Lowe’s Companies Earnings Call Nuggets: SKU Mix and Fourth Quarter Outlook

Lowe’s Companies Inc. (NYSE:LOW) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.


Scot Ciccarelli – RBC Capital Markets: Can you give us a little bit detail regarding the comments about once you’re passed the reset in clearance stages the mid-single-digit comp, how much of your SKU mix is that and how much did we actually see during the quarter and what kind of timeframe are we talking about? Is this just over like the initial two or three months or do we have a longer track record than that?

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Gregory M. Bridgeford – EVP of Business Development: Yes, Scott, that’s the track record since the categories that we’ve had go through reset have actually stabilized from an inventory standpoint. In other words, I don’t have inventory flowing into fill in the new set. I don’t have the inventory clearance that would be creating no ways on the numbers, so that is the continuing comp performance, the summation of that through what now is about 2.5 months of stabilization of categories. As I mentioned last quarter, we only had a handful of categories that had reached that, if you want to call a normalization stage. In this quarter, we’re seeing those results about between three and four dozen categories have reached that normalization stage now and more coming every week.

Scot Ciccarelli – RBC Capital Markets: Greg, what is that on a percentage of mix basis, I guess, three to four dozen categories out of, I guess I honestly don’t know what that’s out of?

Gregory M. Bridgeford – EVP of Business Development: Sure, it’s still in the range; we’re still under 20% at this point of categories that have normalized.

Fourth Quarter Outlook

Budd Bugatch – Raymond James: My first question, I know it’s little hard with the extra week, but can you give us a feel for the fourth quarter gross margin and SG&A, I know year-over-year be a tougher comparison, so sequentially how will that look, Bob?

Robert F. Hull, Jr. – CFO: Budd, there are a lot of moving pieces associated with the week shift impact, as you know we had a significant drop in gross margin for the fourth quarter last year, so we do anticipate an increase in gross margin in Q4 this year. The expected increase will be a bit larger than the 26 basis points that we saw in Q3, so we’re making continued progress on the line reviews as Greg described. We are early in the process of resetting stores. We are seeing good benefit, but there is still very small percentage that’s been set to date and we continue to reset additional lines. We’ll continue to see greater improvement in both sales, the comp impact from those new sets as well as gross margin.

Budd Bugatch – Raymond James: Just as a follow-up, if you could. The rate of share repurchase has a bit slowed and obviously I think your guidance also gives an additional slowing. With the improvement in stock price, how do you think now about share repurchase going forward and can you maybe give us a little color on that?

Robert F. Hull, Jr. – CFO: Sure. So, our stock price certainly has improved today relative to the $28.68 average share repurchase price in Q3 and as we take a look at a long-term financial performance, we still feel that the stock is attractive at the current price. The large decline in share repurchases for the year really relates to the decline in cash flow from operations. As I mentioned, we’ve got a bit of a working capital drive relative to 90 days, but nothing substantial; so that’s contributing to the decline in net working capital as it relates to, (if you adjust) timing.

A Closer Look: Lowe’s Earnings Cheat Sheet>>