Home improvement retailer Lowe’s beat earnings forecasts in the second quarter and stuck to its guidance for the full year, noting a strong rebound in the spring.
The company reported earnings per share of $4.56 for the quarter, beating FactSet’s forecast of $4.47 per share. Revenue of $25 billion was in line with analyst estimates.
Similar sales fell 1.6% over the period, better than the 2.6% decline expected by analysts polled by FactSet.
This is breaking news. Read a preview of Lowe’s earnings below and check back for more analysis soon
Home Depot’s better-than-worries earnings have given investors hope that the home improvement sector’s challenges may soon be over. This does not mean results from Lowe’s
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Last week, Home Depot (stock symbol: HD) beat earnings forecasts and reiterated its financial forecast for the fiscal year, prompting a flurry of increases in share price targets.
“Home Depot’s solid win in the second quarter raises hopes that the worst of the 2023 economic downturn is behind us,” Evercore ISI analyst Greg Mellish wrote in a note following the results.
Traffic seems to support Mellish’s assertion. Visits to Lowe’s (LOW) and Home Depot decreased compared to last year, but improved over the summer, according to data from Placer.ai.
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But the better home improvement outlook in the latter half of the year doesn’t affect the second-quarter results that Lowe’s is about to report.
In fact, most analysts cut their estimates for Lowe’s earnings for the second quarter after the company lowered its forecast in May. Uncertainty about the home improvement sector, exacerbated by comments from Home Depot last Tuesday suggesting shoppers remain wary of spending on expensive items, has led to some additional cutbacks in recent weeks.
The Street now expects Lowe’s to deliver adjusted earnings of $4.47 per share, compared to the agreed claim of $4.49 at the end of July. Revenue estimates of $25 billion remained largely unchanged.
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The home improvement sector is under pressure due to the lack of activity in the housing market. High mortgage rates alienate potential buyers and reduce the renovation projects that often take place after a home is purchased. Dealing with inflation and an unusually cold spring, even interest in do-it-yourself projects has waned.
This is particularly worrisome for Lowe’s because manual labor makes up about 75% of its revenue. In fact, Home Depot’s strength in the quarter came from improvements in West Coast sales, as well as sales to professional builders, two areas where Lowe’s has less exposure, Mellish writes. About half of Home Depot’s annual sales come from its professional business. Lowe’s derives about a quarter from contractors.
To be sure, Lowe’s was creating its own business serving contractors, as well as expanding its client base to new demographics, including rural communities. Early signs indicate that the investments are working Barron Previously mentioned.
In 2019, Pro sales accounted for 19% of annual sales, compared to roughly the current 25%. And although foot traffic in Lowe’s lagged behind Home Depot from March to June, it picked up in July, according to Placer.ai.
Lowe’s shares closed down 0.8% on Monday. Shares are up 9.2% this year, ahead of Home Depot’s 2.6% rally, but underperforming Home Depot’s 2.6% stock.
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