Lowe’s Earnings: Tumultuous Macro Weighs on Near-Term Results but Fails to Sway Our Long-Term View

Key Morningstar Metrics for Lowe’s Companies

• Fair Value Estimate: $211.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Lowe’s Companies’ Earnings

Lowe’s LOW fiscal 2024 first-quarter report held few surprises. $21.4 billion in sales aligned closely with our $21.1 billion estimate, as did $3.06 in diluted earnings per share with our $3.08 estimate. The results prompted management to reaffirm its full-year outlook of $84 billion-$85 billion in revenue and 12.6%-12.7% in operating margin. As the reiterated guidance squares with our forecasts of $84.3 billion for revenue and 12.7% for operating margin, our fair value estimate of $211 per share shouldn’t see a material change beyond time value. Even with a 3% price drop following the report, shares appear rich.

Comparable sales dropped 4.1%, and a 7.6% decline in discretionary purchases over $500 signaled macro pressures are yet to abate. However, similar to our view of peer Home Depot HD, we anticipate the comp cadence will improve throughout the year with easier comparisons (we model a 2.5% decline for fiscal 2024). Ultimately, we believe Lowe’s is poised for further market and wallet share gains as it makes prudent investments to enhance customer experience while leveraging its extensive scale, ensuring its brand intangible asset holds. In particular, we favorably view its new loyalty program for DIY customers, which we think could raise touchpoints and drive stickiness as the firm continues expanding its service levels and investing in supply chain and digital capabilities to better serve its pro base.

Operating margin fell 200 basis points to 12.4%, primarily as Lowe’s lapped a favorable legal settlement and on weak sales, which was partially offset by productivity initiatives. We maintain that 14%-15% long-term operating margins remain within reach (from 13.4% in fiscal 2023) as the firm strives for productivity gains and operational efficiencies across its business.