Lowe's 3Q profit buoyed by strong economy; lifts outlook
Lowe's third-quarter profit handily topped Wall Street’s view, thanks in part to the strong economy and sales to contractors. The home-improvement company boosted its full-year adjusted earnings outlook.
The retailer, the nation’s second-largest home improvement chain behind Home Depot, also said it plans to reorganize its Canada operations and shut 34 underperforming stores.
Shares edged higher in midday trading while the broader markets declined.
The announcement comes a day after disappointing results from rival Home Depot, which reported its third-quarter revenue missed analysts’ estimates and cut its full-year sales forecast. Home Depot said its strategy to meld its online business and its physical stores is taking longer to deliver benefits. Shares of Home Depot took a hit.
The contrasting quarterly performances highlights the increasing competition between Home Depot and Lowe’s, which is in the process of an overhaul under its CEO Marvin Ellison.
Ellison, a one-time Home Depot executive who took the top job at Lowe's last year, is trying to reshape the culture at Lowe’s, which had been a distant second to Home Depot in the sector for a while. Ellison has been focusing on getting Lowe’s back to the fundamentals of retailing, like making sure the right items are in stock and improving customer service.
One of the big focuses: improving its business with professional customers such as electricians and builders, who represents around 23% of Lowe’s sales. That’s key because they spend around 5.5 times more than the average do-it-yourself-customer, according to Neil Saunders, managing director of GlobalData Retail. As part of that strategy, Lowe’s has been adding permanent staffing to the pro-desks at its stores and setting aside dedicated parking spaces for pros. Lowe’s has been helping professional customers with loading supplies onto their trucks as well.
“We are trying to get to the basic expectations that customers have,” Ellison told The Associated Press in a phone interview Wednesday. “In retail, basic things really matter.” He noted that with previous management, Lowe’s got too caught up with gimmicky innovations like 3D printing and robots.
This holiday shopping season, Lowe’s will be focusing on home improvement items like power tools as gifts.
Ellison has thinned executive positions at the Mooresville, North Carolina-based company and begun paring away weaker selling items in its stores. Lowe's also announced last summer that it was closing the 99 Orchard Supply Hardware stores it owns in California, Florida and Oregon.
Ellison told The Associated Press that its next step is using technology and other initiatives to take market share away from rivals. The company is spending $1.7 billion over the next five years in overhauling its supply chain to speed up deliveries to customers. It’s also working on personalizing its website so that an electrician in Los Angeles gets a more tailored site, for example.
Lowe’s Cos. earned $1.05 billion, or $1.36 per share, for the three months ended Nov. 1, up from $629 million, or 78 cents per share, a year earlier.
Earnings, adjusted for restructuring costs, were $1.41 per share. That easily beat the $1.35 per share that analysts surveyed by Zacks Investment Research were calling for.
Revenue totaled $17.39 billion, below Wall Street’s forecast of $17.69 billion.
Sales at stores open at least a year rose 2.2%. In the U.S., the figure climbed 3%. This metric is a key gauge of a retailer’s health because it excludes results from stores that recently opened or closed.
During the earnings call with analysts on Wednesday, Ellison said the average ticket above $500 increased more than 4% in the quarter.
“Consumer project demand is strong, and there's excitement relative to the holiday season,” he added.
Lowe's now anticipates full-year adjusted earnings in a range of $5.63 to $5.70 per share. Its prior forecast was for earnings of $5.45 to $5.65 per share. Analysts polled by FactSet predict full-year earnings of $5.67 per share.
“Ellison and his team appear to have a strong grasp of what the business needs and have, so far, been good at executing change,” said Saunders in a report. “The market isn’t falling off a cliff, but growth is slowing, and consumers are becoming more cautious.”
Portions of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on LOW at https://www.zacks.com/ap/LOW
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