Lowe’s shares jump 10% as strategy to gain pro customers helps fuel earnings beat, higher forecast
Lowe’s shares rose more than 10% after the company reported better-than-expected earnings and raised its sales forecast, as its attempt to win business among home professionals gained traction and consumers looked to tackle bigger home projects.
The home improvement retailer expects to report $92 billion in revenue this year, up from a prior forecast of $86 billion.
Lowe’s has picked up sales over the past year as consumers bought new houses, renovated kitchens and took on do-it-yourself projects while stuck at home during the pandemic. As consumers get vaccinated and become more mobile again, however, CEO Marvin Ellison said the retailer is seeing a shift in the business. He said kitchen, bath, flooring and appliances remain strong, but more customers are shopping on weekdays and spending weekends on vacations, at parks or at social events again.
He said home installations grew 10% and the pro business grew 21% in the second quarter. He said sales of home decor was another bright spot.
Still, he said he remains confident people will continue to spend on their homes — even as they juggle other spending priorities. Some have taken advantage of low interest rates to purchase a bigger home or expand the one they own. They’ve added more space to work remotely, or finally tackled a renovation project after seeing home values rise.
“The pandemic has created a long-term impact of the home’s importance, and we just don’t see that changing,” he said.
Here’s what the company reported for the fiscal second quarter ended July 30 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $4.25 vs. $4.01 expected
- Revenue: $27.57 billion vs. $26.85 billion expected
Lowe’s profits rose to $3.02 billion, or $4.25 per share, from $2.83 billion, or $3.74 per share, a year earlier. The results outpaced the $4.01 per share expected by analysts surveyed by Refinitiv.
Net sales climbed to $27.57 billion from $27.30 billion last year and were higher than analysts’ expectations of $26.85 billion.
The home improvement retailer has put up quarter after quarter of eye-popping growth. However, that has teed up an almost inevitable decline of sales growth as consumers reemerge into the world and can choose to spend money in other ways, from booking vacations to planning parties.
Lowe’s same-store sales dropped by 1.6% in the quarter — marking the first time the key retail metric declined in more than eight years. That was a slightly stronger performance than expected, since analysts had predicted a 2.2% decline, according to StreetAccount. U.S. same-store sales fell 2.2%, but grew by 32% when looking over a two-year period.
During the year-ago period, Lowe’s put up big numbers, including 35.1% same-store sales growth and a nearly 69% surge in quarterly profits.
Ellison said Lowe’s still sees growth opportunities. He said it will increase e-commerce sales, expand its offering of turnkey installation services, add private brands and tailor its assortment of merchandise to feel local at different kinds of stores.
Lowe’s has historically drawn more of its business from do-it-yourself customers, but it’s trying to attract home professionals with a new loyalty program and other perks. The home pros, which range from painters to electricians, tend to be more frequent visitors and bigger spenders.
About 25% of Lowe’s total sales now come from pros versus about 45% at rival Home Depot. Ellison said he would like to see that grow to 30% in the coming years.
Ellison, who is leading the company’s turnaround, said Lowe’s will continue to focus on driving higher profits through higher productivity. Lowe’s also plans to buy back at least $9 billion of its stock.
In its earnings report a day earlier, competitor Home Depot fell short of expectations for same-store sales in the fiscal second quarter, as some customers’ appetite for do-it-yourself projects faded. The company also declined to provide an outlook for the year, citing uncertainty about factors from supply-chain headaches to the delta variant’s influence on consumer spending. Its shares closed down 4.27% to $320.75 on Tuesday.
Lowe’s shares closed down 5.8% to $182.26 on Tuesday after Home Depot’s earnings report.
Read the company’s press release here.
Correction: An earlier headline misstated same-store sales growth. Same-store sales fell 1.6% in the quarter.
