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Key Takeaways from Home Improvement Retailer Lowe’s Second Quarter Results

August 30, 2014 | About:

The second largest home improvement retailer, Lowe (NYSE:LOW), reported its second quarter earnings (ended August 1), beating top and bottom-line expectations. Sales, same-store sales, net earnings, and guidance showed decent year-over-year gains and the management is quite upbeat about Lowe’s performance. For gaining better insight, let’s jump directly to the numbers and take a look at the major takeaways.

Revenue climbs

As the U.S. housing industry is on the path of revival, it is having a positive impact on home improvement retailers like Lowe that saw its revenue climb 5.7% to $16.6 billion, from $15.7 billion a year ago. The reported revenue met the Bloomberg analysts’ estimate for the quarter. Comparable sales for the quarter have improved 4.4%, up 0.3% from that expected by analysts based on estimates compiled by the Consensus Metrix.

As on August 1, Lowe had 1,837 home improvement and hardware stores operational in U.S., Canada and Mexico. The favorable weather conditions during the second quarter aided in improving sales at these conventional stores. CEO Robert A. Niblock stated –“I would like to thank our employees for their hard work during our peak selling season, which helped us deliver solid results for the second quarter. We were able to recover most of the outdoor product sales missed in the first quarter due to unfavorable weather conditions.”

Company sources claim that there was a recovery noticed in “most of the outdoor product sales” it had missed upon due to the severe winter in the first quarter. Even the rising real-estate prices served as a key factor to better growth in this quarter, as rising values drive consumers to spend more on their homes.

According to the U.S. commerce department, construction activity has jumped 15.7% in July this year after eight months of straight decline, indicating a pick-up in home building. Also as home improvement spending is slated to continue in the U.S. with income of consumers growing higher along with enhanced job security, retailers like Lowe and Home Depot will certainly see better times in the quarters ahead.

Earnings improve and Investors get the cherry

The quarter’s net income grew 10.4% year over year to $1.04 billion. Earnings per share (EPS) of $1.04 increased 18.2% from $0.88 in the year ago quarter and was $0.01 per share above the Bloomberg expectations. The improvement was on account of higher revenue, cost reductions and continuous share buybacks.

During the quarter Lowe generated $3.9 billion operating cash flow and free cash flow of $3.5 billion. The company bought back shares worth $1.1 billion in the second quarter and thus adding to investors delight. Apart from this, Lowe also paid $183 million as dividends. For the six month period, the company has already repurchased $2 billion of stock and has paid $369 million as dividends.

Future outlook remains firm

Management has reduced the full-year sales guidance to 4.5% from the previous forecast of 5%. The second quarter witnessed weaker than anticipated sales of air conditioners as summer was relatively cooler, pushing the management to trim the revenue outlook.

The reduced sales guidance of Lowe did come as a surprise and was pretty contrasting to what the home improvement giant Home Depot (NYSE:HD) recently shared, where it maintained the sales guidance at 4.8% for the fiscal year. Despite lowering guidance, Lowe believes in the long term prospects of the market and has plans of adding 10 home improvement and 5 hardware stores to its total store count by this fiscal year.

The management maintained the earnings guidance at $2.63 per share for the entire fiscal year (ending January 2015), and spoke about cost reductions and productivity gains that will support earnings for the fiscal year. Lowe will also buy back a total of $3.4 billion of stock during the fiscal year which will boost its earnings.

Rounding up

Lowe might not be on an exclusive growth trajectory, but the management is optimistic of the market revival that could bolster sales in the coming quarters. However, to keep an uptick in sales and to play safe, the management has taken a cautious stand in terms of revenue expectations for the remaining fiscal year. There is a lot to witness in the upcoming quarters and let’s stay tuned and keep watching.

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