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Shares of Lowe’s Cos. were rising Tuesday after the home-improvement retailer’s big quarterly profit beat was overshadowed by a downbeat full-year outlook.
While profit increased amid improved gross margin, sales fell from a year ago due to “a slowdown in [do-it-yourself] demand and unfavorable January winter weather,” the company said in a release.
After declining in premarket trading, the stock
LOW,
is up 2.8%.
Net earnings for the company’s fiscal fourth quarter, which ended Feb. 2, rose to $1 billion, or $1.77 a share, compared with $957 million, or $1.58 a share, in the year-earlier period.
Excluding nonrecurring items, such as costs related to a Canadian retail-business transaction, adjusted earnings per share came in at $2.28, while analysts surveyed by FactSet were modeling $1.68. That marked the biggest EPS beat on a percentage basis in at least five years, according to available FactSet data.
Revenue fell 17% — to $18.6 billion from $22.4 billion — but was still above the FactSet consensus of $18.5 billion. Lowe’s noted that figures from the year-earlier quarter included about $1.4 billion from an extra week and $958 million from its Canadian retail business.
Gross margin improved to 32.4% from 32.3%.
Comparable sales, or sales from stores open at least one year, fell 6.2%, but that beat the FactSet consensus for a 7% decline.
Speaking during a conference call on Tuesday morning, Lowe’s CEO Marvin Ellison said that a number of factors are clouding the macroeconomic outlook. “As we look forward, many of you are asking when we expect home-improvement demand to inflect,” he said. “Although it’s a very fair question, unfortunately it’s still very difficult to predict, and while there is increased confidence of a soft landing, there’s still a lot of speculation on the timing of anticipated interest-rate cuts and the pace of slowing inflation.
“It’s also unclear how quickly the consumer will respond to these changes and how quickly their spending habits will change,” he said. “Overall, the consumer is financially healthy, but in this postpandemic time frame, customers are still showing a preference to spending on services, with elevated demand for travel, restaurants and other experiences. While we anticipate these trends will normalize, the timing is uncertain.”
Ellison added that “existing-home sales are at levels we have not seen in almost 30 years, and even as mortgage rates decline, two-thirds of homeowners remain locked in at rates below 4%, which may keep many on the sidelines. Due to these factors, we expect DIY demand to remain under pressure.”
The company noted that comparable sales for its Pro customer base were flat for the period. “Despite a challenging macro environment and difficult weather in January, our comparable Pro sales were flat for the quarter,” Ellison said. “As a reminder, our core Pro customer is a small- to medium-sized business owner — in our recent Pro survey, these customers told us their backlogs are in line with last year, and they are cautiously optimistic about their ability to generate and close leads in 2024.”
For the fiscal year that just began, Lowe’s anticipates $84 billion to $85 billion in total sales as well as a 2% to 3% drop in comparable sales, forecasts that reflect “near-term macroeconomic uncertainty.” Analysts were modeling for total sales of $85.4 billion and a comparable-sales decline of 1.5%.
Lowe’s also models for full-year EPS of $12 to $12.30, while analysts are forecasting $12.68.
Separately, Lowe’s said it spent $404 million to repurchase 1.9 million shares during the fiscal fourth quarter and spent $6.3 billion on repurchases for the full year. The company paid out $633 million in dividends in the latest quarter and $2.5 billion for the year.
Like companies in other parts of the retail sector, such as Walmart Inc.
WMT,
and Macy’s Inc.
M,
Lowe’s is utilizing generative artificial intelligence, which can be trained to harness vast quantities of data and generate carefully tailored content. Ellison said that Lowe’s is using generative AI to “improve how we sell, shop and work, like our home-improvement ChatGPT plug-in.”
The stock has climbed 18.8% over the past three months, while shares of rival Home Depot Inc.
HD,
have run up 19.6% and the S&P 500
SPX
has advanced 11.3%.
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