Lowe’s Cos. Inc. (NYSE:LOW)

The common-size income statement reveals several noteworthy trends over the six-year period. Generally, the company demonstrates fluctuating profitability with periods of expansion and contraction in key margins. Cost of sales as a percentage of net sales remains relatively stable, while expense management and interest-related items show more pronounced shifts.

Gross Margin

Gross margin exhibits a slight upward trend overall, increasing from 33.01% in 2021 to 33.48% in 2026. However, this progression isn’t linear, with a dip to 33.23% in 2023 before recovering. This suggests potential fluctuations in input costs or pricing strategies impacting profitability.

Operating Expenses

Selling, general, and administrative expenses, alongside depreciation and amortization, collectively represent a significant portion of net sales. Expenses decreased notably from 2021 to 2022, falling from 22.24% to 20.74%. This trend reversed in 2023, increasing to 22.77%, before decreasing again to 20.01% in 2024. The most recent years (2025 and 2026) show a consistent increase in expenses as a percentage of sales, reaching 21.71% in 2026. This suggests increasing operational costs or a shift in business strategy.

Operating Income

Operating income as a percentage of net sales demonstrates considerable volatility. It peaked at 13.38% in 2024, following an increase from 10.77% in 2021 and a low of 10.47% in 2023. The decline to 11.77% in 2026 indicates potential pressures on core business profitability despite the gross margin improvement.

Interest Expense & Income

Interest expense, net of capitalized amounts, has increased steadily from 0.97% of net sales in 2021 to 1.77% in 2026. While interest income provides a partial offset, its contribution remains small and has not kept pace with the rise in expense. The net effect is a growing burden from interest payments, impacting pre-tax earnings.

Net Earnings

Net earnings as a percentage of net sales mirrors the trends observed in operating income, peaking at 8.94% in 2024 and declining to 7.71% in 2026. The income tax provision remains relatively consistent as a percentage of net sales, fluctuating between 2.43% and 2.87%, suggesting tax rates are stable. The decrease in net earnings in the later years, despite a slight gross margin improvement, highlights the impact of rising expenses and interest costs.

Non-Recurring Item

A loss on extinguishment of debt was recorded in 2021, representing 1.18% of net sales. This item did not recur in subsequent periods, contributing to the improved profitability in later years.

In summary, the company experienced fluctuating performance over the period. While gross margin showed modest improvement, increasing operating expenses and rising interest costs exerted downward pressure on operating and net income in the most recent years. The absence of the debt extinguishment loss in subsequent periods positively impacted earnings, but was not sufficient to offset the other negative trends.