The home improvement retailer also raised its sales guidance.
Lowe’s (NYSE:LOW) and Home Depot, the two leading home improvement retail chains, post earnings on consecutive days, so it provides investors with a good side-by-side comparison.
Typically, there are a lot of similarities, as the two companies face similar challenges. But for the third quarter, investors were clearly more impressed with Lowe’s results, as the stock price jumped some 5% after earnings were released.
By comparison, Home Depot stock dropped 4% after it released Q3 earnings on Tuesday due to and earnings miss and guidance cut.
Lowe’s, on the other hand, beat sales expectations and narrowed its earnings projections, pushing shares higher.
- Net sales: $20.8B, up 3% year-over-year. This was in line with estimates of $20.8B.
- Net earnings: $1.6B, down about 4% year-over-year.
- Earnings: $2.88 per share, down 4% year-over-year.
- Adjusted earnings: $3.06 per share, up 6% year-over-year. This beat estimates of $2.97 per share.
GAAP earnings were impacted by $129 million in one-time expenses associated with the acquisitions of Foundation Building Materials and Artisan Design Group.
Further, sales were buoyed by a 0.4% increase in comparable sales, with online sales growth rising 11.4% online sales growth. Lowe’s also saw double-digit growth in home services and gains in its Pro business for contractors.
“The company delivered another quarter of positive comp sales, and we’re pleased to start November with positive comps as well, despite headwinds related to hurricane activity in the prior year. With the closing of the FBM acquisition last month, we look forward to enhancing our offering to Pro customers and creating more sustainable, long-term sales and profit expansion for the company,” Marvin Ellison, Lowe’s chairman, president and CEO, said.
Sales guidance raised
Investors were generally pleased with Lowe’s solid performance in a difficult quarter. But they also were impressed by its sales guidance in the face of “ongoing uncertainty in the macroeconomic environment.”
Lowe’s lifted its sales outlook for the full fiscal year to $86.0 billion, up from the previous range of $84.5B to $85.5B. That would be about a 3% gain year-over-year. Comparable store sales are anticipated to be flat compared to the prior year, which is down slightly from the previous guidance of flat to up 1%. The CEO reported positive comps in November so far.
Adjusted operating income as a percentage of sales was lowered to 12.1%, from 12.2% to 12.3%. Net interest expenses are targeted at approximately $1.4 billion, up from $1.3 billion. The company also plans $2.5B in capital expenditures.
Adjusted diluted earnings were narrowed to $12.25 per share, whereas the previous guidance called for a range of $12.20 to $12.45 per share. So, while it is still in the range, it is at the lower end. However, it would be up about 2% year-over-year. Home Depot, in comparison, lowered its earnings guidance, calling for a 6% decrease, down from the previous 3% decrease.
So, in addition to its solid growth outlook, Lowe’s is trading at 18 times earnings, compared to a P/E of 23 for Home Depot. Lowe’s has a median price target of $283 per share, which suggests 22% growth in the stock price.
