Lowe’s Earnings: DIY Customers Reduce Sales, but Long-Term Outlook Remains Unchanged
We believe Lowe’s profitability will improve when the cycle rotates favorably.
Key Morningstar Metrics for Lowe’s Companies
- Fair Value Estimate: $214.00
- Morningstar Rating: 2 stars
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of Lowe’s Companies’ Earnings
Lowe’s Companies LOW felt the effects of weakened consumer spending in its second-quarter results, reporting a same-store sales decline of 5.1% and a total revenue drop of 5.5%. Like at Home Depot HD, reduced spending on big-ticket projects and unfavorable weather conditions weighed on performance, as evidenced by a decline of 6.5% in purchases over $500. But there were bright spots in the professional business (where comparable sales increased at a mid-single-digit rate) and online sales (which grew 2.9%). More positively, productivity improvements buffered some cost pressures, with Lowe’s delivering an adjusted operating margin of 14.4%—down about 115 basis points from last year but 35 basis points better than anticipated.
Lowe’s refined its outlook for 2024, lowering its ranges for total sales (to around $83 billion from $84 billion-$85 billion) and comparable sales declines (to 3.5%-4.0% versus 2.0%-3.0% prior). These are modestly below our respective $84 billion and negative 2% preprint estimates. We plan to adjust our full-year forecast to include a roughly 4% comparable sales decline and about $83 billion in sales. In response to lower sales, we’ll drop our 2024 operating margin by 20 basis points to 12.4%, leading to EPS of around $11.80 (down 10%), in line with the firm’s outlook for $11.70-$11.90.
However, we believe Lowe’s profitability will improve, attributing the current weakness to the economic climate. As such, when the cycle rotates favorably (likely after a few Federal Reserve interest rate cuts), the firm’s strong fundamentals should shine, allowing it to return to average annual sales growth of 3%-4% and an operating margin that rises to 14%. We therefore don’t plan any material change to our fair value estimate of $214 per share and view shares as a touch rich at 19 times our updated 2025 EPS estimate.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.