Lowe’s Companies, Inc. (NYSE: LOW) stock was set to open Wednesday down by more than 7 percent after the company reported disappointing fourth-quarter earnings and declining margins.
Despite a booming home improvement business in the U.S., Lowe’s has consistently struggled to keep pace with its primary competitor Home Depot Inc ( HD), and the fourth quarter was no exception.
Lowe’s reported adjusted earnings per share of 74 cents, missing consensus analyst estimates of 87 cents.
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Revenue of $15.49 billion came in ahead of consensus forecasts of $15.33 billion. Same-store sales growth of 4.1 percent also topped expectations of 3.1 percent growth.
However, Lowe’s couldn’t convert those revenue and same-store sales beats into profits, as gross margins declined from 5.4 percent to 5.2 percent.
Looking ahead, Lowe’s said it expects 4 percent revenue growth and 3.5 percent same-store sales growth in 2018. It’s also calling for full-year diluted EPS of between $5.40 and $5.50, up from $4.09 in 2017. Lowe’s expects to open 10 additional stores this year.
“We achieved comparable sales growth that exceeded our expectations driven by compelling consumer messaging, strong holiday event performance, and our integrated omni-channel customer experiences,” CEO Robert Niblock says in a statement. “As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management.”
Most U.S. retail investors would be thrilled with a 4.1 percent same-store sales growth in the fourth quarter, but Lowe’s and Home Depot have been mostly sheltered from the online competition that it pressuring the rest of the struggling U.S. retail sector. Earlier this month, Home Depot reported both earnings and revenue beats and said its same-store sales grew by 7.5 percent in the fourth quarter.
Bank of America analyst Elizabeth Suzuki says yet another post-earnings sell-off may be the price Lowe’s investors must pay to finally have expectations set at a realistic level.
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“Given a string of inconsistent quarterly results versus the company’s communicated expectations, we believe guidance is now being set to a level that the company can more realistically achieve,” Suzuki says.
“LOW, which has underperformed its largest competitor HD for several years, may be entering a period of catch-up through market share growth with pro customers, while simultaneously benefitting from a favorable housing cycle.
Bank of America has a “buy” rating and $123 price target for LOW stock.
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Lowe’s Companies, Inc. (LOW) Is Getting Trounced by Home Depot (HD) originally appeared on usnews.com
