Lowe’s Exceeds Earnings Expectations Despite Falling Sales: Anticipates Revenue Decline

Lowe’s surpassed both quarterly earnings and revenue estimates set by Wall Street on Tuesday, despite observing a decline in customers engaging in home projects. The home improvement giant faced reduced expectations for its fourth-quarter performance, having revised its full-year forecast downwards in November. CEO Marvin Ellison attributed this adjustment to a “greater-than-expected pullback” in purchases of higher-priced items and discretionary home projects.

Acknowledging prevailing economic uncertainty, Lowe’s included it in its forecast for the ongoing fiscal year. The company anticipates total sales ranging between $84 billion and $85 billion, marking a decrease from $86.38 billion in fiscal 2023. Projections indicate a 2% to 3% decline in comparable sales compared to the previous year, with earnings per share expected to be approximately $12 to $12.30.

In an interview with CNBC, Ellison noted that demand for DIY projects had been impacted by reduced housing turnover and a shift in consumer spending towards services such as travel and dining out, rather than retail goods. However, he expressed confidence in the long-term outlook for Lowe’s and the home improvement industry as a whole.

This sentiment was echoed by rival Home Depot in its recent earnings report, which also exceeded Wall Street’s earnings and revenue expectations. Despite this, the company reported a year-over-year decline in sales, attributing it to a year of “moderation.” Home Depot also observed customers delaying larger projects due to higher interest rates.

Lowe’s reported fourth-quarter results compared to Wall Street expectations as follows:

– Earnings per share: $1.77 vs. $1.68 expected
– Revenue: $18.60 billion vs. $18.45 billion expected

Despite facing challenges, Lowe’s shares reached a 52-week high and rose more than 2% in midday trading. During its earnings call, company leaders emphasized the favorable financial position of consumers and anticipated easier year-over-year comparisons in the latter half of the year.

For the three months ending Feb. 2, Lowe’s net income was $1.02 billion, or $1.77 per share, compared to $957 million, or $1.58 per share, in the previous year. Adjusted for costs associated with the sale of its Canadian retail business, earnings per share stood at $2.28.

Quarterly sales declined from $22.45 billion in the prior-year period, partly due to an additional week of sales and the inclusion of its Canadian business in the previous year’s figures. Comparable sales fell by 6.2% year over year, primarily attributed to weaker demand for DIY projects and adverse weather conditions in January. However, comparable sales for home professionals remained flat year over year in the quarter.

Slower Housing Turnover and a Focus on Value

Lowe’s has encountered significant challenges with housing turnover, as more customers are postponing selling or purchasing new homes due to increased mortgage rates. According to Ellison, 90% of the retailer’s customers either own their homes outright or have secured fixed mortgage rates of 4% or lower.

Ellison suggested that it will likely require rate reductions to motivate these customers to take action. He emphasized that when interest rates decrease, it typically stimulates housing turnover. This, in turn, prompts homeowners to invest in home improvements to enhance their properties before selling, as well as to upgrade their new residences after purchase.

CEO Ellison of Lowe's
CEO Ellison aims to capture competitor shoppers, offering compelling reasons for consistent patronage.

On a call with CNBC, Ellison noted that DIY customers are seeking value and have become more discerning when making significant purchases. For instance, instead of investing in an entire suite of new kitchen appliances, they may opt to purchase only a new dishwasher or refrigerator. This shift towards purchasing single items rather than multiple ones has been identified as “the biggest determining factor of our sales volume decline” in the appliance business.

Lowe’s experienced heightened customer interest in deals during Black Friday and Cyber Monday, achieving record sales during these promotional events. However, Ellison mentioned that the company has not observed a trend of customers trading down to cheaper brands.

Bill Boltz, the executive vice president of merchandising, highlighted during an investor call that some customers are gravitating towards innovative, albeit higher-priced, items. One standout example is an LG smart refrigerator featuring a double freezer, priced at over $2,500, which has emerged as one of the company’s top sellers.

Loyalty Program Launch

In a bid to attract more foot traffic to its stores and increase online sales, Lowe’s is gearing up to roll out a nationwide loyalty program tailored for do-it-yourself (DIY) shoppers, slated to debut in March coinciding with the crucial spring sales season. While the company already boasts a loyalty program catering to professionals, this new initiative aims to capture the loyalty of individual shoppers as well.

CEO Ellison outlined Lowe’s strategy to target not only its existing customer base but also shoppers who frequent competitors, whether due to convenience or promotional offerings. The objective is to provide these consumers with compelling reasons to choose Lowe’s consistently over other options.

Lowe’s shares are up 4% YTD
Lowe’s shares are up 4% YTD, market value of $133 billion, investing in buybacks, and dividends.

Furthermore, Ellison emphasized the program’s capacity to offer personalized incentives tailored to each shopper’s preferences. For example, gardening enthusiasts may receive discounts on relevant products, while woodworking aficionados may receive a different set of promotions, ensuring a more customized shopping experience.

As of the latest market close, Lowe’s shares have seen a nearly 4% increase year-to-date, slightly trailing the approximately 6% gains of the S&P 500 over the same period. With shares closing at $231.32 on Monday, the company’s market value stands at approximately $133 billion.

During the fourth quarter, Lowe’s allocated $404 million towards share buybacks and paid out $633 million in dividends, underscoring its commitment to delivering value to shareholders amidst its ongoing strategic initiatives.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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