Earnings Reports

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Lowes Home ImprovementHardware and home improvement retailer Lowe's $LOW reported worse than expected second-quarter earnings and warned for the full-year with operating margins pressure. Home Depot $HD shares sold off last week on growth concerns.

Lowe's beat comps which brought the margins question to a head. Both Home Depot and Lowe's stocks sold off on July 20 after Sears $SHLD announced it would sell Kenmore Appliances on Amazon $AMZN This was taken as a threat to the home improvement retailers, which sell appliances themselves and the $AMZN threat.

Earnings: Net income rose 21.6% in the quarter to $1.4 billion. EPS of $1.57 on revenue of $19.5 billion missed consensus  estimates of $1.62 a share on $19.52 billion revenue. Same-store sales increased 4.5%, with comps for the U.S. home improvement business up 4.6% beating exoectations of 4.3% fromConsensus Metrix.

Reaction Lowe's Companies, Inc. NYSE: $LOW Aug 23 Pre market 71.32 -4.50 (-5.94%)

Note the net income includes a $96 million gain from the sale of the company’s sale of its interest in an Australian joint venture. 

Lowe’s CEO, Robert Niblock, said:

While our results were below our expectations in the first half of this year, the team remains focused on making the necessary investments to improve the customer experience and drive sales. This includes amplifying our consumer messaging and incremental customer-facing hours in our stores which will put pressure on our operating margin. We believe this is the right strategy to more fully capitalize on strong traffic trends in what we believe is a supportive macroeconomic backdrop for home improvement.

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Graph via https://alphastreet.com/app#/home

Buybacks and Dividends

$LOW repurchased $2.5 billion worth of stock under its share buyback program and paid $603 million in dividends in the first half of its 2017 fiscal year.

Outlook:

  • Full-year EPS of $4.20-$4.30 vs. prior f $4.30 and below consensus for $4.62, with revenue up 5%, in line with consensus, and same-store sales up 3.5%.
  • Full-year operating margin to widen 80-100 basis points, down from earlier view for 120 points of improvement.

Lowe's will increase store hours for customers to capitalize on strong traffic and the supportive macroeconomic environment, though that will put pressure on operating margins, Chairman and CEO Robert Niblock said in a statement

Morningstar analysts say "lengthy housing cycle upswing and the maturity of this particular business model"  gives a solid base to the hardware market, the risk clearly is margins and competing online.

Source: Lowe's, AlphaStreet

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