Revenue

3 Months Ended

May 01, 2020

Revenue - Net sales consists primarily of revenue, net of sales tax, associated with contracts with customers for the sale of goods and services in amounts that reflect consideration the Company is entitled to in exchange for those goods and services.

The following table presents the Company’s sources of revenue:



(In millions)	Three Months Ended
(In millions)	May 1, 2020		May 3, 2019
Products	$	19,020	$	16,900
Services	399		554
Other	256		287
Net sales	$	19,675	$	17,741

Revenue from products primarily relates to in-store and online merchandise purchases, which are recognized at the point in time when the customer obtains control of the merchandise. This occurs at the time of in-store purchase, in-store or curbside pick-up, or delivery of the product to the customer. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. The merchandise return reserve is presented on a gross basis, with a separate asset and liability included in the consolidated balance sheets. Anticipated sales returns reflected in other current liabilities were $352 million at May 1, 2020, and $287 million at May 3, 2019. The associated right of return assets reflected in other current assets were $226 million at May 1, 2020, and $190 million at May 3, 2019.

Revenues from services primarily relate to professional installation services the Company provides through subcontractors related to merchandise purchased by a customer. In certain instances, installation services include materials provided by the subcontractor, and both product and installation are included in service revenue. The Company recognizes revenue associated with services as they are rendered, and the majority of services are completed within one week from initiation.

Deferred revenue - retail

Deferred revenue is presented for merchandise in which control has not yet transferred to the customer and for services that have not yet been provided, but for which tender has been accepted. Deferred revenue is recognized in sales either at a point in time when the customer obtains control of merchandise through in-store pick-up, curbside pickup, or delivery, or over time as services are provided to the customer. Deferred revenues associated with amounts received for which customers have not taken possession of the merchandise or for which installation has not yet been completed were $774 million at May 1, 2020, and $935 million at May 3, 2019. The majority of revenue for goods and services is recognized in the quarter following revenue deferral.

Deferred revenue - stored-value cards

The Company defers revenues from stored-value cards, which include gift cards and returned merchandise credits, and recognizes revenue into sales when the cards are redeemed. The liability associated with outstanding stored-value cards was $438 million and $441 million at May 1, 2020, and May 3, 2019, respectively, and these amounts are included in deferred revenue on the consolidated balance sheets. The Company recognizes income from unredeemed stored-value cards in proportion to the pattern of rights exercised by the customer. Amounts recognized as breakage were insignificant for the three months ended May 1, 2020, and May 3, 2019.

Deferred revenue - extended protection plans

The Company defers revenues for its separately-priced extended protection plan contracts, which is a Lowe’s-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from extended protection plan sales on a straight-line basis over the respective contract term. Extended protection plan contract terms primarily range from one to five years from the date of purchase or the end of the manufacturer’s warranty, as applicable. Deferred revenue from extended protection plans recognized into sales were $107 million for the three months ended May 1, 2020, and $99 million for the three months ended May 3, 2019. Incremental direct acquisition costs associated with the sale of extended protection plans are also deferred and recognized as expense on a straight-line basis over the respective contract term and were insignificant at May 1, 2020, and May 3, 2019, respectively. The Company’s extended protection plan deferred costs are included in other assets (noncurrent) on the consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising expenses are expensed as incurred.

The liability for extended protection plan claims incurred is included in other current liabilities on the consolidated balance sheets and was not material in any of the periods presented. Expenses for claims are recognized when incurred and totaled $36 million for the three months ended May 1, 2020, and $48 million for the three months ended May 3, 2019.

Disaggregation of Revenues

The following table presents the Company’s net sales disaggregated by merchandise division:



	Three Months Ended
	May 1, 2020			May 3, 2019
(In millions)	Net Sales		%	Net Sales		%
Home Décor ¹	$	6,930	35	$	6,336	36
Hardlines ²	6,433		33	5,555		31
Building Products ³	5,965		30	5,397		30
Other	347		2	453		3
Total	$	19,675	100	$	17,741	100

Note: Merchandise division net sales for the prior period have been reclassified to conform to the current period presentation.


¹	Home Décor includes the following product categories: Appliances, Décor, Flooring, Kitchens & Bath, and Paint


²	Hardlines includes the following product categories: Hardware, Lawn & Garden, Seasonal & Outdoor Living, and Tools


³	Building Products includes the following product categories: Building Materials, Electrical, Lighting, Lumber, Millwork, and Rough Plumbing

The following table presents the Company’s net sales disaggregated by geographical area:



(In millions)	Three Months Ended
(In millions)	May 1, 2020		May 3, 2019
United States	$	18,760	$	16,647
International	915		1,094
Net Sales	$	19,675	$	17,741