Lowe's reduces long-term debt, eyes capital markets regarding $600 million upcoming maturities

By Rebecca Melvin

Princeton, N.J., Sept. 27 - In the last year Lowe's Cos. Inc. reduced total long-term debt by 8% through shifts to current maturities and conversion of convertible debt securities to equity, Robert F. Hull Jr., executive vice president and chief executive, said during the company's annual analyst and investor conference Tuesday.

Total long-term debt was $2.81 billion at the end of the second quarter, or 18% of total capital, down compared to total long-term debt of $3.70 billion, or 26% of total capital, at the end of the second quarter of 2004, Hull said.

Of total long-term debt, $2.42 billion was long-term debt and $387 million was capitalized leases.

The reduction in debt was due to a combination of $600 million shifting to current maturities and conversion of convertible debt, Hull said.

By the end of the second quarter, $252 million of Lowe's convertible bonds due February 2021, or 37%, were converted into equity.

"This has no impact on diluted shares outstanding as these convertible debentures are already deemed to be diluted," Hull said.

Further conversions are expected in the future to further decrease Lowe's debt to capital ratio, Hull said during the home-improvement retail chain's marathon conference, entitled "Execution," which was more than four hours long.

As for $600 million of debt maturing later this year, Hull said that the company has enough cash to settle the debt but it is continuing "to monitor the capital markets and evaluate options with respect to capital structure."

The chief executive said that the Mooresville, N.C.-based company has $1.3 billion of debt coming due through 2010.

Also with its cash, Lowe's will continue to build new Lowe's stores in the United States and now in Canada. Its gross capital expenditure program in 2006 is expected to be $4.1 billion. In 2007, it expects capital expenditure of $4.3 billion gross.

But, a share repurchasing program, which began in 2004, will also continue to be part of Lowe's financial plan. Through the second quarter, Lowe's repurchased $23.7 million shares, or $1.43 billion, of its existing stock since the beginning of 2004, Hull said.

Net cash provided by operations for the first half rose almost 30% to $2.24 billion, from $1.72 billion in the first half of 2004.

The annual conference was geared to show that Lowe's is "well positioned to leverage [its] asset base to continue our profitable growth," Hull said

The company said it remains comfortable with its previous guidance of 4% to 6% comparable-store sales growth and earnings per share of $0.76 to $0.78 for the third quarter of 2005, and approximately 5% comparable-store sales growth and earnings per share of $3.31 to $3.37 for the fiscal year.

"We plan to add 150 stores in 2005 and 150 to 160 new stores per year in fiscal 2006 and 2007, equating to approximately 12% square footage growth in 2006 and 10% to 11% growth in 2007," he said.

"We expect this square footage growth to drive a sales increase of 13% to 14% for the 52-week period comprising fiscal 2006 versus the 53-week period of fiscal 2005 and an additional 14% to 15% increase in 2007.

"This planned sales growth, when combined with operating margin improvement is expected to drive diluted earnings per share growth of 17% to 20% for fiscal 2006 and 16% to 20% increase in 2007."

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