Lowe's reported better-than-expected first-quarter financials Tuesday but revised its full-year guidance as falling lumber prices and a drop off in home improvement enthusiasm are expected to take its toll on the company. LOW advanced Tuesday.
Lowe's is the second home improvement retailer in as many weeks to cut guidance for 2023. Rival Home Depot revised its full-year expectations last week based on a moderating home improvement market.
During the thick of the coronavirus pandemic, home improvement retailers turned out to be winners. More recently, they found favor as defensive plays amid inflation and global recession fears. However, Lowe's and Home Depot's Q1 financials point to possible problems as rising interest rates stifle the mortgage refinancing book that drove pandemic-era sales, and consumers look to be more cautious with funds amid recession fears.
Lowe's stock jumped 1.7% to 206.62 Tuesday during market trade. On April 20, Lowe's stock hit a recent high of 212.50, but it's moved sideways since then. Meanwhile, Home Depot stock advanced 1.5% Tuesday to 294.94.
Homebuilding stocks could see some impact Tuesday from April new home sales data, due out at 10 a.m. from the Commerce Department at 10 a.m. ET. Economists project a slowdown from an annualized rate of 683,000 in March, to a rate of around 670,000 homes per year for April.
Lowe's Stock: Earnings
Estimates: Wall Street forecast Lowe's earnings dipping 2% to $3.45 per share with revenue sliding 8% to $21.60 billion. Same-store sales was expected to decrease 3.4%, according to FactSet.
Results: Lowe's reported EPS growing around 5% to $3.67 in Q1 while revenue dropped more than 5% to $22.35 billion. Same-store sales decreased 4.3% in the first quarter.
The home improvement retailer said falling lumber prices, unfavorable weather and lower discretionary sales drove comparable sales lower in Q1. Home Depot gave similar reasons for its first-quarter financials last week.
Outlook: Lowe's updated its 2023 guidance with expectations of between $87-$89 billion in sales, down from the previous estimate of $88-$90 billion. The company predicts same-store sales to decrease between 2%-4% on the year. Lowe's forecasts adjusted diluted earnings per share of $13.20-$13.60, down from the previous guidance of $13.60-$14.00.
Meanwhile, analysts predict fiscal 2023 profits to drop 1% to $13.56 per share while Wall Street forecasts sales slipping 9% to $88.36 billion.
"We are pleased with the performance of our business despite record lumber deflation and unfavorable spring weather," CEO Marvin Ellison said in a statement Tuesday.
Ellison added Lowe's remains "optimistic about the medium-to-long term outlook for home improvement and our ability to continue to grow market share."
On March 1, Lowe's reported Q4 earnings growth accelerating for the third quarter in a row, jumping 28% to $2.28 per share as revenue climbed 5.2% to $22.445 billion.
The adjusted earnings results excluded pretax transaction costs associated with selling its Canadian retail business, after offloading it to private-equity firm Sycamore Partners for $400 million in cash in November. Lowe's comparable sales fell 1.5% for the fourth quarter while U.S. comparable sales dipped 0.7%. FactSet projected flat growth year over year.
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Lowe's Follows Home Depot
Last week, Home Depot reported its Q1 EPS dropped 6.6% to $3.82 as sales fell 4% to $37.26 billion. Same-store sales decreased 4.5%, as comparable sales in the U.S. declined 4.6%.
Home Depot also revised its 2023 guidance based on "continued uncertainty regarding consumer demand." The home improvement retailer expects revenue and same-store sales to decrease 2% and 5%, respectively, compared to fiscal 2022. Home Depot executives also forecast diluted earnings per share dropping between 7%-13% in 2023.
"We expected that fiscal 2023 would be a year of moderation for the home improvement market. Our sales for the quarter were below our expectations primarily driven by lumber deflation and unfavorable weather, particularly in our Western division as extreme weather in California disproportionately impacted our results," said CEO Ted Decker.
Lowe's stock ranks fifth in IBD's Wholesale-Building Products industry group. LOW has a 75 Composite Rating out of 99. Lowe's stock also has a 63 Relative Strength Rating. The EPS Rating for LOW is 97 out of 99.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
