Lowe’s (LOW, Financial), the second largest home improvement chain in U.S., posted solid fourth quarter numbers, beating analyst estimates on the top and bottom line. After Home Depot (HD) -- the chief rival of Lowe’s -- reported better-than-expected results during its fourth quarter, there were expectations that Lowe’s would follow suit, as the general market conditions in the country improved during the second half of 2016.
Lowe’s reported fourth quarter earnings per share of 86 cents on the back of $15.78 billion in revenues. Wall Street expected earnings per share of 79 cents and revenue of $15.39 billion. The blowout result was made possible because same store sales came in at nearly twice the market expectation. Lowe’s same store sales increased 5.1% when the the market expectation was 2.4%. For comparison’s sake, Home Depot reported 5.8% increase in same store sales during the fourth quarter.
Source: Lowe’s Q4 Presentation
The most important number to note in the earnings release was Lowe’s revenues, which increased by roughly 5% in 2017. That’s slightly better than Home Depot’s expectation of a 4.6% sales increase. The whole home improvement sector has, surprisingly, done well in 2016 -- surprising because retail segment results have been a mixed bag. Kroger and Target posted disappointing fourth quarter numbers, and so did Starbucks, while Walmart and Costco performed well.
The good news is, Home Depot and Lowe’s are both expecting the good times to continue in 2017 as rising home prices keep the segment on a roll.
The slowdown in the retail segment did ring a lot of alarm bells with respect to the overall health of the market, but home improvement stores have proved that the market is actually doing well, with only certain segments not doing so well.
Lowe’s noted that macroeconomic fundamentals remain favorable and are aligned for another solid year of home improvement industry growth supported by continued job gains and income growth, debt service ratios near record lows, strong consumer balance sheets and improved credit usage.
"We've entered 2017 well-positioned to capitalize on a favorable macroeconomic backdrop for home improvement by continuing to execute on our strategies to expand customer reach and develop capabilities to anticipate and support their needs," CEO Robert Niblock said in a statement.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
