Lowe’s shares jumped Wednesday after the company reported better-than-expected earnings.
Share prices rose more than 7% at during premarket trading, but shed gains after the open, trading up less than 1% in early trading.
Here’s what Lowe’s reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.77, adjusted vs. $1.32 expected
- Revenue: $19.68 billion vs. $18.32 billion expected
- Same-store sales: up 11.2% vs. 3.3% expected
However, it’s difficult to compare reported earnings with analyst estimates for the first quarter because the coronavirus pandemic has changed customers’ shopping patterns and added additional labor and safety costs for companies.
For the first quarter ended May 1, Lowe’s reported that net income rose 27.6% to $1.34 billion, or $1.76 per share, compared to earnings of $1.05 billion, or $1.31 per share, a year ago. Excluding items, the company earned $1.77 per share, outpacing analyst expectations of $1.32 per share.
Revenue rose 10.9% to $19.68 billion, up from $17.74 billion a year ago.
The company also announced it is withdrawing its full-year 2020 guidance due to uncertainty related to the coronavirus pandemic.
The coronavirus hit as the home improvement retailer has been attempting to revive its business under CEO Marvin Ellison, who assumed the role in 2018. Lowe’s has been trying to build out its e-commerce platform and attract more professional homebuilders and contractors as opposed to do-it-yourself customers. The company said it saw a pop in online traffic as capacity was limited at brick-and-mortars and the company rolled out curbside pickup to accommodate online customers and local virus restrictions.
“I am also pleased with our ability to pivot to serve increased online demand with Lowes.com sales increasing 80% in the quarter,” Ellison said in a statement. He added that sales have so far remained high through May.
“Lowes.com will only get better for the balance of the year,” he said on a conference call with investors, adding that month-to-date growth of online sales has been in the triple digits.
Both Lowe’s do-it-yourself and pro customers proved “surprisingly resilient” in the first quarter, Ellison said on the call. He said the company saw sales jump in cleaning supplies and appliances like refrigerators as well as materials used for DIY projects such as paint. However, sales of heavy indoor installation equipment slumped, including for kitchen and bath as people were “reluctant to invite people into their homes.”
He added that demand reflected “the to-do list that customers hadn’t tackled due to their busy schedule.”
Most of Lowe’s pro customers are of the smaller “pick-up truck pro” category as opposed to the larger, industrial professionals, Ellison said, adding that the former has been less affected by coronavirus restrictions and continues to operate.
Sales will begin to “moderate” moving forward in the year, Ellison predicted, adding that they won’t plummet from a coronavirus-induced downturn because homeowners will still continue to invest in their houses.
“This is not a housing recession,” he said, comparing it to the 2008 recession. “This is obviously different. We’re seeing still sustained strength from our homeowners because they’re sheltering in place and they’re finding those projects around the house.”
Lowe’s managed to beat “lofty expectations,” Zachary Fadem, a senior analyst at Wells Fargo, wrote in a note to clients. He added that it’s the first time in four quarters that Lowe’s outperformed rival Home Depot in terms of same-store sales.
“All in, we believe today’s impressive results amidst challenging conditions reflect continued progress on LOW initiatives as well as favorable DIY/Pro mix, category concentration (Appliance, Lawn & Garden, Paint) and a less COVID-impacted geographic exposure (more rural vs. HD),” Fadem said.
Fadem added that the “strong” results support Lowe’s stock gains Wednesday. Lowe’s shares have underperformed Home Depot’s stock by 1,150 basis points year to date, and trade at a lower multiple to earnings.
“We see room for considerable rerating in the days ahead,” he said.
Lowe’s said it has taken steps to firm up its financial position, which remains strong. The company said it raised $4 billion in debt and increased its revolving credit capacity by $770 million. It said it has $6 billion in cash and cash equivalents as well as $3 billion in undrawn revolving credit as of April 15.
The company also said it repurchased 9.6 million shares for $947 million in the quarter and paid $420 million in dividends, but added that it has suspended its shares buyback program and does not anticipate to repurchase more shares for the rest of the year.
Lowe’s was able to keep its stores open because they were deemed essential as the coronavirus pandemic shuttered retailers across the country for much of spring, the home improvement industry’s busiest time of year.
The company incurred increased costs due to social distancing at its stores and keeping employees coming in. It reduced store hours by three hours every day, increased regular cleaning and increased employee wages and benefits. The company also said it hired 100,000 seasonal employees to handle the spring bump.
The company’s stock bottomed in the first quarter at a closing price of $65.02 on March 18 just as state-by-state restrictions were rolling out across the country. However, the stock has bounced back, trading above $120 per share before the open on Wednesday, bringing its market cap to more than $88 billion.
Lowe’s reported earnings a day after Home Depot reported a mixed first quarter. Home Depot’s sales beat expectations as Americans stayed home due to Covid-19 restrictions and invested in home improvement. However, the company’s increased revenue was offset by ballooning costs from boosting workers’ pay and benefits.
Home Depot leads in the space, boasting a bigger customer base of professional contractors and a growing e-commerce business. Like Lowe’s, Home Depot has been making improvements to its stores and website. Home Depot is investing $11 billion over three years, a decision that’s put pressure on its margins.
Read Lowe’s press release here.