After Home Depot (HD)’s forecast-beating first-quarter results, it was natural to expect its rival Lowe’s to report solid first-quarter numbers as well. But, unfortunately, Lowe’s first-quarter numbers came in well below Wall Street forecasts, causing some concern about the rest of 2017.
Lowe's posted earnings per share of $1.03 on the back of $16.86 billion in revenues, while the market expectation was earnings per share of $1.06 and revenues of $16.96 billion. Comparable store sales grew 1.9%, much lower than the 5.5% Home Depot was able to record during the same period.
The biggest concern that remains is the way comparable sales grew during the first quarter. Comparable store sales recorded a 1.9% increase, but that was mainly because Lowe’s increased average ticket by 3.5%, while transactions declined by 1.5%. In comparison, Home Depot reported a 5.5% comparable store sales increase through a 3.9% increase in average ticket and 1.5% increase in transactions. Clearly, Home Depot either had more customers walking in, or the same number of customers buying more product.
Lowe’s will be hoping to get its transactions back on track as early as possible, and this will be number we must look at closely during the next quarter.
The acquisition of Canada-based Home improvement retailer RONA added 245 stores to Lowe’s store count in 2016 and that’s the main reason why Lowe’s sales increased by 10.7% during the first quarter. Lowe’s expects to add 35 stores in 2017, which will allow the company to get its sales numbers moving through the year.
“Turning to the economic landscape for the balance of the year, the home improvement industry should continue to see solid gains, job and income growth to drop solid gains in both disposable income and consumer spending. And revolving credit usage remains favorable supplementing the spending power generated by stronger incomes and supporting bigger ticket purchases,” said Robert Niblock, CEO and President, Lowe's, during the first-quarter earnings call.
Despite the disappointing results, Lowe’s remained upbeat about its fortunes, and re-affirmed its sales forecasts for the year. Lowe’s expects sales to increase by 5% in 2017, 0.4% higher than Home Depot’s sales forecast. With the outlook for the home improvement industry remaining upbeat, Lowe’s should not face any difficulty in achieving its target for the year.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
