Lowe’s Cos. beat Wall Street’s sales expectations and raised its full-year outlook as professional contractors increasingly turn to the home-improvement retailer for their materials.
The company now predicts comparable sales will rise as much as 1 per cent this year, according to a statement Wednesday, compared with an earlier forecast calling for at best no change from the prior year. Gross margin is seen improving slightly for the year and total sales are expected to be in the range of US$97 billion to US$99 billion, above prior projections.
Investors are looking to see how home-improvement retailers can expand their business after two years of pandemic-fueled spending. On Tuesday, a disappointing report from Home Depot Inc. sent shares plunging on profitability concerns. Lowe’s said on Wednesday that its operating margin improved in the fourth quarter.
The higher level of detail that Lowe’s shared about its business on its earnings call may also help explain the divergence in investor reactions’ to results from the two home-improvement retailers, analysts said. Lowe’s highlighted a 23 per cent increase in sales to professional customers in the quarter ended Jan. 28 and said that strong momentum continued in February.
Lowe’s also laid out plans to boost margins and grow market share in the do-it-yourself business by offering more private brands. The company is making progress in curbing thefts, which further helps profitability.
For Lowe’s “there’s more low-hanging fruit for what they’re doing to drive sales,” said Jonathan Matuszewski, an analyst at Jefferies. “They’ve obviously made a lot of progress.”
Lowe’s also did a good job of managing inventory and avoided getting stuck with a glut of products, said Chuck Grom, an analyst at Gordon Haskett. Lowe’s earnings update offered a “trifecta of better margins, better inventory and raising guidance,” Grom said. Still, “one quarter doesn’t define who’s a better company,” he added.
The shares rose as much as 6.1 per cent, the most intraday since August, in New York trading on Wednesday. The stock had fallen 17 per cent this year through Tuesday’s close.
Lowe’s now uses technology to adjust prices more regularly on certain items, Chief Executive Officer Marvin Ellison said in an interview. The retailer is facing higher prices for key commodities, including lumber, but Ellison said he expects lumber prices will normalize in the latter half of the year.
U.S. same-store sales increased 5.1 per cent in the fourth quarter, more than double the average estimate of analysts surveyed by Bloomberg.
Lowe’s has been able to navigate supply-chain bottlenecks because it’s one of the largest importers of shipping containers and can scoop up business from smaller regional chains that don’t have the same scale, Ellison said.
PROFESSIONAL CUSTOMERS
Lowe’s has been trying to entice more contractors by sweetening perks and expanding its loyalty program. Home Depot currently draws a larger share of these shoppers than Lowe’s, but Ellison says increasing demand from professional customers led to the forecast boost.
The tight U.S. housing market is encouraging people to fix up their homes to boost their value -- and they’re hiring professional contractors to help them with these projects. Still, both Lowe’s and Home Depot face tough comparisons from a year ago when consumers had government stimulus checks to help fuel spending.
Ellison said he expects favorable home trends to persist throughout the year, including aging housing stock and rising real estate prices.
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