Lowe (NYSE: $LOW) Report's Q2 2024 Earnings Results

Aug 20

Lowe’s (NYSE: LOW), the second-largest home improvement retailer in the U.S., reported its fiscal second-quarter earnings, highlighting a challenging environment marked by weaker-than-expected DIY sales and broader economic pressures. While the company managed to beat earnings expectations, it missed on revenue and subsequently cut its full-year outlook, reflecting the hurdles it faces in a cooling home improvement market.

Earnings Overview
For the quarter ending August 2, Lowe’s reported earnings per share (EPS) of $4.10, surpassing Wall Street's expectations of $3.97. However, net sales came in at $23.59 billion, falling short of the $23.91 billion anticipated by analysts. This marks the sixth consecutive quarter of declining sales, underscoring the difficult landscape for home improvement retailers as consumers pull back on discretionary spending.

Net income for the quarter dropped to $2.38 billion, or $4.17 per share, down from $2.67 billion, or $4.56 per share, in the same period last year. This decline was somewhat offset by a $43 million pre-tax gain from the sale of Lowe’s Canadian retail business, which added 7 cents to the EPS for the quarter.

Declining Sales and Revised Outlook
Comparable sales, a key industry metric that excludes the effects of new store openings and closures, declined by 5.1% in the quarter. This was worse than the 4.11% drop analysts had expected, as Lowe’s customers took on fewer DIY projects amid a "pressured macroeconomic environment." The company also cited unfavorable weather conditions as a factor hurting sales, particularly in outdoor and seasonal categories.

In response to these challenges, Lowe’s revised its full-year forecast, now expecting total sales between $82.7 billion and $83.2 billion, down from its previous guidance of $84 billion to $85 billion. The company also lowered its expected decline in comparable sales to a range of 3.5% to 4%, compared to the earlier forecast of a 2% to 3% drop. Adjusted earnings per share are now projected to be between $11.70 and $11.90, down from the prior range of $12.00 to $12.30.

Economic Headwinds
Lowe’s struggles are reflective of broader economic trends affecting the home improvement sector. Higher mortgage rates and increased borrowing costs have dampened demand for new homes, which in turn has weighed on sales at both Lowe’s and its larger rival, Home Depot. In addition, a sense of economic uncertainty has led consumers to adopt a more cautious approach, deferring large home improvement projects and focusing on smaller, essential repairs.

Home Depot, which reported its earnings a week earlier, also issued a bleak outlook for the second half of the year, citing similar economic concerns. Both companies are facing the dual challenges of rising costs and weakening consumer demand, making it difficult to sustain the robust growth seen during the pandemic when home improvement projects surged.

Technical Aspects
From a technical standpoint, Lowe’s is grappling with multiple pressures. The declining sales reflect not just a pullback in consumer spending, but also the impact of higher input costs and a challenging macroeconomic environment. The company’s gross margins are being squeezed as it tries to balance competitive pricing with inflationary pressures on materials and labor.

Moreover, Lowe’s online business and sales to home professionals, such as contractors and electricians, have shown some resilience, partially offsetting the declines in DIY sales. However, these segments alone may not be sufficient to counterbalance the broader slowdown in consumer spending on home improvement.

Lowe’s has also been investing in its digital and supply chain capabilities to improve efficiency and customer experience. While these investments are critical for long-term growth, they come at a time when the company is facing near-term revenue pressures, creating a delicate balancing act between managing costs and driving future growth.

Market Reaction and Outlook
Despite the challenges, Lowe’s stock has been relatively resilient, closing at $243.21 on Monday, representing a year-to-date gain of approximately 9%. However, this lags behind the S&P 500’s nearly 18% increase over the same period, indicating that investors are cautious about the company’s near-term prospects. As of the time of writing, Lowe's stock (LOW) is up 0.58% in Tuesday's premarket trading.

As Lowe’s navigates the remainder of 2024, the focus will likely be on managing costs, optimizing its product mix, and leveraging its professional services to stabilize revenue. The revised outlook suggests that Lowe’s is preparing for a tougher second half of the year, with expectations of continued economic uncertainty and subdued consumer demand.

In conclusion, while Lowe’s managed to exceed earnings expectations in Q2, the challenges it faces are significant. The cut in full-year guidance reflects the reality of a cooling home improvement market and the broader economic headwinds that are likely to persist in the coming quarters. As the company continues to navigate these challenges, its ability to adapt to changing consumer behaviors and macroeconomic conditions will be critical to sustaining its long-term growth trajectory.