Lowe's (LOW) Q1 Earnings Miss Estimates, Sales Improve Y/Y

Lowe’s Companies, Inc. (NYSE:LOW) reported first-quarter fiscal 2018 results, with earnings and sales lagging the Zacks Consensus Estimate. This marks the company’s second consecutive bottom-line miss. Nevertheless, the company’s top and bottom line depicted year-over-year improvement in the quarterly results.

In the first quarter, unfavorable weather conditions in several regions led to delayed spring season sales, which dented the company’s outdoor categories performance. Nonetheless, the company gained from solid indoor category performance and consistent sales growth to Pro customers. That said let’s take a closer look at the quarterly performance and management expectations for fiscal 2018.

Q1 Performance

Notably, this home improvement retailer’s quarterly earnings of $1.19 per share, fell short of the Zacks Consensus Estimate of $1.22 cents. Nevertheless, the bottom line increased 15.5% from $1.03 in the year-ago quarter, following a decline of 14% in the fourth quarter of fiscal 2017.

Lowe's Companies, Inc. Price, Consensus and EPS Surprise

Further, net sales of $17.36 billion missed the Zacks Consensus Estimate of $17.44 billion. Nevertheless, the top line rose 3% year over year after posting improvement of 1.8%, 6.5%, 6.8% and 10.7% in the fourth, third, second and first quarters of fiscal 2017, respectively.

Comparable sales (comps) inched up 0.6% in the quarter under review, following an increase of 4.1%, 5.7%, 4.5% and 1.9% in the fourth, third, second and first quarters of fiscal 2017, respectively. Comps for the U.S. business climbed 0.5% after increasing 4.7%, 5.1%, 4.6% and 2% in the preceding quarters, respectively.

Moving on, gross profit increased 3.7% year over year to $6,012 million and gross profit margin expanded roughly 23 basis points (bps) to 34.6%. However, operating income declined close to 6% during the quarter, thanks to higher SG&A expenses.

Other Financial Aspects

Lowe’s, which competes with The Home Depot, Inc. (NYSE:HD) , ended the quarter with cash and cash equivalents of $1,565 million, long-term debt (excluding current maturities) of $14,948 million and shareholders’ equity of $5,745 million. Cash flow from operations amounted to $3,429 million in the quarter under review.

In the reported quarter, the company kept its promise of returning surplus cash to stockholders as it repurchased shares worth $750 million and distributed $340 million as dividends.

Outlook

The company is on track with efforts to improve inventory levels, conversion rates, gross margin along with strategies to enhance consumers’ experience.

That said, for fiscal 2018, management projects total sales growth of approximately 5%, up from the prior estimate of a rise of 4%. The top line is expected to gain 1% from the company’s adoption of new revenue recognition accounting standard. Further, comps for fiscal 2018 are expected to rise about 3.5%.

Additionally, Lowe’s envisions operating margin to decline approximately 40 bps in the fiscal. Earnings are anticipated in the band of $5.40-$5.50. The Zacks Consensus Estimate for fiscal 2018 earnings is currently pegged at $5.46, which falls within management’s expectations.

Moreover, the company intends to open 10 home improvement and hardware stores in fiscal 2018. As of May 4, 2018, the company operated 2,154 stores in the United States, Canada and Mexico.

Zacks Rank & Price Performance

Lowe’s currently carries a Zacks Rank #4 (Sell). The company’s shares have declined 4.2% in the past three months, against the industry’s rise of 12%.

Nervous About Lowe’s? Check These Trending Retail Stocks

Best Buy (NYSE:BBY) delivered an average positive earnings surprise of 19.1% in the trailing four quarters. It has a long-term earnings growth rate of 14.6% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DSW Inc (NYSE:DSW) delivered an average positive earnings surprise of 13.4% in the trailing four quarters. It has a long-term earnings growth rate of 7.3% and carries a Zacks Rank #2.

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