Lowe's delivered mixed Q2 results early Wednesday, offering some insight into the weakness in the home building and remodeling markets. A day earlier, Dow Jones retailer Home Depot topped second-quarter earnings targets and reaffirmed guidance, even as unsold inventory stacks up. Home Depot stock ended Wednesday down 0.5% after climbing 4% on Tuesday. And LOW stock edged up about 0.6% on the day following its announcement.
The second quarter is seasonally the strongest for wholesale building retailers as home projects pick up in the summer months. Wall Street predicts moderate earnings growth for the two companies. But analysts note concerns over a weakening macro backdrop, slowing "do-it-yourself" demand and general retail weakness.
Lowe's Earnings Results
Lowe's topped earnings estimates but fell short on revenue for the June-ended quarter. LOW EPS rose 9.8% over the year to $4.67. Revenue was essentially flat, falling 0.34% to $27.476 billion, down from $27.570 billion. Analysts saw Mooresville, N.C.-based Lowe's earnings climbing 7.8% year over year to $4.58 per share on 2% sales growth to $28.14 billion.
Inventories increased by nearly $2 billion to $19.33 billion for the quarter, up from $17.322 billion a year ago. Lowe's reported overall store sales fell 0.3% for the period while comparable U.S. sales fell 0.2%.
Sales took a hit in the first half of the year due to colder weather deterring do-it-yourself projects, which makes up 75% of its customer base. Lowe's reported its first-quarter sales fell 3% year-over-year but started to improve in Q2. But CEO Marvin Ellison says that was partially offset by Lowe's ninth consecutive quarter of double-digit professional sales growth, which jumped 13% for the current period.
During the quarter, Lowe's repurchased $4 billion of its shares and paid $524 million in dividends. The company expects to spend $12 billion repurchasing LOW stock this year. Lowe's also announced it's paying out $55 million in incremental bonus awards to its hourly, front-line employees to offset higher inflation.
"Despite continued macro uncertainty, we remain confident in the long-term strength of the home improvement market and our ability to take share," Ellison stated in the release.
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LOW Stock Outlook
Lowe's reaffirmed its full year outlook with the results. The company anticipates EPS in the upper range of $13.10-$13.60. And sales to range on the lower end between $97 billion-$99 billion of revenue. Analysts view EPS of $13.39 with revenue of $98.106 billion.
LOW stock is down about 20% year-to-date. Like Home Depot stock, it's regained ground from its mid-June low. Shares remain well off their 52-week high. LOW stock is currently trading above its 10-day and 50-day lines, and just shy of reclaiming its 200-day moving average.
LOW shares inched up 0.6% on Wednesday to $215.36 by the closing bell. The stock is testing resistance at its 200-day line, as it climbs the right side of what MarketSmith identifies as a double-bottom base.
Citi reduced its LOW stock target to $205 from $222 last week and downgraded its rating to neutral. Analyst Steven Zaccone said Lowe's will have a tough road to expanding its margins.
Home Depot Stock; Earnings Results
Home Depot continued its streak of beating analyst forecasts with record quarterly results for Q2. The home improvement retailer has topped quarterly earnings estimates since the first quarter of 2020, and hasn't missed revenue predictions since Q3 2019.
Home Depot earnings rose 11.5% to $5.05 per share. Revenue grew 6.5% to $43.79 billion. Watchers expected Home Depot earnings of $4.94 per share on revenue of $43.36 billion.
Comparable sales increased 5.8% for the period, with U.S. same-store sales up 5.4%. Home Depot stock clocked a 4.1% gain on Tuesday, following its quarterly report.
The company' strategy leverages brick-and-mortar sales to help expand its e-commerce operations. In the first quarter, more than half of its online orders were fulfilled through a store. And Home Depot is diversifying its customer base. Its professional sales growth outpaced DIY or consumer sales last quarter.
One concern: Home Depot's merchandise inventories rose to $26.09 billion, up more than 35% vs. a year earlier. That's a sign that the Dow Jones giant loaded up on goods that are being passed over as housing starts fall and consumers back off remodeling projects.
Home Depot also reaffirmed its 2022 outlook. For the fiscal year, Home Depot still expects mid-single-digit EPS growth with total sales and comps increasing about 3%. Wall Street has forecast Home Depot earnings rising 3.6% and revenue growing 1.8%.
Last week, JPMorgan lowered its price target for HD stock to $311 from $355, but kept an overweight rating. Analyst Christopher Horvers noted the "earnings curve continues to deteriorate" for most of retail as consumers deal with pressures from inflation, spending normalization and slowing housing.
HD stock closed 0.5% lower at $325.75 on Wednesday, after jumping 4% the day prior. Home Depot stock is down about 25% so far this year, one of the worst performers in the Dow Jones Industrial Average in 2022.
Shares have gained some ground from their 52-week low in June, but are still trading well below their December high. Home Depot stock is above its 10-day and 50-day moving averages, but faces possible resistance at its 200-day line.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
