Business

Lowe’s Home Improvement Feels Economic Sting

Lowe’s Cos., the nation’s second-largest home improvement retailer, said Monday that it will buy back almost $5 billion of its common stock.

The AP reports: “While the repurchase program has no expiration date, the Mooresville, N.C., company said it plans to use the full amount over the next two to three years.”

This signals that the retail giant, like many others, has been wrestling with the infecundity of the current U.S. economy. Normally, a company only buys back its common stock to reduce the amount of outstanding stock on the open market (including insiders’ holdings).

Stock repurchases are often used as a tax-efficient method to hold onto existing assets rather than being obliged to pay dividends. Sometimes, as in the case of Lowe’s, a company will repurchase their stock because they believe that it is undervalued on the open market.

Of course, a company will also sometimes repurchase its stock to provide a “bonus” to incentive compensation plans for employees (rather than receive cash, recipients receive an asset that might appreciate faster than cash in the bank). However, this is most likely not the case with Lowe’s.

Last week an official report from the home improvement giant revealed that its second-quarter net income was nearly flat due in part to bad weather but mostly because of shoppers’ worries about the economy. Consequently, the company had to lower its sales forecast for the second half of its fiscal year due to this “consumer uncertainty.”

After Q1, Lowe’s had projected revenue guidance of 4 percent for 2011. According to Forbes, Q2 sales declined 1.5 percent and Lowe’s has now revised its revenue guidance to 2 percent as the consumer sentiment especially as sentiment in the homebuilder and home improvement segments dipped further.

Lowes Feeling Economic Pain

Lowe’s will have to figure out a way to somehow pay for the buyback with only $850 million in cash on the balance sheet and steadily declining cash flows. They will either have to generate substantial capital in the coming years to fund the buyback (and cover investments needed to run the business) or they will have to take out more debt (or a combination of both).

If they are unable to come up with answers or solutions to these aforementioned concerns, they may very well become a fixer-upper themselves.

Comments (27)

  • HODEDO
    Posted on September 4, 2011 at 7:35am

    All you need to do is research HD, and see what organizations the empower. HD backs homosexual parades and get-togethers, and I shop at Lowes, and local hardware establishments,…PERIOD! Call me homophobic if you like……….but I think it’s more of a stomach-turn situation, speaking for myself. I become ill now, whenever I see orange!

    Report Post »  
  • zealot
    Posted on August 25, 2011 at 8:06pm

    Now G.E. is in the business of building gas and oil pipe lines?????
    How Rockefellerite of them.

    Report Post »  
  • santramir
    Posted on August 25, 2011 at 5:09pm

    STOP the FED, get the dollar power back. don’t let them fool you. no more cheap distractions

    Report Post » santramir  
  • Rui1198
    Posted on August 25, 2011 at 2:03pm

    “Lowe’s will have to figure out a way to somehow pay for the buyback with only $850 million in cash on the balance sheet and steadily declining cash flows”. As a former Lowe’s employee I can tell you one the methods they will take to pay for the buyback. It started in Sept. 2009 when accross the board company wide they began letting commerical sales staff go. Never mind the fact that most of us are the primary bread winners for our families or that we are making 100′s of cold calls a week in a dying economy. All the firings and layoffs were of people making less than 21K a yrs. Instead you have six to eight managers per store making twice to three times that amount. Honestly how many managers do you need, (1) general manager, (2) sales managers, (2) assistant store managers and (2) assistant sales managers. A bit top heavy if you ask me, Lowe’s wants to see more business come its way, take back the lead on customer service and the lead on caring for their employee’s, they lets these things go and people see it and they make or break you with their cash.

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  • slvrserfr
    Posted on August 25, 2011 at 1:48pm

    This hurricane should give them a nice boost, it probably won’t be much but a boost nonetheless.

    Report Post »  
  • Riccy102
    Posted on August 25, 2011 at 1:21am

    The housing markets will recover, slowly but surely, beginning on Jan 1, 2013. Hang in there Lowes!

    Report Post »  
    • Eblaze44
      Posted on August 25, 2011 at 10:47pm

      As long as houses and the housing market is used as investment instead of homes and places of business – the housing market and it’s over inflated prices will stay crashed. A change in president cannot cure greed and stupidity that believes that houses appreciate rather than depreciate over time.

      Report Post » Eblaze44  
  • anamandy
    Posted on August 25, 2011 at 1:01am

    What the article doesn’t mention is how opening a big box store in the majority of the country has become so time consuming and expensive due to litigations waged by state and federal agencies, victims groups, and unions, that it’s not worth opening them. In Ticonderoga NY, Lowes opened up 3 years ago and just closed down last week with notice given only to the employees. They initially intended to open over 10 years ago but were involved in legal battles for 7 of them. When they finally won all the battles and had the go-ahead to open they were hit with the double whammy of the economy tanking and then the bridge connecting NYS to Vermont was shut down (due to mismanagement, negligence, and incompetence, on the part of the DOT.). It was the final blow that no business could possibly recover from. What happened to the Lowes in Ticonderoga, NY is a case study in what not to do if you want to create jobs in the US. Americans have to make a decision – do we want to welcome businesses which will create tax producing jobs; or do we want to hold up businesses with unnecessary red tape and frivolous lawsuits and consign prospective employees to the welfare rolls and bread lines?

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  • CulperGang
    Posted on August 24, 2011 at 10:07pm

    I looked at the package for the mixed sea food in Walmart..china…….threw it back. Bought the chicken wings from USA!!!!!! trying to do the same with all my consumer needs.

    Now we have to stop paying taxes!! we are fueling them robbing us……taking our money and give it to illegals………bankers……….we have to stop giving it to them,

    Report Post » CulperGang  
  • Cat
    Posted on August 24, 2011 at 2:04pm

    In the process of restoring a home at this time and made a conscience decision to go local.
    Nothing came from Lowe’s.
    If you look closely at HD shelves, you’ll find a considerable amount of GE inventory.
    Nothing came from HD except the Marrazi floor and wall tiles.

    Plumbing fixtures & fittings and appliances, ordered through small stores in the area.
    Wood cabinetry & stone tops were fabricated and installed by local craftsmen.
    Cabinet jewelry, bath accessories, window dressings, blinds and shutters, all ordered on-line.
    HVAC techs, carpenters, plumbers and painters are all from the area.
    Windows & sliding glass doors came from a local plant, PGT.
    Even the paint came from Ben-Moore through a local retailer.

    This is the CORRECT way to spread the wealth around … MR. Soetoro.

    Report Post » Cat  
  • eddymunster
    Posted on August 24, 2011 at 1:31pm

    We stopped buying GE several years ago when they continued doing business with Iran. I will never buy one of their products as long as I live.

    Report Post »  
  • yiska8
    Posted on August 24, 2011 at 10:51am

    I will no longer purchase GE products either. They care more about the Chinese economy than our own. Pure economic treason.

    Report Post » yiska8  
  • Derek01
    Posted on August 24, 2011 at 10:47am

    I understand why Lowe’s is feeling the heat. I really like my house but I wonder if I should invest more into it. Our irresponsible state has dug itself into a deep hole. Before they slam us with thousands in new taxes to pay for their idiocy, we just might move and go where to a more responsible state.

    Report Post »  
    • DontBeADouche
      Posted on August 24, 2011 at 1:14pm

      Come to North Dakota, all we require is hard work, a good moral compass, and the winters only make you stronger. Plus it keeps out the riff-raff.

      Report Post » DontBeADouche  
  • jrfox
    Posted on August 24, 2011 at 9:35am

    I could care how Slowes is doing, it is the cause of the worst down turn and failing policies that concern me. Few people on the street even know or care about the cause. They seem to think they can always get more money from the gov.
    There is no such thing as gov money.

    Report Post »  
  • historypaper
    Posted on August 24, 2011 at 8:25am

    Now that Barack Hussein Obama, the President of the United States has been pierced with thousands of truth arrows maybe the American Patriot Citizens can save the country.
    Obama and Hillary Rodham Clinton can no longer stretch the truth on their rack of progressive ideology. You have been boiled in borrowed money from the Chinaman and Obama now wants you dipped in black pitch.
    Maxine Waters and Frederica Wilson are simply the perfect example of the hard-left, black liberation world that Obama is planning. As Obama, Pelosi, Reid, Clinton and thousands of other progressive hard-left radicals destroy your liberty, freedom and individual wealth you’re being asked to endure just a little more. Maxine Waters Ca Representative prompts the crowd to hate America and take more from working Americans.
    The cruel tortures brought against the American middle-class are the greatest atrocities against liberty and freedom since Hitler, Stalin, Mao, Hussein and the other evil empire builders. Maxine Waters and Frederica Wilson are simply the little CZARS of ancient times. They persuade the limited to grow their person wealth and power. Maxine Waters and Frederica Wilson have always proven to be worthless as they always take money and power from the poor black family.
    Henceforth you are little more than a species of worker in Obama’s, Waters and Wilson’s little mind, particularly if you are white and middle-class. Barack Hussein Obama and Hillary Rodham Clinton are taking pl

    Report Post » historypaper  
  • shirtsbyeric
    Posted on August 24, 2011 at 7:41am

    Most of their employees have masters degrees in liberal arts.

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  • Cap8tain
    Posted on August 24, 2011 at 7:21am

    Both Lowes and Home Depot would do better to provide at the least a hint of good service. Lower thier prices on all that imported far east crap. Stock what people actually need. Provide more choices. Maintain a product line more than 2 years. Lowes prices their kithchens higher than independant contractors. We have one small independant hardware store that Lowes did not put out of business when they came to town. They stay in business because of great service and low prices and if Lowes aint got it, they do. I’ve had the Lowes floor people tell me to check that hardware store when they didnt carry a particular item.

    Report Post » Cap8tain  
  • standwithIsraelstandwithGod
    Posted on August 24, 2011 at 7:08am

    They mark up their prices too high – they want American made prices for China trash.

    Report Post » standwithIsraelstandwithGod  
  • likwidlizard
    Posted on August 24, 2011 at 1:32am

    Does this mean they’ll come down on the price of those table saws and gas generators? I need these because soon I‘ll be squatting on someone’s land and I’ll need a shack to live in.

    Report Post » likwidlizard  
    • Restored One
      Posted on August 24, 2011 at 8:09pm

      How are we going to afford the gas that goes into the generators?

      Report Post »  
  • The Trident Report
    Posted on August 24, 2011 at 1:24am

    obama is hard to figure out. He is just so weird. But I think he is sitting back, watching the nation crumble with such obvious indifference because he thinks “Hey, you morons all want Capitalism? Okay, fine, suffer then. Someday, you’ll come to me begging for Socialism.”

    See? See how evil he is?

    Report Post »  
    • lobster
      Posted on August 24, 2011 at 2:56am

      Sorry to break the news to you. This is by design. The housing industry comprises almost 50% of the GDP. By killing home building they are fulfilling Clowart and Piven to the T. The FDIC selling hoiuses at 30% of the cost is destroying what little market is left. They are completely undercutting everyone and destroying the entire nations net worth. The vast majority of Americans have their assets tied up in housing. Most do not have much besides that.

      Report Post »  
    • G.W. Dobbs
      Posted on August 24, 2011 at 7:46am

      TRIDENT REPORT: Sir, you have the CORRECT UNDERSTANDING of what is being done to America and the World. Everything that Obama is doing is to destroy Capitalism.

      Report Post »  
  • kalayaan
    Posted on August 24, 2011 at 1:01am

    I like Lowe’s more than Home Depot…I will go to Lowe’s tomorrow to buy something….

    Report Post »  
    • Restored One
      Posted on August 24, 2011 at 8:18pm

      We try to go to our locally owned True Value and other Mom and Pop stores (Friedmans in No. Ca) as much as possible. Sometimes you can negotiate with the small M&P’s if the price is really different. We actually just filed a complaint with our local Lowes. My husband went in to get 15 bags of a Quick Crete product that the others did not sell. At 7am they automactically loaded it on a pallet and brought it to his truck. In the PM, he paid for the same quantity and had to ask for the same service of some lazy Obummer. The guy disappeared. After 20 minutes, my husband loaded it onto a cart and took care of it himself.

      Report Post »  
  • darkloch
    Posted on August 24, 2011 at 12:30am

    now that is real leadership for you…

    Report Post »  

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