Hurricanes To Boost Lowe’s Sales In The Third Quarter

by Trefis Team
-2.72%
Downside
85.58
Market
83.25
Trefis
LOW
Lowe's
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Given the impressive performance of Home Depot in the third quarter, reported earlier this month, the same can also be expected from Lowe’s (NYSE:LOW), as both retailers benefited from the string of natural disasters that hit the country. Comparable sales for Home Depot grew at 7.9% in the quarter, 2 percentage points higher than anticipated. Such a bump can be expected for Lowe’s as well. Revenue growth for Lowe’s is also set to be driven by the acquisitions of Maintenance Supply Headquarters in June, and Central Wholesalers back in November of 2016, which are expected to increase the reach of the company among professional customers. Comparable sales growth together with stock repurchases undertaken by the company are expected to uplift the earnings in the third quarter.

We have an $83 price estimate for Lowe’s, which is slightly higher than the current market price.

Focus On Integrated Channels

Lowe’s is investing in an omnichannel retail strategy to enhance the customer experience. The company is advancing its omnichannel experience to make it easier for customers to engage with its interior and exterior home project specialists. On its website, the company has added online scheduling capabilities which have led to a large number of customers seeking online appointments for these specialists. Lowe’s is also looking to add online tools to its website to improve the customer experience. An integrated retail channel is likely to remain a key growth driver for Lowe’s as customers look for convenience to shop for products and visualization tools to virtually “try” products to understand how they would look in their homes.

The company’s bet on the smart home market, by expanding its connected-home shopping experience to 70 stores in the US, also makes sense. The primary purpose of its store within a store feature, in partnership with b8ta, is to educate shoppers on smart home products, enabling them to “easily discover, learn and try the latest smart home technology all in one place.” Given the impressive growth rates expected in this sector, it is not a surprise that Lowe’s also wants to jump on this bandwagon. Furthermore, Lowe’s has the scale necessary for making the significant investments needed to make it big in this space.

Margins To Remain Pressured

There are a number of factors that are likely to have a negative impact on the margins of the company in the third quarter. The RONA acquisition is likely to add a 15 to 20 basis points pressure on the operating margins in 2017. Second, the steps taken by the company to improve its store traffic trends, to amplify its marketing reach with customers, and to improve its competitiveness are going to strain the margins. Moreover, as was the case with Home Depot, hurricanes would not only have resulted in increased costs but would have also caused higher sales of low-margin items. These factors will also have an adverse impact on the margins.

To overcome these, the company has undertaken optimization efforts by working closely with vendors to improve their cost and pricing tactics. The acquisition of Maintenance Supply Headquarters also provides an opportunity to improve the margins through higher sales with pro customers.

See our complete analysis for Lowe’s.

Have more questions about Lowe’s? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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 Lowe’s

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