Since 2018, annual return on capital rose all the way to 34.32% in 2021 and has contracted to 26.99% in 2022. Lowe's has been improving its annual return on capital over the last decade. If anything, it can be taken as a sign management has confidence that the company is going to stay healthy financially. As long at their short-term debt obligations stay easily manageable by their operating income, this is not as scary as it first seems. Normally this is to be seen as a red flag, but it is due to their buyback program coupled with dividend raises. LOW Annual Net Interest Expense (By Author)Īnnual total equity has actually been declining and has turned negative. However, if they ever experience a significant enough decline in operating income, they risk falling behind their intended pace for dividend growth. Aggressively buying back shares helps all their per-share metrics, making it easier to pay the loans back later while also allowing for continued dividend raises. When companies sign themselves up for a steady stream of buybacks and dividend raises, they often take on debt. I didn't make a chart showing it, but in 2013 the ratio of their total debt divided by operating income was 2.5x, it reached a peak of 3.69x in 2019, and was at 3.11x by 2022. In addition to this, total debt is now elevated in comparison to their operating income. While their net interest expense is still quite manageable, their annual debt obligation has been rising. This 41.29% drop in share count is extremely attractive for long-term holders. In 2013 total common shares outstanding was at 1,030M by 2022 that was down to 601M. While growing revenue and income, Lowe's has been buying back shares at a truly impressive rate. Over that same time period net margins rose from 4.28% to 6.63%. In 2013 operating margins were at 7.87% by 2022 that had risen to 12.59%. Over the last decade, the company has experienced operating and net margin expansions. With that revenue growth, net income rose by 181.58%. FinancialsĪlthough it varies from year to year, Lowe's has experienced significant revenue growth over the last decade. Home improvement and Do-It-Yourself retailers are expected to experience a CAGR of 4.6% through 2025. They expect to outperform the market in 2023 with sales ranging from $88 billion to $90 billion, operating margin in the range of 13.6% to 13.8%, and approximately $13.60 to $14 in earnings per share. Their most recent earnings call indicates management is forecasting a loss of revenue due to the low price of lumber and a decline in the home improvement market. Its primary competitor, Home Depot ( HD), is the largest. After over a century of operations, the company has established itself as the second largest hardware chain on the planet. The company's origins go back to when Lucius Smith Lowe opened North Wilkesboro Hardware in North Wilkesboro, North Carolina in 1921. Lowe's is a home improvement retailer headquartered in Mooresville, North Carolina. The company is using their strong return on capital to feed aggressive buybacks that are leading to EPS and dividend growth. ( NYSE: LOW) shows up repeatedly in my screens and after looking over their financials, I understand why. Companies that have a culture of share buybacks and dividend growth tend to produce out-sized results for shareholders.
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