Home improvement retailer Lowe’s (LOW, Financial) reported some fantastic numbers for the second quarter. Its results outpaced consensus estimates on both the top as well as the bottom lines, driven by solid strength in its outdoor and indoor product sales that rose 6.5% and 3% respectively. Also, the company experienced strong sales for its seasonal categories such as millwork, paints & tools and hardware.
The company posted during the second quarter posted revenue of $16.55 billion, an increase of almost 6% from $15.7 billion in a year ago period, beating the consensus estimates of $15.55 billion in revenue for the quarter. Also, its net income for the quarter rose around 7% to $1.04 billion or earnings of $1.04 per share from $941 million or earnings of $0.88 per share in the corresponding period last year. The analysts were estimating earnings of $1.02 per share for the second-quarter 2014.
Looking ahead, Lowe's has lowered its entire year sales forecasts to 4.5% growth from about 5.0% growth it had projected earlier in the beginning of the calendar year 2014. Also, it sees its same-store sales to now grow approximately 3.5% from its earlier guidance of 4%. This slowdown in sales guidance was due to the continued winter season , particularly in North America that affected its sales in the first half of the year. This has also led its share to decline approximately 2.47% to $50.25 aftermath.
Long-term remains strong
Nevertheless, Lowe's remains on track to invest in various key capabilities that should fuel up its growth and drive sales and profitability in the second-half of the year. Also, the company is seeing an improved momentum in the home improvement market due to uptick in the consumer spending, employment and income that should enhance its profit and operating profit margins. Lowe's is additionally experiencing a more encouraging and sustainable trend in the home sales this year as against the first half of the last year that should certainly lead to increase spending in the home-improvement and assist the company to post better results on the board.
Also, the company is experiencing an increase in the big-ticket projects from homeowners that should also uplift its sales in the second-half and drive its growth over the coming months. Moreover, the company is witnessing higher demand for its products such as electronic appliances, fashion fixtures and flooring as people are engaged in making their home look smart before the holiday period startups that should increase its sales in the short-run and enhance its profitability.
Smart moves to counter competition
However, the company is facing a tough competition from its rival Home Depot (HD) that posted impressive results for the second-quarter. Home Depot’s same-store sales increased about 6.4% during the quarter on the back of strong sales of professionals and on online that helped the company to deposit approximately 6% increase in its net sales. Lowe's had same-store sales growth of 4.4% during the second-quarter.
But Lowe's has re-launched www. lowesforpros.com, a renewed platform for professionals to buy products online from Lowe’s that should drive its online sales for professionals. The renewed site is empowered with various potential functionality like tools that helps the professionals to create requisition list, views for their purchase history and offers them the customized product catalogs that should enhance its growth opportunity in the future.
Also, Lowe’s is executing various strategic moves like reaching out to the business houses and professionals through various modes such as in-store as well as at the professional place of business to assist them in the regional maintenance, repair and operations customers order and replenish products across multiple stores that should drive sales for its professional business going forward.
Apart from these smart moves, the company is also focusing on driving productivity and profitability as it effectively leverages the payroll and inventory. Lowe's is also engaged in effective alignment of hours with the customer traffic this quarter that should certainly enhance its close rate by infusing more of promotional activities and selling hours during the high traffic weekday times.
Conclusion
Lowe's is currently trading at the trailing P/E of 22.20 and forward P/E of 16.88 that indicate fair valuations for the stock that has potential growth prospects in the future. Also, the company has PEG ratio of 1.21 that continues to support its growth for the next five years. Moreover, the analysts have estimated CAGR of 16.72%, which is greater than the average industry CAGR of 16.03% for the next five years, highlights remarkable growth opportunity for the company in the coming years. The stock also offers short-term gains as the analysts have projected an earnings CAGR of 21.80% and 19.80% for the current as well as the next year, respectively.
