Lowe's (LOW) Beats On Earnings In Q1, FY16 Outlook Robust

Lowe’s Companies Inc. (NYSE:LOW) began fiscal 2016 on a strong note as evident by the earnings beat in the first quarter. At the same time, earnings and sales improved year over year. In response, shares of this leading home improvement retailer rose nearly 2% in the pre-market session.

Fiscal first-quarter earnings increased 24.3% year over year to 87 cents and surpassed the Zacks Consensus Estimate of 85 cents.

Including a pre-tax gain of 11 cents per share related to an unrealized gain on foreign currency hedge entered into prior to its pending RONA acquisition, the company reported earnings per share of 98 cents, marking a 40% increase year over year.

Total revenue rose 7.8% year over year to $15,234 million in the quarter. The company’s sales gained from its efforts to provide a better omni-channel customer experience, with strength seen in both indoor and outdoor categories. Also, results benefited from strong home improvement demand.

Comparable-store sales (comps) increased 7.3% on a consolidated basis during the fiscal first quarter while U.S. comps grew 7.5%. Comps growth during the quarter was a function of higher transactions and average ticket.

In dollar terms, gross profit rose 6.5% year over year to $5,337 million. Gross profit margin came in at 35.04%, down 43 basis points from the year-earlier quarter.

Other Financial Aspects

Lowe’s ended the quarter with cash and cash equivalents of $4,561 million, long-term debt (excluding current maturities) of $14,322 million and shareholders’ equity of $7,212 million.

During the quarter, the company kept its promise of returning value to its shareholders as it repurchased stock worth $1.2 billion and distributed $255 million as dividends.

Fiscal 2016 Outlook

For fiscal 2016, Lowe’s expects sales growth (including the 53rd week) of nearly 6%, with the 53rd week expected to boost sales by 1.5%. Comps, on a consolidated basis, for the year are estimated to grow roughly 4%. Operating margin is expected to expand nearly 80 to 90 basis points. The effective tax rate is expected to be nearly 38.1%.

Further, Lowe’s now expects earnings for fiscal 2016 to be $4.11 per share, excluding the impact of the pending RONA acquisition.

Moreover, the company intends to open 45 home improvement and hardware stores during fiscal 2016. As of Apr 29, 2016, the company operated 1,860 stores in the United States, Canada and Mexico.

Zacks Rank

Lowe’s currently has a Zacks Rank #2 (Buy). Other well-placed stocks in the same industry are BMC Stock Holdings Inc. (NASDAQ:STCK) , with a Zacks Rank #1 (Strong Buy) and The Home Depot Inc. (NYSE:HD) and Tile Shop Holdings Inc. (NASDAQ:TTS) , with a Zacks Rank #2 each.


LOWES COS (LOW): Free Stock Analysis Report

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HOME DEPOT (HD): Free Stock Analysis Report

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