Lowe’s Companies, Inc. (NYSE:LOW) has long been an also-ran to rival Home Depot Inc (NYSE:HD), and LOW stock’s quarterly results that missed Wall Street estimates suggest Lowe’s is falling even farther behind Home Depot.
What makes the disappointing quarter hurt even worse is that Lowe’s earnings come a day after Home Depot posted better-than-expected results across the board and raised its outlook. That means Lowe’s can’t pin this miss on anything bigger than itself, such as unseasonable spring weather.
It’s not news that Lowe’s has company-specific problems, but the latest report offers little reassurance that LOW is addressing them effectively.
After all, a spring thaw in the housing market was supposed to make for a good quarter for home-improvement chains. That Lowe’s made so little of the favorable economics explains why LOW stock tanked as much as 5.1% on the news.
By failing to beat Street estimates, Lowe’s joins that large group of retailers struggling with weak consumer spending. Americans are using their considerable gas savings to pay down debt or add to their savings accounts.
Lowe’s Comes Up Short
For Lowe’s part, earnings came to $673 million, or 70 cents a share, well short of analysts’ average estimate, according to a survey by Thomson Reuters. LOW stock’s revenue likewise came in light, rising to $14.13 billion versus a forecast of $14.23 billion.
On the face of it, same-store sales growth — a critical measure of a retailer’s health — was strong. Ordinarily, a 5.3% increase in U.S. same-store sales at such a large company would have the market breaking out the champagne. In Lowe’s case, it only served to remind the market of how far it’s fallen behind Home Depot, which enjoyed a domestic same-store sales gain of 7.1%.
Analysts largely pointed to the different geographical footprints of HD and LOW. Home Depot has greater exposure to states with the strongest housing markets. Putting stores in the wrong place would appear to be a strategic blunder on the part of Lowe’s, and no quick fix is apparent.
Lowe’s stood by its full-year forecast, but after first-quarter results, investors shouldn’t trust that LOW stock will be able to make it happen. After all, Lowe’s is already playing catch up thanks to the first quarter miss. LOW stock is targeting full-year earnings of $3.29 a share. The Street was projecting earnings of $3.31 — at least before Lowe’s blew the first quarter.
LOW stock is up 47% over the last 52 weeks, leading the broader market by about 35 percentage points. That’s some terrific outperformance but also looks to be at an end. Lowe’s stock is now flat for the year-to-date with no catalysts on the horizon.
Maybe Lowe’s can get its act together in the current quarter, but for now, LOW stock looks good for opportunity costs and not much else.
As of this writing, Dan Burrows did not hold a position in the aforementioned securities.