Lowe’s (NYSE:LOW), the second largest home-improvement retailer in the U.S., will announce its Q1 results on Monday, May 21st. Its last quarter earnings exceeded expectations with double digit revenue growth as homeowners took on more home-improvement projects during the uncharacteristically warmer winter months, but it still trailed its largest competitor Home Depot (NYSE:HD). This quarter, its results are also expected to have benefited from early spring sales. Lowe’s has been working hard with its restructuring and re-branding initiatives from in-store technology to online sales, and we expect its makeover to start transforming into results this year.
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An uncharacteristically warm winter this year prompted several homeowners to move forward their repair and renovation projects, contributing a significant amount of sales expected in Q2 to Q1. In the recently announced earnings, Lowe’s largest competitor Home Depot noted that this helped its U.S. same store sales by 3 percentage points last quarter, including as much as 1 percentage point of sales that it estimated was pulled forward from the second quarter. The trend resonated throughout the industry and we expect a similar trend in Lowe’s upcoming results.
With improvements in housing sentiment and proactive restructuring and efficiency initiatives, we expect Lowe’s market share and margins outlook to continue to improve. Lowe’s stock has gained over 50% over the past six months.
The industry outlook has also improved lately with the recovery trends in the private residential spending, which is highly correlated to home improvement comparable sales in the U.S. Also, while the housing market still has quite a way to go toward a fully healthy recovery, the U.S. Housing Market Index (National Association of Home Builders/Wells Fargo housing-market index) recently posted its highest reading in the last five years, a positive sign of improving buyer traffic, home values, employment and lower mortgage rates.
We have a $31 Trefis price estimate for Lowe’s stock, almost in line with the current market price.