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Lowe’s Reports Modest Sales Gain, Affirms Full-Year Forecast
Company Faces Higher Transportation Costs, Muted Housing Environment
Lowe’s Cos. reported sales growth in the first quarter that just missed estimates, yet kept its full-year outlook unchanged in the face of higher transportation costs and a muted housing environment.
Comparable sales rose 0.6% during the period, the company said May 20, slightly below the average analyst estimate compiled by Bloomberg. Lowe’s adjusted earnings per share of $3.03 topped Wall Street expectations.
Shares fell 3.9% at 9:42 a.m. in New York on May 20. Lowe’s had dropped 9.5% year to date through the May 19 close.
Morgan Stanley analysts led by Simeon Gutman called the Lowe’s report “fine and mostly in line.”
“At first glance,” they wrote in a note to clients, Lowe’s “is doing its part (executing well) as it gears its business for the next housing cycle.”
Lowe’s said it still sees earnings per share for the full year between $12.25 to $12.75, in line with forecasts.
Lowe’s quarterly comparable sales gain was the same as Home Depot’s. Both have felt the pinch from strained U.S. consumers, who are paying higher gasoline prices in the wake of the Iran war.
Fuel costs are also an issue for Lowe’s. Chief Financial Officer Brandon Sink said on a call with analysts that the company expects “near-term pressure from higher transportation costs that we are actively working to offset through productivity initiatives in the back half of the year.”
Yet there are some signs that the nation’s housing slump may finally be ending. An index of market conditions from the National Association of Home Builders and Wells Fargo showed that U.S. homebuilder sentiment rebounded in May.
“We would expect management commentary to echo that of Home Depot citing relative weakness in bigger-ticket discretionary projects due to a weak housing backdrop and elevated uncertainty,” Bloomberg Intelligence analyst Drew Reading said.
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But Lowe’s emphasis on sales to professionals and online should continue to bear fruit, “and position it well for an eventual market rebound, he added.
BI’s Reading has previously noted that while Lowe’s recent acquisitions in the professional contractor segment may squeeze margins in the near term, “they should lead to stronger long-term growth,” as pro customers represent roughly 30% of sales.
Lowe’s ranks No. 15 on the Transport Topics list of the top private wholesale/retail carriers. Home Depot ranks No. 50 on the Transport Topics Top 100 list of the largest private carriers in North America and No. 27 on the wholesale/retail carriers sector list.
