Moody's Affirms Ratings on Lowe's Cos. (LOW); Outlook is Stable

November 16, 2016 4:29 PM EST

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Moody's Investors Service affirmed Lowes Companies, Inc.'s (NYSE: LOW) A3 senior unsecured ratings and P-2 short term commercial paper rating. The rating outlook is stable.

Ratings affirmated are:

Lowe's Companies, Inc.

- Commercial Paper rated P-2

- Multiple Seniority Shelf rated (P)A3

- Senior Unsecured Regular Bond/Debentures rated A3

Lowe's Companies Canada, ULC

- Senior Unsecured Regular Bond/Debentures rated A3

Outlook Actions are:

Lowe's Companies, Inc.

- Outlook remains Stable

Lowe's Companies Canada, ULC

- Outlook remains Stable

RATINGS RATIONALE

"The affirmation reflects Lowes clearly articulated financial policy, with targeted lease adjusted leverage (as defined by Lowe's) of 2.25 times and one that's expected to support credit metrics remaining strong, despite the company's revised earnings guidance for 2016." stated Bill Fahy, Moody's Senior Credit Officer. "The ratings also reflect its considerable scale with revenues over $61 billion and its market position as the second largest home improvement retailer in the US" stated Fahy. Moreover, while leverage has gone above its stated target due to its acquisition of RONA, Inc., ("RONA") the company expects to bring leverage back in-line with its stated target over the next 12 to 18 months.

Lowes recently revised its earnings guidance for full year 2016 due to lower than anticipated comparable store sales growth as a result of a moderating economic backdrop and increased competitive pressure. Lowes is now looking for full year diluted earnings of $3.92 per share (excluding special items) versus previous guidance of $4.06 per share. This revised guidance also expects comparable store sales growth of between 3% to 4% for FY 2016 down from 4% previously. The company also announced several non-cash one-time charges totaling about $462 million related to exiting its Woolworth joint-venture, the write-off of various projects and goodwill and asset impairments associated with Orchard Supply Hardware.

The stable outlook reflects Moody's expectation that Lowe's earnings will improve but that credit metrics will remain even as Lowe's manages to its 2.25 times lease adjusted debt to EBITDAR target. The stable outlook also reflects our expectation that there will be no revisions to its financial policy, particularly its leverage target.

Ratings could be upgraded should operating results improve such that retained cash flow to net debt were to remain above 30% and EBITA to interest expense was sustained above 8.0 times. An upgrade would also require Lowe's financial policy to remain conservative. Whereas ratings could be downgraded should operating performance decline or financial policy become more aggressive such that debt to EBITDA rises above 2.75 times or EBITA to interest expense falls below 6.5 times.



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