007 2006 2007 Assets Current assets: Cash and cash equivalents $337 $316 $364 Short-term investments 325 456 432 Merchandise inventory - net 7,799 7,176 7,144 Deferred income taxes - net 209 165 161 Other current assets 181 215 213 Total current assets 8,851 8,328 8,314 Property, less accumulated depreciation 19,825 17,321 18,971 Long-term investments 627 200 165 Other assets 341 188 317 Total assets $29,644 $26,037 $27,767 Liabilities and shareholders' equity Current liabilities: Short-term borrowings $555 $- $23 Current maturities of long-term debt 85 32 88 Accounts payable 4,167 3,629 3,524 Accrued salaries and wages 371 371 425 Self-insurance liabilities 726 653 650 Deferred revenue 819 826 731 Other current liabilities 1,317 1,151 1,098 Total current liabilities 8,040 6,662 6,539 Long-term debt, excluding current maturities 4,301 3,410 4,325 Deferred income taxes - net 628 711 735 Other long-term liabilities 706 334 443 Total liabilities 13,675 11,117 12,042 Shareholders' equity: Preferred stock - $5 par value, none issued - - - Common stock - $.50 par value; Shares issued and outstanding August 3, 2007 1,485 August 4, 2006 1,538 February 2, 2007 1,525 742 769 762 Capital in excess of par value 11 307 102 Retained earnings 15,210 13,843 14,860 Accumulated other comprehensive income 6 1 1 Total shareholders' equity 15,969 14,920 15,725 Total liabilities and shareholders' equity $29,644 $26,037 $27,767 Lowe's Companies, Inc. Consolidated Statements of Cash Flows (Unaudited) In Millions Six Months Ended August 3, August 4, 2007 2006 Cash flows from operating activities: Net earnings $1,758 $1,776 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 701 591 Deferred income taxes 3 (34) Loss on disposition/writedown of fixed and other assets 17 5 Share-based payment expense 45 35 Changes in operating assets and liabilities: Merchandise inventory - net (655) (541) Other operating assets 56 (93) Accounts payable 643 797 Other operating liabilities 510 68 Net cash provided by operating activities 3,078 2,604 Cash flows from investing activities: Purchases of short-term investments (368) (228) Proceeds from sale/maturity of short-term investments 524 399 Purchases of long-term investments (1,102) (225) Proceeds from sale/maturity of long-term investments 589 141 (Increase) decrease in other long-term assets (23) 13 Fixed assets acquired (1,698) (1,556) Proceeds from the sale of fixed and other long-term assets 26 23 Net cash used in investing activities (2,052) (1,433) Cash flows from financing activities: Net increase in short-term borrowings 532 - Proceeds from issuance of long-term debt 4 - Repayment of long-term debt (31) (16) Proceeds from issuance of common stock under employee stock purchase plan 40 36 Proceeds from issuance of common stock from stock options exercised 43 48 Cash dividend payments (194) (124) Repurchase of common stock (1,450) (1,226) Excess tax benefits of share-based payments 3 4 Net cash used in financing activities (1,053) (1,278) Net decrease in cash and cash equivalents (27) (107) Cash and cash equivalents, beginning of period 364 423 Cash and cash equivalents, end of period $337 $316