Improving Housing Market To Drive Lowe’s Revenues
Given the impressive performance of Home Depot in the fourth quarter (results reported earlier this month) the same can be expected from Lowe’s (NYSE:LOW) as well, as both retailers benefited from the improving housing market and the string of natural disasters that hit the country earlier in the financial year. Comparable sales for Home Depot grew at 7.5% in the quarter, which was 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 lift the earnings in FY 2017.
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Omnichannel To Drive Growth
Lowe’s has received positive feedback for its omnichannel initiatives, a key factor in driving a 33% online comps improvement in the third quarter. The company has provided an upgraded online shopping experience, with enhanced functionality and optimization for touch and mobile devices. Lowe’s also provides flexible fulfillment options of buy online, pick up in store, and buy online, deliver from store, besides making it easier for customers to engage with its in-home project specialists to request services. As a result of the efforts undertaken by the company, 60% of the online orders are picked up in the store, with 40% of those customers buying incremental products when they go to collect their products. The home improvement retailer has also focused on its “Professional Segment” — an area where its competitor Home Depot is currently ahead. Professional customers place larger orders compared to the do-it-yourself segment and serving these customers better can boost revenues for Lowe’s in the long term. As a result of its efforts, Lowe’s has been able to narrow its delivery window to a two-hour time frame for its Pro customers.
Hurricanes To Have A Negative Impact On The Margins
The gross margins of the company can be expected to trend downwards this quarter, as compared to the prior year period. This will be driven by the hurricane-related expenses, which will result in increased costs for the company, similar to what happened with Home Depot. Moreover, the increased sales on account of the hurricanes were of low-margin items, which can further compress the margins. In addition, the company is also aiming to drive brand loyalty through its MyLowes platform, which can also pressure the margins. In the past, this has included 10% off purchases for active duty personnel and veterans, and free delivery for MyLowes members. To overcome these, the company has undertaken optimization efforts by working closely with vendors to improve the 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.
- Lowe’s Bets On The Smart Home Market
- Improving Housing Trends Bode Well For Home Improvement Companies
- Lowe’s Posts A Top and Bottom Line Miss, But Growth Continues
- Can Hurricanes Provide A Boost To Home Improvement Companies?
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