UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August 2, 2019~~May 1, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1-7898

LOWE’S COMPANIES, INC.

(Exact name of registrant as specified in its charter)



North Carolina		56-0578072
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 Lowe’s Blvd.
Mooresville,	North Carolina	28117
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code		(704)	758-1000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.50 per share	LOW	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



CLASS		OUTSTANDING AT ~~8/30/2019~~5/26/2020
Common Stock, $0.50 par value		~~771,798,638~~755,002,775

LOWE’S COMPANIES, INC.

- TABLE OF CONTENTS -



			Page No.
Forward-Looking Statements			3
PART I - Financial Information			~~Page No.~~
			5
	Item 1.	Financial Statements
			5
		Consolidated Balance Sheets ~~— August 2, 2019 (Unaudited), August 3, 2018 (Unaudited) and February 1, 2019~~	35

		Consolidated Statements of ~~Current and Retained~~ Earnings ~~(Unaudited) — Three and six months ended August 2, 2019 and August 3, 2018~~	46

		Consolidated Statements of Comprehensive Income ~~(Unaudited) — Three and six months ended August 2, 2019 and August 3, 2018~~	46

		Consolidated Statements of Shareholders’ Equity ~~(Unaudited) — Three and six months ended August 2, 2019 and August 3, 2018~~	57

		Consolidated Statements of Cash Flows ~~(Unaudited) — Six months ended August 2, 2019 and August 3, 2018~~	78

		Notes to Consolidated Financial Statements ~~(Unaudited)~~	89
		Note 1: Summary of Significant Accounting Policies	9
		Note 2: Revenue	9
		Note 3: Fair Value Measurements	11
		Note 4: Restricted Investment Balances	12
		Note 5: Property and Accumulated Depreciation	12
		Note 6: Short-Term Borrowings	12
		Note 7: Long-Term Debt	13
		Note 8: Derivative Instruments	13
		Note 9: Shareholders’ Equity	13
		Note 10: Earnings Per Share	14
		Note 11: Income Taxes	15
		Note 12: Supplemental Disclosure	15
		Report of Independent Registered Public Accounting Firm	2016

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2117

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3126

	Item 4.	Controls and Procedures	3126

PART II - Other Information
			27
	Item 1.	Legal Proceedings	3227

	Item 1A.	Risk Factors	3227

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3228

	Item 6.	Exhibits	3329

		Signature	3431

FORWARD-LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “believe”, “expect”, “anticipate”, “plan”, “desire”, “project”, “estimate”, “intend”, “will”, “should”, “could”, “would”, “may”, “strategy”, “potential”, “opportunity” and similar expressions are forward-looking statements. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Forward-looking statements include, but are not limited to, statements about future financial and operating results, Lowe’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions by Lowe’s and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.

A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, inflation or deflation of commodity prices, recently enacted, proposed or threatened tariffs, any disruptions caused by our recent management and key personnel changes, and other factors that can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, a reduced rate of growth in household formation, and slower rates of growth in housing renovation and repair activity, as well as uneven recovery in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes necessary to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence and enhance our efficiency and otherwise successfully execute on our strategy and implement our strategic initiatives, including acquisitions, dispositions and the closing of certain stores and facilities; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems from system outages, data security breaches, ransomware and other cyber threats; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax, environmental issues or privacy and data protection; (ix) positively and effectively manage our public image and reputation and respond appropriately to unanticipated failures to maintain a high level of product and service quality that could result in a negative impact on customer confidence and adversely affect sales; (x) effectively manage our relationships with selected suppliers of brand name products and key vendors and service providers, including third-party installers; and (xi) respond successfully to the challenges presented by the COVID-19 pandemic and its economic effects. In addition, we could experience impairment losses and other charges if either the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values, or we are required to reduce the carrying amount of our investment in certain unconsolidated entities. With respect to acquisitions and dispositions, potential risks include the effect of such transactions on Lowe’s and the target company’s or operating business’s strategic relationships, operating results and businesses generally; our ability to integrate or divest personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing or decreasing the scope, geographic diversity, and complexity of our operations; significant integration or disposition costs or unknown liabilities; and failure to realize the expected benefits of the transaction. For more information about these and other risks and uncertainties that we are exposed to, you should read “Item 1A - Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC.

The forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. The foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. All such forward-looking statements are based upon data available as of the date of this Form 10-Q or other specified date and speak only as of such date. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf about any of the matters covered in this Form 10-Q are qualified by these cautionary statements and the risk factors disclosed in “Item 1A - Risk Factors” in the Annual Report and the description of

material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, change in circumstances, future events or otherwise, except as may be required by law.

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Lowe’s Companies, Inc.

Consolidated Balance Sheets (Unaudited)

In Millions, Except Par Value Data


		(Unaudited)			(Unaudited)
		August 2, 2019			August 3, 2018			February 1, 2019			May 1, 2020			May 3, 2019			January 31, 2020
Assets
Current assets:
Cash and cash equivalents		$	1,796		$	2,251		$	511		$	5,955		$	2,973		$	716
Short-term investments		275			391			218			201			190			160
Merchandise inventory - net		13,730			11,885			12,561
Merchandise inventory – net											14,283			15,026			13,179
Other current assets		995			956			938			1,487			1,146			1,263
Total current assets		16,796			15,483			14,228			21,926			19,335			15,318
Property, less accumulated depreciation		18,203			19,172			18,432			18,501			18,150			18,669
Operating lease right-of-use assets		3,967			—			—			3,876			3,926			3,891
Long-term investments		179			87			256			300			235			372
Deferred income taxes - net		512			249			294
Goodwill		303			1,271			303
Deferred income taxes – net											215			495			216
Other assets		735			843			995			1,014			1,078			1,005
Total assets		$	40,695		$	37,105		$	34,508		$	45,832		$	43,219		$	39,471

Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings		$	—		$	—		$	722		$	1,000		$	—		$	1,941
Current maturities of long-term debt		1,009			894			1,110			604			1,008			597
Current operating lease liabilities		492			—			—			506			500			501
Accounts payable		9,499			8,984			8,279			10,841			11,485			7,659
Accrued compensation and employee benefits		717			671			662			982			769			684
Deferred revenue		1,324			1,449			1,299			1,212			1,376			1,219
Other current liabilities		2,794			2,583			2,425			3,180			2,643			2,581
Total current liabilities		15,835			14,581			14,497			18,325			17,781			15,182
Long-term debt, excluding current maturities		16,538			14,937			14,391			20,200			16,542			16,768
Noncurrent operating lease liabilities		4,055			—			—			3,915			4,064			3,943
Deferred revenue - extended protection plans		868			828			827
Deferred revenue – extended protection plans											915			837			894
Other liabilities		759			978			1,149			761			759			712
Total liabilities		38,055			31,324			30,864			44,116			39,983			37,499

Shareholders' equity:
Preferred stock - $5 par value, none issued		—			—			—
Common stock - $0.50 par value;
Shares issued and outstanding
August 2, 2019	776
August 3, 2018	811
February 1, 2019	801	388			406			401
Preferred stock, $5 par value: Authorized – 5.0 million shares; Issued and outstanding – none											—			—			—
Common stock, $0.50 par value: Authorized – 5.6 billion shares; Issued and outstanding – 755 million, 795 million, and 763 million shares, respectively											377			397			381
Capital in excess of par value		—			—			—			10			—			—
Retained earnings		2,439			5,517			3,452			1,722			3,095			1,727
Accumulated other comprehensive loss		(187		)	(142		)	(209		)	(393		)	(256		)	(136		)
Total shareholders' equity		2,640			5,781			3,644			1,716			3,236			1,972
Total liabilities and shareholders' equity		$	40,695		$	37,105		$	34,508		$	45,832		$	43,219		$	39,471

See accompanying notes to the consolidated financial statements (unaudited).

~~Executive Overview~~

~~Financial Condition, Liquidity and Capital Resources~~

~~Off-Balance Sheet Arrangements~~

~~Contractual Obligations and Commercial Commitments~~

~~Critical Accounting Policies and Estimates~~


•	Executive Overview


•	Operations


•	Financial Condition, Liquidity and Capital Resources


•	Off-Balance Sheet Arrangements


•	Contractual Obligations and Commercial Commitments


•	Critical Accounting Policies and Estimates

EXECUTIVE OVERVIEW

Performance Overview

Net sales ~~and~~in the first quarter of 2020 increased 10.9% to $19.7 billion compared to net sales of $17.7 billion in the first quarter of 2019. The increase in total sales was driven by an increase in comparable sales. Net earnings in the first quarter of 2020 increased 27.8% to $1.3 billion compared to net earnings ~~increased for~~of $1.0 billion in the ~~second~~first quarter of ~~2019 by 0.5% to $21.0 billion and 10.2% to $1.7 billion, respectively.~~2019. Diluted earnings per common share increased ~~14.9%~~34.7% in the ~~second~~first quarter of ~~2019~~2020 to ~~$2.14~~$1.76 from ~~$1.86~~$1.31 in the ~~second~~first quarter of 2018. During the second quarter of 2019, the Company incurred $14 million of pre-tax operating costs and a $3 million tax benefit associated with the wind-down of our Mexico retail operations. In the second quarter of 2018, the Company recorded $230 million of non-cash pre-tax charges related to long-lived asset impairments and discontinued projects associated with the strategic reassessment of Orchard Supply Hardware (Orchard), which decreased diluted earnings per share by $0.21 for the second quarter of 2018.2019. Excluding the impact of ~~these items,~~operating costs related to the Canada restructuring, adjusted diluted earnings per common share increased ~~3.9%~~44.6% to ~~$2.15~~$1.77 in the ~~second~~first quarter of ~~2019~~2020 from adjusted diluted earnings per common share of ~~$2.07~~$1.22 in the ~~second~~first quarter of ~~2018~~2019 (see the discussion of non-GAAP financial measures ~~beginning on page 23)~~).

For the first ~~six~~three months of ~~2019,~~2020, cash flows from operating activities were approximately ~~$3.6~~$4.5 billion, while ~~$526~~$328 million was used for capital expenditures. ~~Continuing to deliver on our commitment to return excess cash to shareholders,~~In addition, during the ~~second quarter~~first three months of ~~2019,~~2020, we ~~paid $382~~repurchased $947 million ~~in dividends and repurchased $2.0 billion~~ of common stock through our share repurchase ~~program.~~program; however, during the quarter, we decided to suspend our share repurchases and do not currently anticipate any additional share repurchases in fiscal 2020. We remain committed to returning capital to our shareholders through our dividend program and paid $420 million in dividends during the first quarter of 2020.

~~During~~Overall, customer demand exceeded our expectations during the ~~second~~first quarter of ~~2019, we capitalized on continued Spring demand and executed successful Memorial Day, Father’s Day, and Independence Day events.~~2020, during a time of global economic uncertainty due to the COVID-19 pandemic, particularly in the latter half of the quarter. We experienced a comparable sales increase of ~~2.3%~~11.2% and broad-based growth with all 15 U.S. regions generating positive comparable ~~sales despite weather challenges early in the quarter and lumber deflation. Nine~~sales. Fourteen of 13fifteen product categories generated positive comparable sales with ~~particular strength~~weakness limited to interior installation-heavy product in ~~Paint, Tools, Appliances, Décor, Hardware, Millwork,~~Kitchens & Bath as consumers were reluctant to invite people into their homes.

COVID-19 Response

As a Company, we began the first quarter focused on executing our retail strategy; however, we rapidly re-prioritized our first quarter objectives to address the impacts of COVID-19. With the onset of COVID-19, our focus shifted from running a business to achieve our financial plan to functioning as an essential retailer operating in a pandemic with three key priorities as follows:


1.	Creating a safe store environment for our associates and customers,


2.	Providing support for our community, including health care providers and first responders, and


3.	Financially supporting our associates during this unprecedented time.

We implemented a number of measures to facilitate a safer store environment including shortening our store hours, adding signage and ~~Seasonal & Outdoor Living. Weather was challenging early~~floor markers, adding social distancing ambassadors to monitor customer traffic flow, implementing more stringent cleaning procedures, installing plexiglass shields at the point-of-sale areas, and distributing gloves and masks to our associates to wear during their shifts. We incurred $342 million of COVID-19 related expenses in the ~~quarter; however,~~first quarter for support for our associates, vendors, and communities. This support included two special payments to hourly associates to help with

unexpected expenses, as well as a $2 per hour temporary wage increase for hourly associates during the ~~weather improved,~~month of April. We also offered fourteen days of emergency paid leave for all associates who needed it, with an additional two weeks paid leave for those at higher risk for severe illness, and provided telemedicine services to all our associates and their families. In addition, within our communities, we ~~saw sequential improvement through the quarter.~~began donating essential protective product to help protect first responders and front-line medical workers.

Our ~~overall performance in the second quarter demonstrates continued momentum executing~~strategic investments and intense focus on our retail fundamentals ~~framework. We continue~~over the past eighteen months have enabled us to ~~make steady, deliberate progress~~respond more effectively in this rapidly changing environment, and we established the agility to ~~better serve~~be able to provide our customers with the essential products they need to keep their homes safe and functional. Our associates were able to leverage their SMART mobile devices to fulfill Buy Online Pick-up In Store and Curbside Pick-up more efficiently. In addition, our new customer-centric scheduling system allowed us to monitor store traffic and associate availability to customize priorities based on store capacity levels.

Supply Chain

Our previous inventory investments gave us a strong in-stock position ~~our business~~ for ~~long-term success,~~Pro and ~~improve results that have historically performed below~~seasonal products. Our supply chain organization also met the ~~Company average. Our focus on the Pro~~unprecedented customer ~~particularly investments in job lot quantities and our improved service model, led to strong performance~~demand in the ~~quarter. In addition, we took steps during~~first quarter, partly due to the ~~quarter~~efforts put forth in the past year to ~~begin modernizing~~bolster our international and ~~transforming our Lowes.com website~~domestic carrier network which allowed us to ~~improve agility and~~manage through the ~~customer experience, which we believe are critical to growing our online presence.~~global health crisis without transportation interruptions. We also ~~announced plans~~leveraged cross-functional collaboration and partnership with vendors to ~~open a new global~~redirect product where necessary. Finally, technology ~~center in 2021~~improvements that ~~will house additional technology professionals in Charlotte and underscores~~we previously implemented across our ~~commitment~~supply chain have created better visibility for our stores with regard to ~~becoming a best-in-class, omni-channel retailer.~~product availability.

Looking Forward

While we are pleased with ~~actions taken during~~the strong performance for the quarter, ~~to improve gross margin,~~ we have ~~additional work~~limited visibility into future business trends. The volume of demand in future periods is uncertain as it is difficult to ~~modernize~~predict the duration and spread of the COVID-19 pandemic or its impact on our ~~systems~~operations and ~~pricing tools. Therefore, over~~supply chain for the next year, we plan to deploy a new price management system that we hope will enable us to systematically analyze, prioritize and implement retail changes more timely and will provide merchants more visibility to pricing actions. We also will focus on integratingremainder of the Boomerang retail analytics platform, which we acquired this quarter and previously announced, into our core retail business. This platform is expected to strengthen strategic, data-driven pricing and merchandising assortment decisions across the business.year.

~~In addition, we also saw growth in our inventory~~We are continuing to prioritize investment in the ~~first half of fiscal 2019 over the prior year, driven by strategic investments~~business for future growth, and in ~~the first half of the year to drive sales, such as earlier seasonal load-in, resets, increases in presentation minimums, and investments in job lot quantities. In the second half of fiscal year 2019,~~certain cases, we ~~expect~~have re-prioritized some capital projects to focus on ~~reducing inventory~~the near-term improvement of our omni-channel capabilities. We also continue to focus on completing our Google Cloud migration in ~~certain areas by rolling out predictable delivery~~the second quarter to ensure we build a strong infrastructure for Lowes.com. Although our future environment is unpredictable, we are confident in our ability to execute and ~~improving on~~continue to provide the essential products and services our ~~demand planning.~~communities need. We ~~believe these measures will help us strategically manage down inventory while protecting~~remain committed to serving our ~~in-stock position~~customers and ~~margin.~~communities in the coming months as we navigate the public health challenge of COVID-19.

OPERATIONS

The following ~~tables set~~table sets forth the percentage relationship to net sales of each line item of the consolidated statements of ~~current and retained~~ earnings (unaudited), as well as the percentage change in dollar amounts from the prior period. ~~These tables~~This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).

Three Months Ended
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period¹

Percentage Increase / (Decrease) in Dollar Amounts from Prior Period¹

August 2, 2019 August 3, 2018 2019 vs. 2018
2019 vs. 2018
Net sales 100.00 % 100.00 % N/A
0.5 %
Gross margin 32.11
32.96
(85 ) (2.1 )
Expenses:
Selling, general and administrative 19.29
20.99
(170 ) (7.7 )
Depreciation and amortization 1.48
1.61
(13 ) (7.2 )
Operating income 11.34
10.36
98
10.1
Interest - net 0.80
0.74
6
10.6
Pre-tax earnings 10.54
9.62
92
10.1
Income tax provision 2.56
2.34
22
9.5
Net earnings 7.98 % 7.28 % 70
10.2 %

Six Months Ended
Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period¹

Percentage Increase / (Decrease) in Dollar Amounts from Prior Period¹

August 2, 2019 August 3, 2018 2019 vs. 2018
2019 vs. 2018
Net sales 100.00 % 100.00 % N/A
1.3 %
Gross margin 31.81
33.03
(122 ) (2.5 )
Expenses:
Selling, general and administrative 20.42
21.75
(133 ) (4.9 )
Depreciation and amortization 1.58
1.79
(21 ) (10.4 )
Operating income 9.81
9.49
32
4.7
Interest - net 0.86
0.82
4
5.8
Pre-tax earnings 8.95
8.67
28
4.6
Income tax provision 1.92
2.11
(19 ) (7.6 )
Net earnings 7.03 % 6.56 % 47
8.5 %

¹In the fourth quarter of fiscal 2018, we changed our method of accounting for shipping and handling costs from the Company’s stores, distribution centers, and other locations to customers. Under this new accounting principle, shipping and handling costs related to the delivery of products from the Company to customers are included in costs of sales, whereas they were previously included in selling, general, and administrative expense, and depreciation and amortization. Amounts

~~presented for the three and six months ended August 3, 2018 reflect adjusted amounts in accordance with this accounting principle change.~~



	Three Months Ended				Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period
	May 1, 2020		May 3, 2019		2020 vs. 2019		2020 vs. 2019
Net sales	100.00	%	100.00	%	N/A		10.9	%
Gross margin	33.10		31.46		164		16.7
Expenses:
Selling, general and administrative	21.32		21.77		(45	)	8.6
Depreciation and amortization	1.66		1.70		(4	)	7.9
Operating income	10.12		7.99		213		40.5
Interest – net	1.04		0.92		12		26.2
Pre-tax earnings	9.08		7.07		201		42.4
Income tax provision	2.28		1.17		111		115.5
Net earnings	6.80	%	5.90	%	90		27.8	%

The following table sets forth key metrics utilized by management in assessing business performance. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).

Beginning on February 1, 2020, the Company changed the basis in which it presents the comparable sales metric. The current metric is presented on a transacted basis when tender is accepted from a customer. Prior to this change, the Company’s comparable sales metric was based on when control of the good or service passed to the customer, which included timing impacts of deferred sales. These timing impacts have historically had an insignificant impact on annual comparable sales. The purpose of the change was to align the metric with how the Lowe’s management team evaluates the business throughout the year and views performance relative to peers. For the three months ended May 1, 2020, and May 3, 2019, the impact of excluding deferred sales decreased the comparable sales metric by 60 basis points and 30 basis points, respectively. The comparable sales metric for the three months ended May 3, 2019 has been recast to conform to the current year presentation.


	Three Months Ended						Six Months Ended						Three Months Ended
Other Metrics	August 2, 2019			August 3, 2018			August 2, 2019			August 3, 2018			May 1, 2020			May 3, 2019
Comparable sales increase ¹	2.3		%	5.2		%	2.9		%	3.0		%	11.2		%	3.2		%
Total customer transactions (in millions)	269			277			499			508			233			230
Average ticket ²	$	77.97		$	75.53		$	77.61		$	75.28		$	84.38		$	77.19
At end of period:
Number of stores	2,003			2,155									1,970			2,002
Sales floor square feet (in millions)	209			215									208			209
Average store size selling square feet (in thousands) ³	104			100									106			104
Net earnings to average debt and equity ⁴	10.0		%	15.2		%							17.2		%	9.2		%
Return on invested capital ⁴	12.3		%	17.4		%							19.7		%	11.5		%

Beginning in the third quarter of fiscal 2019, the Company ~~previously~~began a strategic review of its Canadian operations, and in the fourth quarter of fiscal 2019, the Company announced additional actions to improve future performance and profitability of its Canadian operations. As a result of this review and related actions, during the three months ended May 1, 2020, the Company recognized $9 million of pre-tax operating costs related to exit costs (Canada restructuring).

Prior to the beginning of fiscal 2019, the Company announced its intention to exit its Mexico retail ~~operations. During~~operations and had planned to sell the ~~three months ended August 2,~~operating business. However, in the first quarter of 2019, after an extensive market evaluation, the ~~Company recognized a net loss~~decision was made to instead sell the assets of the business through liquidation. That decision resulted in an $82 million tax benefit in the first quarter, partially offset by $12 million ~~or net $0.01 per share impact~~in pre-tax operating losses associated with ~~losses, net of tax, for~~ the ~~period associated with the~~exit and ongoing wind-down of the Mexico retail operations (Mexico adjustments).

A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, inflation or deflation of commodity prices, recently enacted or proposed tariffs, any disruptions caused by our recent management and key personnel changes, and other factors that can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, a reduced rate of growth in household formation, and slower rates of growth in housing renovation and repair activity, as well as uneven recovery in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes necessary to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence and enhance our efficiency and otherwise successfully execute on our strategy and implement our strategic initiatives, including acquisitions, dispositions and the closing of certain stores and facilities; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems from system outages, data security breaches, ransomware and other cyber threats; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax, environmental issues or privacy and data protection; (ix) positively and effectively manage our public image and reputation and respond appropriately to unanticipated failures to maintain a high level of product and service quality that could result in a negative impact on customer confidence and adversely affect sales; and (x) effectively manage our relationships with selected suppliers of brand name products and key vendors and service providers, including third-party installers. In addition, we could experience impairment losses and other charges if either the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values, or we are required to reduce the carrying amount of our investment in certain unconsolidated entities. With respect to acquisitions and dispositions, potential risks include the effect of such transactions on Lowe’s and the target company’s or operating business’s strategic relationships, operating results and businesses generally; our ability to integrate or divest personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing or decreasing the scope, geographic diversity, and complexity of our operations; significant integration or disposition costs or unknown liabilities; and failure to realize the expected benefits of the transaction. For more information about these and other risks and uncertainties that we are exposed to, you should read “Item 1A - Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC.


	Three Months Ended								Six Months Ended								Three Months Ended
	August 2, 2019				August 3, 2018				August 2, 2019				August 3, 2018				May 1, 2020			May 3, 2019
Current Earnings	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount		% Sales	Amount		% Sales
Net sales	$	20,992		100.00	$	20,888		100.00	$	38,733		100.00	$	38,247		100.00	$	19,675	100.00	$	17,741	100.00
Cost of sales	14,252			67.89	14,003			67.04	26,412			68.19	25,615			66.97	13,162		66.90	12,160		68.54
Gross margin	6,740			32.11	6,885			32.96	12,321			31.81	12,632			33.03	6,513		33.10	5,581		31.46
Expenses:
Selling, general and administrative	4,048			19.29	4,386			20.99	7,909			20.42	8,319			21.75	4,196		21.32	3,862		21.77
Depreciation and amortization	311			1.48	336			1.61	614			1.58	685			1.79	326		1.66	302		1.70
Operating income	2,381			11.34	2,163			10.36	3,798			9.81	3,628			9.49	1,991		10.12	1,417		7.99
Interest - net	169			0.80	153			0.74	331			0.86	313			0.82
Interest – net																	205		1.04	162		0.92
Pre-tax earnings	2,212			10.54	2,010			9.62	3,467			8.95	3,315			8.67	1,786		9.08	1,255		7.07
Income tax provision	536			2.56	490			2.34	745			1.92	806			2.11	449		2.28	209		1.17
Net earnings	$	1,676		7.98	$	1,520		7.28	$	2,722		7.03	$	2,509		6.56	$	1,337	6.80	$	1,046	5.90


Weighted average common shares outstanding - basic	781				813				788				819
Weighted average common shares outstanding – basic																	755			796
Basic earnings per common share	$	2.14			$	1.86			$	3.44			$	3.05			$	1.76		$	1.31
Weighted average common shares outstanding - diluted	781				814				789				820
Weighted average common shares outstanding – diluted																	756			797
Diluted earnings per common share	$	2.14			$	1.86			$	3.44			$	3.05			$	1.76		$	1.31
Cash dividends per share	$	0.55			$	0.48			$	1.03			$	0.89

Retained Earnings
Balance at beginning of period	$	3,095			$	5,405			$	3,452			$	5,425
Cumulative effect of accounting change	—				—				(263		)		33
Net earnings	1,676				1,520				2,722				2,509
Cash dividends declared	(428		)		(390		)		(810		)		(728		)
Share repurchases	(1,904		)		(1,018		)		(2,662		)		(1,722		)
Balance at end of period	$	2,439			$	5,517			$	2,439			$	5,517


	Three Months Ended								Six Months Ended										Three Months Ended
	August 2, 2019			August 3, 2018					August 2, 2019					August 3, 2018					May 1, 2020					May 3, 2019
	Amount		% Sales	Amount			% Sales		Amount			% Sales		Amount			% Sales		Amount			% Sales		Amount			% Sales
Net earnings	$	1,676	7.98	$	1,520		7.28		$	2,722		7.03		$	2,509		6.56		$	1,337		6.80		$	1,046		5.90
Foreign currency translation adjustments - net of tax	69		0.33	(70		)	(0.34	)	36			0.09		(154		)	(0.40	)
Foreign currency translation adjustments – net of tax																			(159		)	(0.82	)	(33		)	(0.18	)
Cash flow hedges – net of tax																			(102		)	(0.52	)	(15		)	(0.09	)
Other	—		—	—			—		(14		)	(0.04	)	—			—		4			0.03		—			—
Other comprehensive income/(loss)	69		0.33	(70		)	(0.34	)	22			0.05		(154		)	(0.40	)
Other comprehensive loss																			(257		)	(1.31	)	(48		)	(0.27	)
Comprehensive income	$	1,745	8.31	$	1,450		6.94		$	2,744		7.08		$	2,355		6.16		$	1,080		5.49		$	998		5.63



	Three Months Ended August 3, 2018
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
	Shares		Amount			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance May 4, 2018	822		$	411		$	—		$	5,405		$	(71	)	$	5,745
Net earnings									1,520						1,520
Other comprehensive loss												(71		)	(71		)
Cash dividends declared, $0.48 per share									(390		)				(390		)
Share-based payment expense						40									40
Repurchase of common stock	(11	)	(5		)	(82		)	(1,018		)				(1,105		)
Issuance of common stock under share-based payment plans	—		—			42									42
Balance August 3, 2018	811		$	406		$	—		$	5,517		$	(142	)	$	5,781

	Six Months Ended August 3, 2018
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
	Shares		Amount			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance February 2, 2018	830		$	415		$	22		$	5,425		$	11		$	5,873
Cumulative effect of accounting change									33						33
Net earnings									2,509						2,509
Other comprehensive loss												(153		)	(153		)
Cash dividends declared, $0.89 per share									(728		)				(728		)
Share-based payment expense						61									61
Repurchase of common stock	(20	)	(10		)	(132		)	(1,722		)				(1,864		)
Issuance of common stock under share-based payment plans	1		1			49									50
Balance August 3, 2018	811		$	406		—			$	5,517		$	(142	)	$	5,781


	Six Months Ended						Three Months Ended
	August 2, 2019			August 3, 2018			May 1, 2020			May 3, 2019
Cash flows from operating activities:
Net earnings	$	2,722		$	2,509		$	1,337		$	1,046
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	684			751			373			337
Noncash lease expense	228			—			116			114
Deferred income taxes	(121		)	(75		)	46			(106		)
Loss on property and other assets - net	38			261
Loss on cost method and equity method investments	12			3
Loss (gain) on property and other assets – net							17			(2		)
Share-based payment expense	51			62			27			42
Changes in operating assets and liabilities:
Merchandise inventory - net	(1,153		)	(549		)
Merchandise inventory – net							(1,183		)	(2,478		)
Other operating assets	(116		)	(140		)	(206		)	(275		)
Accounts payable	1,202			2,408			3,207			3,199
Other operating liabilities	36			557			716			260
Net cash provided by operating activities	3,583			5,787			4,450			2,137

Cash flows from investing activities:
Purchases of investments	(245		)	(980		)	(70		)	(3		)
Proceeds from sale/maturity of investments	272			1,012			107			54
Capital expenditures	(526		)	(543		)	(328		)	(205		)
Proceeds from sale of property and other long-term assets	42			30			25			24
Other - net	(1		)	1
Other – net							(22		)	(1		)
Net cash used in investing activities	(458		)	(480		)	(288		)	(131		)

Cash flows from financing activities:
Net change in short-term borrowings	(722		)	(1,137		)
Net proceeds from issuance of long-term debt	2,972			—
Repayment of long-term debt	(629		)	(24		)
Net change in commercial paper							(941		)	(722		)
Net proceeds from issuance of debt							3,961			2,972
Repayment of debt							(543		)	(616		)
Proceeds from issuance of common stock under share-based payment plans	72			50			4			32
Cash dividend payments	(767		)	(678		)	(420		)	(385		)
Repurchase of common stock	(2,770		)	(1,846		)	(966		)	(826		)
Other - net	(7		)	(2		)
Net cash used in financing activities	(1,851		)	(3,637		)
Other – net							(3		)	(9		)
Net cash provided by financing activities							1,092			446

Effect of exchange rate changes on cash	(1		)	(7		)	(15		)	(2		)

Net increase in cash and cash equivalents, including cash classified within current assets held for sale	1,273			1,663			5,239			2,450
Less: Net decrease in cash classified within current assets held for sale	12			—			—			12
Net increase in cash and cash equivalents	1,285			1,663			5,239			2,462
Cash and cash equivalents, beginning of period	511			588			716			511
Cash and cash equivalents, end of period	$	1,796		$	2,251		$	5,955		$	2,973



Lease Cost (In millions)	Three Months Ended August 2, 2019		Six Months Ended August 2, 2019
Finance lease cost
Amortization of leased assets	$	9	$	17
Interest on lease liabilities	7		14
Operating lease cost ¹	176		339
Total lease cost	$	192	$	370



Balance February 1, 2019	801		$	401		$	—		$	3,452		$	(209	)	$	3,644
Cumulative effect of accounting change									(263		)				(263		)
Net earnings									1,046						1,046
Other comprehensive loss												(47		)	(47		)
Cash dividends declared, $0.48 per share									(382		)				(382		)
Share-based payment expense						39									39
Repurchase of common stock	(8	)	(5		)	(70		)	(758		)				(833		)
Issuance of common stock under share-based payment plans	2		1			31									32
Balance May 3, 2019	795		$	397		$	—		$	3,095		$	(256	)	$	3,236



Leases (In millions)	Classification	August 2, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	3,967
Finance lease assets	Property, less accumulated depreciation ¹	303
Total lease assets		4,270

Liabilities
Current
Operating	Current operating lease liabilities	492
Finance	Current maturities of long-term debt	35
Noncurrent
Operating	Noncurrent operating lease liabilities	4,055
Finance	Long-term debt, excluding current maturities	382
Total lease liabilities		$	4,964


¹	~~Finance lease assets are recorded net of accumulated amortization of $17 million as of August 2, 2019.~~


¹	~~Includes short-term leases, variable lease costs, and sublease income, which are immaterial.~~



Maturity of lease liabilities (In millions)	Operating Leases ¹			Finance Leases ²			Total
2019	$	289		$	27		$	316
2020	675			61			736
2021	654			60			714
2022	659			63			722
2023	570			58			628
After 2023	3,010			321			3,331
Total lease payments	5,857			590			6,447
Less: interest ³	(1,310		)	(173		)	(1,483		)
Present value of lease liabilities ⁴	$	4,547		$	417		$	4,964


¹	Operating lease payments include $275 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $294 million of minimum lease payments for leases signed but not yet commenced.


²	Finance lease payments include $19 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $329 million of minimum lease payments for leases signed but not yet commenced.


³	~~Calculated using the lease-specific incremental borrowing rate.~~


⁴	~~Includes the current portion of $492 million for operating leases and $35 million for finance leases.~~



~~Lease Term and Discount Rate~~	~~August 2, 2019~~
~~Weighted-average remaining lease term (years)~~
~~Operating leases~~	~~10.45~~
~~Finance leases~~	~~10.80~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~4.23~~	%
~~Finance leases~~	~~7.38~~	%


¹	Home Décor includes the following product categories: Appliances, Décor, Flooring, Kitchens & Bath, and Paint


²	Hardlines includes the following product categories: Hardware, Lawn & Garden, Seasonal & Outdoor Living, and Tools


²	~~Home Décor includes the following product categories: Appliances, Decor, Flooring, Kitchens & Bath, and Paint~~


³	Building Products includes the following product categories: Building Materials, Electrical, Lighting, Lumber, ~~& Building Materials,~~ Millwork, and Rough Plumbing ~~& Electrical~~



Other Information (In millions)	Six Months Ended August 2, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	432
Operating cash flows used for finance leases	14
Financing cash flows used for finance leases	27
Leased assets obtained in exchange for new finance lease liabilities	31
Leased assets obtained in exchange for new operating lease liabilities	317



	February 1, 2019
Fiscal Year (In millions)	Operating Leases		Capitalized Lease Obligations			Total
2019	$	595	$	133		$	728
2020	605		87			692
2021	564		90			654
2022	519		87			606
2023	473		86			559
Later years	2,609		783			3,392
Total minimum lease payments	$	5,365	$	1,266		$	6,631
Less amount representing interest			(492		)
Present value of minimum lease payments			774
Less current maturities			(65		)
Present value of minimum lease payments, less current maturities			$	709


(In millions)	Three Months Ended				Six Months Ended				Three Months Ended
(In millions)	August 2, 2019		August 3, 2018		August 2, 2019		August 3, 2018		May 1, 2020		May 3, 2019
Products	$	19,976	$	19,735	$	36,877	$	36,235	$	19,020	$	16,900
Services	591		709		1,144		1,333		399		554
Other	425		444		712		679		256		287
Net sales	$	20,992	$	20,888	$	38,733	$	38,247	$	19,675	$	17,741


•	Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities


•	Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly


•	Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities


		Fair Value Measurements at							Fair Value Measurements at
(In millions)	Measurement Level	August 2, 2019		August 3, 2018		February 1, 2019		Measurement Level	May 1, 2020		May 3, 2019		January 31, 2020
Assets:
Short-term investments:
Available-for-sale securities
Available-for-sale debt securities
U.S. Treasury securities								Level 1	$	133	$	—	$	13
Money market funds	Level 1	$	241	$	374	$	207	Level 1	33		156		105
Corporate debt securities								Level 2	28		12		23
Agency securities	Level 2	22		—		10		Level 2	7		22		19
Corporate debt securities	Level 2	12		—		1
Certificates of deposit	Level 1	—		17		—
Total short-term investments		$	275	$	391	$	218		$	201	$	190	$	160
Long-term investments:
Available-for-sale securities
Available-for-sale debt securities
U.S. Treasury securities								Level 1	$	214	$	26	$	280
Corporate debt securities	Level 2	$	75	$	80	$	191	Level 2	56		181		62
U.S. Treasury securities	Level 1	67		—		—
Agency securities	Level 2	37		7		65		Level 2	30		28		30
Total long-term investments		$	179	$	87	$	256		$	300	$	235	$	372

Liabilities:
Other current liabilities:
Derivative instruments
Forward interest rate swaps								Level 2	$	15	$	—	$	11
Total other current liabilities									$	15	$	—	$	11
Other liabilities:
Derivative instruments
Forward interest rate swaps								Level 2	$	17	$	—	$	—
Total other liabilities									$	17	$	—	$	—



	Costs Incurred
	Three Months Ended		Six Months Ended
(In millions)	August 3, 2018		August 3, 2018
Long-lived asset impairments	$	206	$	206
Discontinued project write-offs	24		24
Total	$	230	$	230



Issue Date	Principal Amount (in millions)		Maturity Date	Fixed vs. Floating	Interest Rate	Discount (in millions)
April 5, 2019	$	1,500	April 2029	Fixed	3.650%	$	9
April 5, 2019	$	1,500	April 2049	Fixed	4.550%	$	19



Principal Amount (in millions)		Maturity Date	Interest Rate	Discount (in millions)
$	750	April 2025	4.000%	$	4
$	1,250	April 2030	4.500%	$	12
$	750	April 2040	5.000%	$	10
$	1,250	April 2050	5.125%	$	13


¹	Reductions of ~~$1.9 billion~~$927 million and ~~$1.0 billion~~$758 million were recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended ~~August 2,~~May 1, 2020, and May 3, 2019, ~~and August 3, 2018, respectively.~~


²	~~Reductions of $2.7 billion and $1.7 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the six months endedAugust 2, 2019 and August 3, 2018,~~ respectively.


²	Average ticket is defined as net sales divided by the total number of customer transactions.


³	Average store size selling square feet is defined as sales floor square feet divided by the number of stores open at the end of the period. The average Lowe’s-branded home improvement store has approximately ~~112,000~~112 thousand square feet of retail selling space.


⁴	Return on invested capital is calculated using a non-GAAP financial measure. Net earnings to average debt and equity is the most comparable GAAP ratio. See below for additional information and reconciliations of non-GAAP measures.


	For the Periods Ended						For the Periods Ended
(In millions, except percentage data)	August 2, 2019			August 3, 2018			May 1, 2020			May 3, 2019
Calculation of Return on Invested Capital
Numerator
Net Earnings	$	2,527		$	3,935		$	4,572		$	2,372
Plus:
Interest expense - net	643			627
Interest expense – net							733			626
Operating lease interest	197			212			189			201
Provision for income taxes	1,018			1,711			1,583			972
Lease adjusted net operating profit	4,385			6,485			7,077			4,171
Less:
Income tax adjustment ¹	1,258			1,966			1,820			1,212
Lease adjusted net operating profit after tax	$	3,127		$	4,519		$	5,257		$	2,959

Denominator
Average debt and equity ²	$	25,395		$	25,906		$	26,645		$	25,676
Net earnings to average debt and equity	10.0		%	15.2		%	17.2		%	9.2		%
Return on invested capital	12.3		%	17.4		%	19.7		%	11.5		%


¹	Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was ~~28.70%~~25.7% and ~~30.30%~~29.1% for the periods ended ~~August 2,~~May 1, 2020, and May 3, 2019, ~~and August 3, 2018,~~ respectively.


²	Average debt and equity is defined as average current year and prior year ending debt, including current maturities, short-term borrowings, and operating lease liabilities, plus the average current year and prior year ending total equity.


¹	Includes merchandising resets, facility repairs, replacements of IT and store equipment, among other specific efforts.


²	Represents investments related to our strategic focus areas aimed at improving customers’ experience and driving improved performance in the near and long term.