On Tuesday, Lowe's Companies Inc. (NYSE:LOW) maintained its Market Perform rating with a steady price target of $230.00, despite reporting second-quarter earnings that surpassed expectations.
The home improvement retailer showcased strong expense management, which led to an adjusted earnings per share (EPS) of $4.10, outperforming the estimated $3.97 and the FactSet consensus of $3.96. A contributing factor to the earnings beat was a lower tax rate, which provided approximately a $0.05 boost to the EPS.
Total sales for Lowe's dipped by 5.5% to $23.6 billion, with comparable store sales (comps) falling by 5.1%, which was more than the anticipated 4.5% decline predicted by the company and the 4.4% FactSet consensus.
The company highlighted ongoing softness in do-it-yourself (DIY) big-ticket discretionary spending as a key factor for the lower sales. On a positive note, the company experienced mid-single-digit growth in the professional customer segment, which makes up about a quarter of total sales, and also saw an uptick in online sales.
Despite the earnings outperformance, Lowe's adjusted its full-year 2024 EPS guidance downward to a range of $11.70-$11.90 from the previous forecast of $12.00-$12.30. This revision reflects a more cautious outlook with expected comparable store sales to decline between 4.0% and 3.5%, as opposed to the earlier projection of a 3.0%-2.0% decrease.
The company cited ongoing macroeconomic challenges and an uncertain environment as the rationale behind the updated guidance.
The contraction in adjusted operating margin, which fell 114 basis points to 14.4%, was also noted. This margin contraction was attributed to a lower gross margin and a deleverage in selling, general, and administrative (SG&A) expenses. Consequently, earnings before interest and taxes (EBIT) decreased by approximately 12% to $3.4 billion.
Looking ahead, Lowe's remains focused on its long-term strategy, which includes winning over professional customers, enhancing its digital presence, localizing offerings, and elevating product assortment. The company expects these initiatives to help it gain market share over time. Additional insights into the company's performance and outlook are anticipated to be shared during the conference call scheduled for 9:00 a.m. ET.
In other recent news, Lowe's Companies Inc. has been the subject of multiple analyst reports. Telsey Advisory Group maintained a Market Perform rating on Lowe's, citing a slowdown in the home improvement sector and broader economic uncertainty.
On the other hand, TD Cowen held its rating steady, anticipating mid-single-digit growth by the second half of 2025, primarily driven by the professional customer segment.
Evercore expressed concerns over Best Buy (NYSE:BBY)'s market share losses, adding the company to its underperform stock list. The firm also commented on Lowe's, expecting the company to guide towards the lower end of its EPS guidance range for 2024.
Lowe's has made several strategic moves recently, including promoting Jennifer Wilson to the role of senior vice president and chief marketing officer. The company also increased its quarterly cash dividend by 5% to $1.15 per share, reflecting confidence in its growth strategy.
Additionally, Lowe's has expanded its same-day delivery options by partnering with DoorDash (NASDAQ:DASH) and Shipt, contributing to the company's online sales growth.
InvestingPro Insights
Lowe's Companies Inc. (NYSE:LOW) continues to navigate a challenging retail landscape, as reflected in its recent financial performance. According to InvestingPro data, Lowe's has a market capitalization of $138.59 billion and is trading at a P/E ratio of 19.41, which is considered low relative to near-term earnings growth. This aligns with the company's strategy of managing expenses and focusing on long-term growth avenues. Despite the downturn in sales, Lowe's has maintained a strong commitment to shareholder returns, as evidenced by its impressive track record of raising dividends for 54 consecutive years.
InvestingPro Tips suggest that while analysts have revised their earnings expectations downwards for the upcoming period, Lowe's is still expected to remain profitable this year. The company has also been profitable over the last twelve months, which is a testament to its operational resilience. Additionally, Lowe's has enjoyed a high return over the last decade and a strong return over the past five years, indicating its capacity to deliver value to investors over time. For those interested in deeper analysis, there are 11 additional InvestingPro Tips available for Lowe's at https://www.investing.com/pro/LOW, which can offer further insights into the company's investment potential.
Investors may also take note of the company's recent price performance, with a year-to-date price total return of 10.89%, and a one-year price total return of 13.17%, suggesting a steady recovery in shareholder value. Moreover, the company's fair value, according to analyst targets, is currently estimated at $251, which is above the previous close price of $243.21, indicating potential upside for investors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.