Lowe’s disappoints in Q3

Sales were up in the third quarter, but Lowe’s Companies’ financial performance impressed neither its investors nor its CEO.



The home improvement retailer’s net income dropped dramatically, owing to $462 million non-cash pre-tax charges. Net income declined to $379 million, compared to $736 million in the same quarter last year.



Sales increased 9.6% to $15.7 billion, and comparable-store sales increased 2.6% in the U.S. But analysts had expected slightly higher numbers, and shares of LOW declined in early trading Wednesday.



“Our third quarter operating results were below our expectations due to slower sales in the first two months of the quarter," said Robert A. Niblock, Lowe's chairman, president and CEO. "While we expected moderation in the second half of the year, traffic slowed more than we anticipated in August and September before improving in October, which put pressure on our profitability in the quarter.” While we have made progress in driving productivity in recent years, we are in the process of evaluating meaningful incremental opportunities to drive shareholder value while continuing to meet customers' needs in an omnichannel environment.”



The company’s income-dampening charges were described as follows:



• $290 million resulting from the wind down of Hydrox, a joint venture in which Lowe's holds a one-third ownership interest. Woolworths, the other joint venture partner, claimed a unilateral termination of the joint venture agreement and initiated the wind down of Hydrox in August 2016.



Hydrox operates Masters Home Improvement stores and Home Timber and Hardware Group's retail stores in Australia. Lowe's will treat its claim for additional value under the joint venture agreement, above and beyond any amounts expected to be received through the wind down process, as a contingent asset and will recognize these amounts as they are realized. This matter is currently in arbitration;



• $96 million 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 the critical projects that will drive desired outcomes; and



• $76 million 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 during the third quarter.



Excluding the impact of these charges, adjusted net earnings for the third quarter were $775 million, a 5.3% gain from the same period a year ago.



As of Oct. 28, Lowe's operated 2,119 home improvement and hardware stores in the United States, Canada and Mexico.



On Tuesday, Lowe’s rival The Home Depot reported a 5.5% increase in U.S. same-store sales and a 14.1% increase in net income.