Lowe's (LOW, Financial) exceeded 1Q26 EPS expectations, continuing its over five-year streak of surpassing analysts' earnings estimates. The positive Q1 EPS was driven by better-than-expected comparable sales of -1.7%, improved gross margin from cost management, a favorable product mix shift towards higher-margin items, and share buybacks. The company reaffirmed its FY26 guidance, projecting EPS between $12.15-$12.40, total sales of $83.5 to $84.5 billion, and comparable sales growth from flat to +1%, aligning with Home Depot's (HD, Financial) strategy, providing stability amid tariffs and macroeconomic challenges.
- LOW's Q1 comparable sales fell by 1.7%, returning to negative territory after a +0.2% increase in the previous quarter. Despite the decline, results exceeded expectations, showing resilience in a tough market. However, LOW's performance lagged behind HD's 0.3% decline, likely due to LOW's lower Pro market exposure (25% of sales compared to HD's 50%), which has shown stronger demand than the DIY segment. Factors affecting LOW's comps include weak big-ticket discretionary items, adverse weather, offset by mid-single-digit growth in Pro and online sales.
- Outdoor living products, including garden supplies, outdoor power equipment, grills, and patio furniture, experienced strong demand. In contrast, a sluggish housing market and reduced consumer spending impacted sales in discretionary DIY categories like home decor and tools. Big-ticket items, such as high-end appliances and large renovation materials, also faced challenges.
- Gross margin improved by 19 basis points to 33.38%, driven by effective pricing strategies, cost management, and a favorable product mix. Growth in Pro and online sales, which typically have higher margins, contributed to this improvement, alongside disciplined inventory management and operational efficiencies.
- In light of economic uncertainties, LOW's reaffirmed FY26 guidance offers reassurance, mirroring HD's approach and boosting investor confidence in LOW's growth and profitability potential. The Perpetual Productivity Improvement (PPI) initiative aims to enhance operational efficiency across LOW's business, supporting margins and profitability in FY26 through modernizing checkout infrastructure, improving store inventory management, expanding digital signage, and investing in new touchscreen point-of-sale systems.
LOW's Q1 performance highlights its operational strength, with EPS exceeding expectations and gross margins slightly increasing. The reaffirmed FY26 guidance, indicating modest sales growth and stable margins, reassures investors amid macroeconomic uncertainties, particularly in housing and interest rates. This consistent EPS outperformance underscores LOW's strong position in the home improvement sector.
