Home-improvement retailer
Lowe’s
beat earnings expectations in the second quarter, and stuck to its full-year guidance despite softening demand for do-it-yourself projects.
Lowe’s
stock (ticker: LOW) is up 2.6% in premarket trading to $223.30 shortly after earnings were released. The shares have risen 9.2% this year as of Monday’s close.
The company reported earnings per share of $4.56 in the quarter, beating FactSet expectations for $4.47. Revenue of $25 billion was in line with analysts’ estimates.
Comparable-store sales fell 1.6% for the period, narrower than the 2.6% drop expected by analysts polled by FactSet. The company said a “strong spring recovery” and online sales growth offset lumber deflation and lower DIY discretionary demand.
“Lowe’s results were slightly better than published expectations, and probably about in line with how the market was positioned,” wrote D.A. Davidson analyst Michael Baker in a Tuesday note. Baker has a Buy rating on Lowe’s stock with a $237 price target.
Lowe’s sees comparable-store sales falling 2% to 4% for the full year, with earnings per share of $13.20 to $13.60, and revenue of $87 billion to $89 billion. That’s largely in line with Wall Street, which is expecting profit of $13.33 a share on sales of $88 billion.
“Our ability to reduce expenses while improving customer service is the result of excellent execution by our team, and we remain confident in the mid- to long-term outlook for the home-improvement industry,” said CEO Marvin Ellison in a company statement.
Lowe’s results suggest that challenges for the home improvement sector may ease in the second half of the year, wrote TD Cowen analyst Max Rakhlenko, who has a Market Perform rating on the stock with a $225 price target.
Better weather and lower prices for lumber should be favorable for the company, Rakhlenko wrote, adding that he expects “solid demand” for smaller renovation projects. However, he is still monitoring an ongoing slowdown in discretionary big-ticket categories—something competitor
Home Depot
(HD) warned about as well.
“While there was strength in categories associated with smaller projects, we did see continued pressure in certain big-ticket, discretionary categories,” Home Depot CEO Ted Decker said in a company statement last week. Home Depot topped earnings expectations and reiterated its fiscal year financial forecasts, leading to a flurry of increases to targets for the stock price.
The home-improvement sector has been under pressure from a lack of activity in the housing market. Higher mortgage rates are sidelining potential buyers, and are also cutting into the renovation projects that often take place following the purchase of a house. Tack on inflation and an unseasonably cold spring, and even interest in DIY projects has weakened.
Of the two largest home-improvement retailers, Home Depot has fared slightly better, thanks to its larger exposure to professional builders. But Lowe’s has been carving out its own business serving contractors, as well as expanding its customer base into new demographic groups, including rural communities—and those investments are starting to pay off. In 2019, Pro sales made up 19% of annual sales, compared with the current roughly 25%.
Lowe’s has scheduled a call with investors Tuesday at 9 a.m. Eastern. Analysts will be looking for more commentary on consumer spending, including demand for discretionary purchases, as well as updates on its Pro business and its rural transformation, Rakhlenko wrote.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
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