Home improvement retailer Lowe’s (NYSE:LOW) reported Q3 CY2024 results beating Wall Street’s revenue expectations, but sales fell 1.5% year on year to $20.17 billion. The company expects the full year’s revenue to be around $83.25 billion, close to analysts’ estimates. Its non-GAAP profit of $2.89 per share was 2.8% above analysts’ consensus estimates.
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Lowe's (LOW) Q3 CY2024 Highlights:
- Revenue: $20.17 billion vs analyst estimates of $19.92 billion (-1.5% year-on-year decline, 1.3% beat)
- Adjusted EPS: $2.89 vs analyst estimates of $2.81 (2.8% beat)
- Adjusted EBITDA: $3.19 billion vs analyst estimates of $2.95 billion (8.2% beat)
- The company slightly lifted its revenue guidance for the full year to $83.25 billion at the midpoint from $82.95 billion
- Management slightly raised its full-year Adjusted EPS guidance to $11.85 at the midpoint
- Operating Margin: 12.6%, in line with the same quarter last year
- Free Cash Flow Margin: 3.6%, up from 2.4% in the same quarter last year
- Locations: 1,747 at quarter end, up from 1,746 in the same quarter last year
- Same-Store Sales fell 1.1% year on year (-7.4% in the same quarter last year)
- Market Capitalization: $154.2 billion
"Our results this quarter were modestly better-than-expected, even excluding storm-related activity, driven by high-single-digit positive comps in Pro, strong online sales and smaller-ticket outdoor DIY projects," said Marvin R. Ellison, Lowe's Chairman, President and CEO.
Company Overview
Founded in North Carolina as Lowe's North Wilkesboro Hardware, the company is a home improvement retailer that sells everything from paint to tools to building materials.
Home Improvement Retailer
Home improvement retailers serve the maintenance and repair needs of do-it-yourself homeowners as well as professional contractors. Home is where the heart is, so any homeowner will want to keep that home in good shape by maintaining the yard, fixing leaks, or improving lighting fixtures, for example. Home improvement stores win with depth and breadth of product, in-store consultations for customers who need help, and services that cater to professionals. It is hard for non-focused retailers and e-commerce competitors to match these. However, the research, convenience, and prices of online platforms means they can’t be fully written off, either.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one sustains growth for years.
Lowe's is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution and the flexibility to offer lower prices. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth.
As you can see below, Lowe’s sales grew at a sluggish 3.1% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it closed stores.
This quarter, Lowe’s revenue fell 1.5% year on year to $20.17 billion but beat Wall Street’s estimates by 1.3%.
Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last five years. This projection doesn't excite us and implies its products will face some demand challenges.
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Store Performance
Number of Stores
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Lowe's listed 1,747 locations in the latest quarter and has generally closed its stores over the last two years, averaging 5.7% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
Same-Store Sales
The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Lowe’s demand has been shrinking over the last two years as its same-store sales have averaged 3.9% annual declines. This performance isn’t ideal, and Lowe's is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).
In the latest quarter, Lowe’s same-store sales fell by 1.1% year on year. This decrease was an improvement from its historical levels. It’s always great to see a business’s demand trends improve.
Key Takeaways from Lowe’s Q3 Results
We were impressed by how significantly Lowe's blew past analysts’ EBITDA expectations this quarter. We were also happy it slightly lifted its revenue and EPS guidance. Overall, this quarter had some key positives. The market seemed to want more, however, and the stock traded down 1% to $269 immediately after reporting.
Big picture, is Lowe's a buy here and now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
