Lowe's (LOW) Stock Down On Q1 Earnings & Revenues Miss

Lowe’s Companies Inc. (NYSE:LOW) failed to carry the momentum of the final quarter of 2016 in to the first quarter of fiscal 2017. The company missed the Zacks Consensus Estimate for both earnings and sales. Consequently, shares of this North Carolina-based company declined nearly 4% during pre-market trading hours. However, we noted that the stock has gained 7.7% in the past three months, outperforming the Zacks categorized Building Product-Retail/Wholesale industry’s gain of 5.5%. Though, we believe that the company’s weaker-than-expected performance in the first quarter is likely pull the stock down.

The home improvement retailer posted adjusted earnings of $1.03 a share that missed the Zacks Consensus Estimate of $1.07 but improved 18.4% from 87 cents delivered in the year-ago quarter.

Net sales of $16,860 million came below of the Zacks Consensus Estimate of $17,037 million but increased 10.7% year over year. The company’s sales increase can be attributed to its efforts to provide a better omni-channel customer experience and an improvement in the housing market. Comparable sales (comps) increased 1.9% during the quarter, while comps for the U.S. business also increased by 2%.

Gross profit increased 8.7% year over year to $5,800 million, however, gross profit margin contracted roughly 64 basis points to 34.4%.

Other Financial Aspects

Lowe’s, which competes with The Home Depot, Inc. (NYSE:HD) , ended the quarter with cash and cash equivalents of $1,963 million, long-term debt (excluding current maturities) of $15,770 million and shareholders’ equity of $5,531 million.

During the quarter, the company kept its promise of returning surplus cash to stockholders as it repurchased shares worth $1.2 billion and distributed $304 million as dividends.

Outlook

Management projects total sales growth of approximately 5% and comps to increase about 3.5% during fiscal 2017. Lowe’s envisions operating margin to increase approximately 120 basis points in the fiscal year.

The company now anticipates fiscal 2017 earnings to be approximately $4.30 per share, down from the previous estimate of $4.64 but up significantly from $3.99 posted in fiscal 2016. The decline in earnings guidance is due to loss on extinguishment of debt and lower interest expense. Currently, the Zacks Consensus estimate for fiscal 2017 is pegged at $4.65, which could witness downward revisions in the coming days.

Moreover, the company intends to open 35 home improvement and hardware stores during fiscal 2017. As of May 5, 2017, the company operated 2,137 stores in the U.S., Canada and Mexico.

Zacks Rank & Stocks to Consider

Lowe’s currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include The Children's Place, Inc. (NASDAQ:PLCE) and Tecnoglass Inc. (NASDAQ:TGLS) , both carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Tecnoglass has an impressive long-term earnings growth rate of 20%.

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