Beat Lowe’s earnings estimates. Why the stock falls.
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Lowe’s reports the results on Wednesday morning.
Bruce Bennett/Getty Images
lowes
made better-than-expected earnings in the fourth quarter but lagged on sales — and the stock plummets.
The company reported adjusted earnings of $2.28 per share, ahead of the $2.21 analysts were expecting. It grossed $22.4 billion, according to FactSet, compared to $22.7 billion expected.
Lowe’s (Ticker: LOW) forecasts sales of between $88 billion and $90 billion in 2023. Earnings per share will be between $13.60 and $14, in line with estimates of $13.76.
The company repurchased 71 million shares for $14.1 billion last fiscal year, $1.1 billion more than expected. It also paid $2.4 billion in dividends, bringing the total amount returned to shareholders to $16.5 billion.
Given that Lowe’s management had reassured investors that the company was on track to meet its fiscal year targets during an analyst day in early December, the earnings hit and guidance didn’t come as a huge surprise to markets — and don’t seem to be good enough either. The stock was down 5.9% late Wednesday morning at $193.55.
“LOW puts his cards on the table in December, and took some “risk” out of the FY23 outlook by calling for stock gains and + margins even in a bearish scenario,” Wells Fargo analyst Zachary Fadem wrote in a research note on Wednesday. “However, the macro remains very fluid.”
Last week,
home depot
(HD) warned that demand for home improvement will slow down in 2023.
Signs of slowing demand for home improvement products were reflected in Lowe’s fourth-quarter comparable sales, which fell 1.5% — worse than forecasts for flat sales. And for the current fiscal year, comparable sales will range from flat to down 2% compared to 2022, the company said.
The weakness in comparable sales isn’t entirely unexpected — some analysts, including Cowen’s Max Rakhlenko, had predicted they would lag. Monthly visits to Lowe’s have declined recently, down 18% in November, 12.6% in December and 11% in January, according to data placer.ai Rakhlenko rates Lowe’s Stock Market Perform and has set a price target of $220.
“The long-term outlook for home improvement remains strong,” CFO Brandon Sink said in a call to investors. “In 2023, however, housing investment will be under pressure. With elevated inflation, higher interest rates and a more cautious consumer, we forecast a slight decline in the home improvement market.”
A bright spot in the report was that the company grew its contractor-focused Pro business in the US by 10%
The company’s margin outlook was also positive. Gross margin fell 0.6 percentage points to 32.3% in the fourth quarter, but Lowe’s expects it to grow its operating margin later in the year.
“The history of the margin-closing thesis continues,” wrote DA Davidson analyst Michael Baker.
During its analyst day in December, Lowe’s laid out three possible scenarios for fiscal 2023, which identified a resilient, moderate, and weak market. The current guidance tends towards a moderate market scenario.
“The weak scenario that we called is still pretty much off the table for us,” said CEO Marvin Ellison. “I think we called out at that point that it would require a significant economic shock and we don’t see that having an impact.”
Write to Sabrina Escobar at sabrina.escobar@barrons.com
https://www.barrons.com/articles/lowes-earnings-stock-price-b4356166?siteid=yhoof2&yptr=yahoo Beat Lowe’s earnings estimates. Why the stock falls.
