The Year That Was: Lowe’s

-20.41%
Downside
255
Market
203
Trefis
LOW: Lowe's logo
LOW
Lowe's

Lowe’s (NYSE:LOW) is the second largest home improvement retailer in the U.S., behind Home Depot. The retailer has 2,119 stores across the U.S., Canada, and Mexico, with ~85% of those stores in the U.S. itself. Lowe’s got off to a great start in the year, beating Home Depot’s comparable sales growth in the U.S. for the first time since Q2 2010.

LOW Q&A 14-1

However, since, Lowe’s results fell short of that of Home Depot’s and even the consensus estimate (in Q3 of fiscal 2017, ending January 2017). Home Depot has grown from strength to strength so far this year, increasing its full-year guidance after solid Q3 results. Home Depot reaffirmed its guidance of 6.3% sales growth and 4.9% comp sales growth for 2016, and now expects full-year EPS to grow 15.9% to $6.33, up from the estimate of $6.31 after Q2, estimate of $6.27 after Q1, and estimate of $6.12-$6.18 after 2015 full-year results announcements. On the other hand, Lowe’s adjusted its previous estimate of 10% top line growth in 2016 to a 9-10% growth estimate, and adjusted its estimate of comp sales growth to 3-4% for this fiscal, down from an earlier estimate of 4% comp growth.

Relevant Articles
  1. Up 17% Since 2023, What’s Next For Lowe’s Stock Post Q4 Results?
  2. How Will Lowe’s Stock Trend After Increasing Only 3% This Year?
  3. Will Lowe’s Stock Trade Lower Post Q2?
  4. Lowe’s Q1 Earnings: What Are We Watching?
  5. Lowe’s Q3 Earnings: What Are We Watching?
  6. Down 28% This Year, Is Home Depot Stock A Buy?

HD Q&A 12

Lowe’s’ sales growth estimate for 2016 is more than Home Depot’s 6.3% sales growth estimate, but this is as Lowe’s factored the inorganic growth of 4% due to the RONA acquisition, 0.5% growth due to opening of 45 stores, and 1.5% growth due to the inclusion of the 53rd week. Earlier this year, the company completed the acquisition of the Canadian home improvement retailer RONA, which gives the company more presence in Canada, and narrows its sales-gap with Home Depot in the country to less than a billion dollars. The RONA acquisition not only adds approximately $3 billion to Lowe’s top line, but it is expected to give the combined company an established platform to further boost sales in the Canadian home improvement space. In particular, Lowe’s big-box outlets now have the company of RONA stores under different banners and in different sizes. Having both larger and smaller outlets gives Lowe’s an advantage as some customers are seen preferring the latter.

Lowe’s also exited its joint venture with Woolworths, an Australian retailer chain, in Australia. The American retailer exited this partnership in early 2016, as the joint venture remained in losses. Lowe’s was a one-third owner of the joint venture.

Low inventory of homes for sale has prompted home price appreciation and led to bidding wars, causing home owners to add value to their present homes through remodeling and repairs. Low months’ supply of homes has driven home prices up, causing a rise in home renovation in favor of new home construction. Expense for repairs and remodeling is expected to cross $300 billion this year, surpassing the previous high of ~$285 billion in 2007, and grow further in 2017. However, Lowe’s hasn’t been able to keep pace with its chief rival Home Depot, which has made the most of the growth in consumer spending on home improvement in the U.S.  In Canada, Lowe’s will hope to catch up with Home Depot with the RONA acquisition.

Have more questions on Home Depot? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Home Depot

Get Trefis Technology