Lowe's Q2 Earnings Beat, Comps Fall & FY24 Outlook Cut

Lowe's Companies, Inc. LOW came up with second-quarter fiscal 2024 results, wherein the top line fell short of the Zacks Consensus Estimate, while the bottom line surpassed the same. This Mooresville, NC-based company experienced a year-over-year decline in both metrics and continued with its trend of dismal comparable sales.

The drop in big-ticket discretionary spending among Do-It-Yourself customers, along with adverse weather affecting seasonal and other outdoor categories, hurt the company's performance. These challenges, coupled with a difficult macroeconomic backdrop, led management to revise its full-year forecast downward.

On a positive note, Lowe's Total Home strategy showed continued progress, driven by growth in the Pro segment and online sales. The company achieved mid-single-digit growth in comparable sales with Pro customers.

Q2 in Detail

The home improvement retailer posted adjusted quarterly earnings of $4.10 per share, which came ahead of the Zacks Consensus Estimate of $3.96. However, the figure marked a decline from earnings of $4.56 per share reported in the same period last year.

Net sales of $23,586 million missed the Zacks Consensus Estimate of $23,907 million and fell 5.5% year over year. Comparable sales for the quarter declined 5.1%, primarily due to muted demand from DIY customers, partly offset by strength in the Pro segment and online sales. We had expected a comparable sales decline of 4.2%.

The gross profit declined 6% year over year to $7,895 million, whereas the gross margin shrunk 20 basis points to 33.5%. We had expected a gross margin contraction of 40 basis points.

The operating income decreased 11.3% to $3,447 million, while the operating margin shrunk 100 basis points to 14.6%. The company reported an adjusted operating income of $3,404 million and an adjusted operating margin of 14.4%.

Other Financial Aspects

This Zacks Rank #4 (Sell) company ended the quarter with cash and cash equivalents of $4,360 million, long-term debt (excluding current maturities) of $34,659 million and shareholders' deficit of $13,763 million.

For the six months ended Aug 2, 2024, Lowe's generated cash flow from operations of $7,415 million. The company executed a buyback of around 4.4 million shares, amounting to $1 billion.

FY2024 Outlook

Lowe's now anticipates total sales in the range of $82.7 billion-$83.2 billion, a downward revision from the prior estimate of $84 to $85 billion. Comparable sales are expected to decline by 3.5% to 4% compared to the prior year, a steeper drop than the earlier forecast of a 2% to 3% decrease.

The adjusted operating margin is projected between 12.4% and 12.5%. This is a slight decrease from the previously guided range of 12.6%-12.7%. The forecast for adjusted earnings per share has been revised to a range of $11.70-$11.90, down from the earlier expectation of $12.00 to $12.30. Management maintained its capital expenditure plan of approximately $2 billion for fiscal 2024.

Price Performance

Shares of Lowe's have risen 6.8% in the past six months compared with the industry's growth of 0.7%.

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