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Lowe's Companies Inc LOW
Q2 2011 Earnings Call Transcript

Transcript Call Date 08/15/2011

Operator: Good morning, everyone, and welcome to Lowe's Companies Second Quarter 2011 Earnings Conference Call. This call is being recorded.

Statements made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Management's expectations and opinions reflected in those statements are subject to risk and the Company can give no assurance that they will prove to be correct. Those risks are described in the Company's earnings release and its filings with the Securities and Exchange Commission.

Also, during this call, management will be using certain non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP financial measures and other information about them posted on Lowe's Investor Relations website under Corporate Information and Investor documents.

Hosting today's conference will be Mr. Robert Niblock, Chairman, President and CEO; Mr. Bob Gfeller, Executive Vice President of Merchandising; and Mr. Bob Hull, Executive Vice President and CFO.

I'll now turn the program over to Mr. Niblock for opening remarks. Please go ahead, sir.

Robert A. Niblock - Chairman, President and CEO: Good morning, and thanks for your interest in Lowe's. Following my remarks, Bob Gfeller will review our operational performance and Bob Hull will review our financial results, but first let me share summary of our second quarter performance, as well as how we're thinking about our near-term and long-term opportunities.

Despite some recovery from the first quarter in our seasonal business, our performance for the quarter fell short of our expectations. Sales for the quarter increased 1.3%, while comparable store sales were essentially flat to last year. Comp traffic increased 0.6% in the second quarter and comp average ticket declined 0.9%. Bob Gfeller will provide more details regarding our comp performance in a few minutes.

Gross margin contracted 37 basis points in the quarter. Our 5% off everyday offer for Lowe's consumer credit cardholders impacted gross margin by 11 basis points. However, the gross margin impact of this offer was more than offset by leverage in tender and other costs associated with our proprietary credit program, which are components of SG&A. Bob Hull will provide more details regarding gross margin in a few minutes.

We had good operating expense control in the quarter. However, as detailed in today's release, we recognize the charge associated with impairment of long-lived assets, including seven stores that closed on August 14, which reduced pre-tax earnings for the quarter by $83 million and diluted earnings per share by $0.04.

We generated substantial operating cash flow during the quarter, which allowed us to repurchase 59.7 million shares or $1.4 billion, exhausting our share repurchase authorization. Including the impairment charge we delivered earnings per share of $0.64 in the second quarter.

Our second quarter consumer survey indicates that how fuel prices remain at the top of consumers' minds as they consider future expending plans. However, recent headlines regarding slowing growth in the U.S. credit rating downgrade underscores the continued weakness in U.S. economy. The volume of negative news and the unsettling impact on equity markets is having a significant effect on already fragile consumer mindset.

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