News Column

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

September 2, 2014

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity and capital resources during the three and six months ended August 1, 2014, and August 2, 2013. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2014 (the Annual Report), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of 2013. This discussion and analysis is presented in seven sections: Executive Overview Operations Lowe's Business Outlook



Financial Condition, Liquidity and Capital Resources

Off-Balance Sheet Arrangements

Contractual Obligations and Commercial Commitments

Critical Accounting Policies and Estimates

EXECUTIVE OVERVIEW

Net sales for the second quarter of fiscal 2014 increased 5.7% to $16.6 billion with comparable sales increasing 4.4%. Net earnings for the second quarter increased 10.4% to $1.0 billion with diluted earnings per share increasing 18.2% to $1.04 per share. Delivering on our commitment to return excess cash to shareholders, during the second quarter, we paid $183 million in dividends and repurchased a total of $1.1 billion of common stock through our share repurchase program. We delivered solid results for the second quarter with comparable sales increases across all regions and product categories. We were able to recover most of the outdoor product sales that were missed in the first quarter due to unfavorable weather conditions. Performance in outdoor products was strong with a comparable sales increase of approximately 6.5% for the second quarter, while comparable sales of indoor products increased approximately 3%. Through our enhanced Sales & Operations Planning process we were able to improve seasonal planning, which helped us to effectively manage inventory and staffing needed to recover sales while ensuring we addressed key summer holidays. During the second quarter, we continued to develop customer experience design capabilities that differentiate Lowe's from other home improvement retailers by working with customers to better understand their purchase drivers. For example, within Seasonal Living, performance in patio & outdoor fashion products exceeded strong first quarter results and generated a double-digit comparable sales increase, which we attribute to the Outdoor Living Experience that was rolled out to two-thirds of our stores in advance of the spring selling season. To help customers envision and create their outdoor space we displayed patio sets with coordinating rugs, umbrellas, and accessories, along with grills and other outdoor products just as they would have expected in their own backyard. We continued to see strength in our Pro Services business, which outperformed the company comparable sales average for the 12th consecutive quarter. Increased consumer willingness to complete refresh projects, coupled with our strong product offering, led to notable strength in Pro sales. During 2014, we will continue to invest in our core product and service offering for Pros, a segment that is growing faster than the rest of the home improvement market. From a macroeconomic perspective, economic forecasts suggest continued growth in the home improvement market, as employment, income, and consumer spending levels continue to improve. Indicators from the housing market appear to be mixed as home values have increased moderately while existing home sales in total have declined in the current year. However, existing home sales excluding distressed sales, which we believe is a more appropriate indicator of the long-term health of our industry, have shown a slight increase through the first half of the year revealing a more positive and sustainable trend. In light of these factors, we believe home improvement spending will continue to progress in tandem with strengthening job and income growth. Continued improvement in the macroeconomic landscape together with our strengthening execution, strategic priorities, and focus on productivity and flow through, give us confidence in our Business Outlook for 2014. 14



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OPERATIONS

The following tables set forth the percentage relationship to net sales of each line item of the consolidated statements of earnings (unaudited), as well as the percentage change in dollar amounts from the prior period. These tables 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). Basis Point Increase /(Decrease) Percentage in Increase / Percentage (Decrease) of Net Sales in Dollar from Prior Amounts from Three Months Ended Period Prior Period August 1, 2014 August 2, 2013 2014 vs. 2013 2014 vs. 2013 Net sales 100.00 % 100.00 % N/A 5.7 % Gross margin 34.55 34.35 20 6.3 Expenses: Selling, general and administrative 21.33 21.73 (40 ) 3.7 Depreciation 2.26 2.33 (7 ) 2.2 Interest - net 0.76 0.70 6 14.1 Total expenses 24.35 24.76 (41 ) 3.9 Pre-tax earnings 10.20 9.59 61 12.4 Income tax provision 3.94 3.60 34 15.8 Net earnings 6.26 % 5.99 % 27 10.4 % EBIT margin 1 10.96 % 10.29 % 67 12.5 % Basis Point Increase /(Decrease) Percentage in Increase / Percentage (Decrease) of Net Sales in Dollar from Prior Amounts from Six Months Ended Period Prior Period August 1, 2014 August 2, 2013 2014 vs. 2013 2014 vs. 2013 Net sales 100.00 % 100.00 % N/A 4.2 % Gross margin 34.98 34.56 42 5.4 Expenses: Selling, general and administrative 22.87 23.04 (17 ) 3.4 Depreciation 2.49 2.50 (1 ) 4.0 Interest - net 0.83 0.77 6 12.1 Total expenses 26.19 26.31 (12 ) 3.7 Pre-tax earnings 8.79 8.25 54 11.0 Income tax provision 3.25 3.11 14 8.9 Net earnings 5.54 % 5.14 % 40 12.2 % EBIT margin 1 9.62 % 9.02 % 60 11.1 % 15



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Table of Contents Three Months Ended Six Months Ended Other Metrics August 1, 2014 August 2, 2013 August 1, 2014 August 2, 2013 Comparable sales increase (2) 4.4 % 9.6 % 2.8 % 4.6 % Total customer transactions (in millions) 253 240 460 441 Average ticket (3) $ 65.65 $ 65.60 $ 65.21 $ 65.32 At end of period: Number of stores (4) 1,837 1,758 Sales floor square feet (in millions) 201 198 Average store size selling square feet (in thousands) (4), (5) 109 112 Return on invested capital (6) 12.6 % 10.6 %



(1) EBIT margin, also referred to as operating margin, is defined as earnings

before interest and taxes as a percentage of sales.

(2) A comparable location is defined as a location that has been open longer

than 13 months. A location that is identified for relocation is no longer

considered comparable one month prior to its relocation. The relocated

location must then remain open longer than 13 months to be considered

comparable. A location we have decided to close is no longer considered

comparable as of the beginning of the month in which we announce its

closing. Acquired locations are included in the comparable sales calculation

beginning in the first full month following the first anniversary of the date of the acquisition. Comparable sales includes online sales, which did not have a meaningful impact for the periods presented. (3) Average ticket is defined as net sales divided by the total number of customer transactions. (4) The number of stores as of August 1, 2014 includes 73 Orchard Supply Hardware (Orchard) stores.



(5) 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 home improvement store has approximately 112,000 square feet of

retail selling space, while the average Orchard store has approximately

36,000 square feet of retail selling space.

(6) Return on invested capital is a non-GAAP financial measure. See below for

additional information and a reconciliation to the most comparable GAAP

measure. Return on Invested Capital Return on Invested Capital (ROIC) is a non-GAAP financial measure. We believe ROIC is a meaningful metric for investors because it measures how effectively the Company uses capital to generate profits. We define ROIC as trailing four quarters' net operating profit after tax divided by the average of ending debt and equity for the last five quarters. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by our management to calculate ROIC may differ from the methods other companies use to calculate their ROIC. We encourage you to understand the methods used by another company to calculate its ROIC before comparing its ROIC to ours. We consider return on average debt and equity to be the financial measure computed in accordance with generally accepted accounting principles that is the most directly comparable GAAP financial measure to ROIC. The difference between these two measures is that ROIC adjusts net earnings to exclude tax adjusted interest expense. 16



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The calculation of ROIC, together with a reconciliation to the calculation of return on average debt and equity, the most comparable GAAP financial measure, is as follows: (In millions, except percentage data) For the periods ended Calculation of Return on Invested Capital August 1, 2014 August 2, 2013 Numerator (1) Net earnings $ 2,467$ 2,165 Plus: Interest expense - net 503 447 Provision for income taxes 1,467 1,299 Earnings before interest and taxes 4,437



3,911

Less:

Income tax adjustment (2) 1,657



1,466

Net operating profit after tax $ 2,780$ 2,445 Effective tax rate 37.3 % 37.5 % Denominator Average debt and equity (3) $ 22,051$ 23,016 Return on invested capital 12.6 % 10.6 % Calculation of Return on Average Debt and Equity Numerator (1) Net earnings $ 2,467$ 2,165 Denominator Average debt and equity (3) $ 22,051$ 23,016 Return on average debt and equity 11.2 %



9.4 %

(1) Amounts used in the calculation of the numerator are based on the trailing four quarters. (2) Income tax adjustment is defined as earnings before interest and taxes multiplied by the effective tax rate. (3) Average debt and equity is defined as average debt, including current



maturities and short-term borrowings, plus total equity for the last five

quarters. Net Sales - Net sales increased 5.7% to $16.6 billion in the second quarter of 2014. Comparable sales increased 4.4% over the same period, driven by a 3.1% increase comparable customer transactions and a 1.3% increase in comparable average ticket. During the second quarter, we experienced comparable sales increases in all 12 product categories with comparable sales increases above the company average in the following: Lawn & Garden, Millwork, Paint, and Tools & Hardware. Customers took advantage of improved weather during the quarter to refresh the interiors and exteriors of their homes, which was evidenced by strong performance in Lawn & Garden, Millwork and Paint. In addition, within Paint, we experienced strong customer response to our Valspar Reserve exterior and interior paints, which were introduced at the end of the first quarter. Within Tools & Hardware, our enhanced Sales and Operations Planning Process helped us drive strong performance in power tools.



Net sales increased 4.2% to $30.0 billion for the first six months of 2014 compared to 2013. Comparable sales increased 2.8% over the same period, primarily driven by a 1.8% increase in comparable average ticket. Comparable customer transactions increased 1.0% over the same period.

Gross Margin - For the second quarter of 2014, gross margin increased 20 basis points as a percentage of sales, primarily driven by our Value Improvement program.

Gross margin as a percentage of sales increased 42 basis points in the first six months of 2014 compared to 2013, which was also driven primarily by our Value Improvement program. 17



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SG&A - For the second quarter of 2014, SG&A expense leveraged 40 basis points as a percentage of sales compared to the second quarter of 2013. This was driven by leverage of 28 basis points in incentive compensation, due to lower attainment levels compared to the prior year. We also experienced 11 basis points of leverage in operating salaries and nine basis points of leverage in advertising expense, primarily due to the increase in sales. These were partially offset by 17 basis points of deleverage in employee insurance costs, primarily due to additional costs associated with the Affordable Care Act, which drove a 10% increase in enrollment. SG&A expense as a percentage of sales leveraged 17 basis points in the first six months of 2014 compared to 2013 due to the same factors that impacted SG&A expense in the second quarter, partially offset by deleverage associated with long-lived asset impairments. Depreciation - Depreciation expense leveraged seven basis points for the second quarter of 2014 compared to the prior year due to increased sales. Property, less accumulated depreciation, decreased to $20.4 billion at August 1, 2014 compared to $21.0 billion at August 2, 2013. As of August 1, 2014 and August 2, 2013, we owned 86% and 89% of our stores, respectively, which included stores on leased land. Interest - Net - Interest expense for the second quarter and first six months of 2014 increased compared to the prior year primarily due to the issuance of $1 billion of unsecured notes in September 2013. Income Tax Provision - Our effective income tax rates were 38.6% and 36.9% for the three and six months ended August 1, 2014, respectively, and 37.5% and 37.6% for the three and six months ended August 2, 2013, respectively. The higher effective income tax rate for the three months ended August 1, 2014, was attributable to the expiration of certain federal tax statutes. The lower effective income tax rate for the six months ended August 1, 2014, was attributable to the favorable settlement of certain federal tax matters during the year, partially offset by the expiration of certain federal tax statutes. Our effective income tax rate was 37.8% for fiscal 2013.



LOWE'S BUSINESS OUTLOOK

As of August 20, 2014, the date of our second quarter 2014 earnings release, our fiscal year 2014 guidance expected total sales to increase approximately 4.5% and comparable sales to increase approximately 3.5%. We expected to open approximately 10 home improvement and five Orchard stores during 2014. Earnings before interest and taxes as a percentage of sales (operating margin) were expected to increase approximately 65 basis points, and the effective income tax rate was expected to be approximately 37.2%. Diluted earnings per share of approximately $2.63 were expected for fiscal 2014. We repurchased 39.6 million shares for $2.0 billion under our share repurchase program in the first six months of fiscal 2014. Our guidance assumed a total of $3.4 billion of share repurchases for the fiscal year.



FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash flows from operating activities continued to provide the primary source of our liquidity. The increase in net cash provided by operating activities for the six months ended August 1, 2014, versus the six months ended August 2, 2013, was primarily driven by changes in working capital and an increase in net earnings. The increase in net cash used in financing activities for the six months ended August 1, 2014, versus the six months ended August 2, 2013, was driven primarily by repayments of short-term borrowings.



Sources of Liquidity

In addition to our cash flows from operations, liquidity is provided by our short-term borrowing facilities. On August 29, 2014, we entered into a new five year unsecured revolving credit agreement (the 2014 Credit Facility) to replace the amended and restated senior credit agreement dated October 2011 (the Second Amended and Restated Credit Agreement). The 2014 Credit Facility provides for borrowings up to $1.75 billion and expires in August 2019. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2014 Credit Facility, we may increase the aggregate availability under the facility by an additional $500 million. The 2014 Credit Facility supports our commercial paper program and has a $500 million letter of credit sublimit. Letters of credit issued pursuant to the 2014 Credit Facility reduce the amount available for borrowing under its terms. Borrowings made are unsecured and are priced at fixed rates based upon market conditions at the time of funding in accordance with the terms of the 2014 Credit Facility. The 2014 Credit Facility contains certain restrictive 18



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covenants, which include maintenance of an adjusted debt leverage ratio as defined by the credit agreement. Thirteen banking institutions are participating in the 2014 Credit Facility. For additional information about the 2014 Credit Facility, see the Current Report on Form 8-K we filed on September 2, 2014 with the Securities and Exchange Commission. The 2011 Second Amended and Restated Credit Agreement also contained certain restrictive covenants, which included maintenance of a debt leverage ratio as defined by the 2011 Second Amended and Restated Credit Agreement. At August 1, 2014, we were in compliance with those covenants. In addition, there were no outstanding borrowings or letters of credit under the 2011 Second Amended and Restated Credit Agreement and no outstanding borrowings under our commercial paper program at August 1, 2014. We expect to continue to have access to the capital markets on both short- and long-term bases when needed for liquidity purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects our debt ratings by Standard & Poor's (S&P) and Moody's as of September 2, 2014, which we are disclosing to enhance understanding of our sources of liquidity and the effect of our ratings on our cost of funds. Although we currently do not expect a downgrade in our debt ratings, our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Debt Ratings S&P Moody's Commercial Paper A-2 P-2 Senior Debt A- A3



Senior Debt Outlook Stable Stable

We believe that net cash provided by operating and financing activities will be adequate not only for our operating requirements, but also for investments in our existing stores, investments in information technology, expansion plans, acquisitions, if any, and to return cash to shareholders through both dividends and share repurchases over the next 12 months. There are no provisions in any agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a decrease in our stock price. In addition, we do not have a significant amount of cash held in foreign affiliates that would not be available to fund domestic operations.



Cash Requirements

Capital expenditures Our fiscal 2014 capital forecast is approximately $1.2 billion. Investments in our existing stores are expected to account for approximately 45% of net cash outflow including investments in store equipment, resets and remerchandising. Approximately 25% of the planned net cash outflow is for investments to enhance the customer experience, including enhancements in information technology. In addition, approximately 20% of the planned net cash outflow is for store expansion. Our expansion plans for 2014 consist of approximately 10 new home improvement stores, approximately half of which will be leased, and five new Orchard stores, all of which will be leased. Other planned capital expenditures, accounting for 10% of planned net cash outflow, are for investments in our distribution network. Debt and capital We have an ongoing share repurchase program that is executed through purchases made from time to time either in the open market or through private off-market transactions. Shares purchased under the share repurchase program are retired and returned to authorized and unissued status. As of August 1, 2014, we had a remaining repurchase authorization of $4.3 billion with no expiration date. Our Business Outlook included above assumed approximately $3.4 billion in share repurchases for 2014. See Note 6 to the consolidated financial statements included in this report for additional information regarding share repurchases.



OFF-BALANCE SHEET ARRANGEMENTS

Other than in connection with executing operating leases, we do not have any off-balance sheet financing that has, or is reasonably likely to have, a material, current or future effect on our financial condition, cash flows, results of operations, liquidity, capital expenditures or capital resources.

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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

As of August 1, 2014, there were no material changes to our contractual obligations and commercial commitments outside the ordinary course of business since the end of 2013. Refer to the Annual Report on Form 10-K for additional information regarding our contractual obligations and commercial commitments.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1 to the consolidated financial statements presented in our Annual Report. Our critical accounting policies and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report. Our significant and critical accounting policies have not changed significantly since the filing of our Annual Report.



FORWARD-LOOKING STATEMENTS

This Form 10-Q includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). Statements of the company's 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, the Company's strategic initiatives and any statement of an assumption underlying any of the foregoing, constitute "forward-looking statements" under the Act. Although we believe that the expectations, opinions, projections, and comments reflected in these forward-looking statements are reasonable, we can give no assurance that such statements will prove to be correct. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, higher fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability and increasing regulation of consumer credit and of mortgage financing, inflation or deflation of commodity prices, and other factors which can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, such as the psychological effects of lower home prices, and in the level of repairs, remodeling, and additions to existing homes, as well as a general reduction in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes designed to enhance our efficiency and competitiveness; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our traditional operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems; (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 or environmental issues; and (ix) respond to unanticipated weather conditions that could adversely affect sales. In addition, we could experience additional impairment losses if 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. For more information about these and other risks and uncertainties that we are exposed to, you should read the "Risk Factors" and "Critical Accounting Policies and Estimates" included in our Annual Report on Form 10-K to the United States Securities and Exchange Commission (the SEC) and the description of material changes therein or updated version thereof, if any, included in our Quarterly Reports on Form 10-Q. The forward-looking statements contained in this Form 10-Q are based upon data available as of the date of this release 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 release are qualified by these cautionary statements and the "Risk Factors" included in our Annual Report on Form 10-K to the SEC and the description of material changes, if any, therein included in our Quarterly Reports on Form 10-Q. 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.


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