What Investors Need to Know About Lowe's Earnings

Company misses earnings and revenue estimates

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May 24, 2018
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Lowe's Companies Inc. (LOW, Financial) reported its first-quarter numbers on Wednesday, which were disappointing thanks to the seasonably cold weather in different portions of the U.S. The bad weather impacted the number of outdoor home improvements. Even so, company shares traded north following the earnings release because investors had anticipated a poorer performance.

Archrival The Home Depot Inc. (HD, Financial) faced the same challenge due to the harsh winter weather that cut into a conventionally good spring sales period. Lowe's, like Home Depot, said the numbers should improve in the second quarter, which is off to a solid start. The company reiterated its guidance for the current fiscal.

By the numbers

The North Carolina company earned $988 million or $1.19 a share for the quarter ended May 4. That compares with Wall Street expectations of $1.22 earnings per share. The home improvement retailer had registered net earnings of $602 million or 70 cents a share in the year ago comparable period.

Lowe’s reported revenue of $17.36 billion, up 3% from $16.86 billion generated in the last year same period. However, the metric fell short of the consensus estimate of $17.46 billion.

Comparable store sales or same-store sales, which compare sales in stores open for at least a year, is an important metric for retailer's sales health. Same-store sales grew just 0.6%, way behind consensus estimates of 3%. Similar to Home Depot, Lowe's suffered from the seasonably cold weather that delayed home improvement projects. Earlier during the month, Home Depot reported its earnings with same-store sales growth of 4.2%, missing consensus estimates of 5.4%. Lowe's CEO Robert Niblock said:

"Prolonged unfavorable weather across geographies led to a delayed spring selling season, which impacted results in outdoor categories…Spring has now arrived and we are encouraged by strong sales in the month of May."

Looking ahead

Niblock recently announced his plans to retire from his position after serving Lowe’s as CEO for 13 years. Lowe’s declared that he would be succeeded by J.C. Penney (JCP, Financial) CEO Marvin Ellison in July. Ellison was formerly the vice president of Home Depot stores in the U.S. Investors are pretty hopeful with Ellison taking over as the new CEO of Lowe’s. Investors are expecting the company will be better equipped with ways to take on Home Depot under his leadership. Home Depot currently has a better hold of the home improvement market and has been consistently reporting stronger revenue growth.

Niblock is confident regarding the future prospects of Lowe’s. He said:

"Looking ahead to the rest of the year, we expect the solid macroeconomic fundamentals, such as strong employment and income gains will sustain home improvement market expansion ... the home improvement industry is poised to grow its share of overall consumer spending."

As far as the guidance for fiscal 2018 is concerned, Lowe's projected a revenue increase of around 5%, compared with its earlier guidance of a 4% rise. The company hasn’t changed the full-year earnings outlook and expects it to come in the range of $5.40 to $5.50 per share. Lowe’s also reaffirmed its same-store sales growth outlook of 3.5%.

Disclosure: I do not hold any positon in the stocks mentioned in this article.