Small Projects, Digital Tools Help Frame the Outlook for Lowe's

Key Points

• Lowe's stock is up over 3% after the company reported mixed earnings but affirmed its outlook for the full year. 
• The company cited strength in small projects as helping to offset ongoing macroeconomic uncertainty.  
• Lowe's continues to invest in digital tools to increase efficiency and enhance its omnichannel presence.  

Shares of Lowe's Companies Inc. NYSE: LOW stock are up over 3% in early trading after the home improvement retailer posted mixed earning results. On the earnings call, management noted that consumers taking on small projects helped offset the macro headwinds, causing them to hold off on larger projects.  

In that sense, the earnings report from Lowe's was similar to that of The Home Depot, Inc. NYSE: HD. In that report, the company also acknowledged that consumers were decreasing their discretionary spending on larger projects.  

However, HD stock is down sharply since its earnings report on August 15. Notably, this morning's gains erase most of the decline in LOW stock since the HD earnings report.  

Lowe's chief executive officer (CEO), Marvin Ellison, said the results were due, in part, to the company’s investments in its total home strategy. Said Ellison in its earnings release, "Our ability to reduce expenses while improving customer service is the result of excellent execution by our team." 

The company also cited its continued transition to an omnichannel experience, including growth in its Buy Now Pick Up at Store (BOPUS) service as key drivers of its performance. Moving forward, the company sees continued targeted investment in digital projects as being a key to raising its operating margins and managing through what continues to be an unclear macroeconomic environment in 2023. And yes, this does mean continuing to use artificial intelligence and machine learning to help create efficiencies. 

Solid Earnings with Cautious but Realistic, Guidance 

Revenue of $24.96 billion was in-line with expectations for $24.97 billion. However, it was lower than the $27.48 billion the company posted in the same quarter in 2022.  

On the bottom line, Lowe's delivered $4.56 earnings per share (EPS) which was eight cents better than the $4.48 that analysts expected. The results were lighter by 11 cents from the $4.67 EPS it reported in the same quarter last year.  

The company did maintain its dividend at $1.10 per share. The dividend will be paid to shareholders on November 8 to shareholders of record on October 25. Lowe's also announced that it repurchased 10.1 million shares during the quarter at a cost of $2.2 billion.  

Overall comparable sales dropped 1.6%. However, the company did post comparable sales growth of 6.9% from its online channel. This is further evidence that the company is becoming a significant player in the omnichannel space.  

Looking ahead to the second half, Lowe's is guiding to revenue at the lower end of its guidance. It expects tough year-over-year comparisons in the coming quarter. One reason is that it doesn't expect to get the seasonal benefit it received in the second quarter when a late spring helped pull some lawn & garden sales into the second quarter.  

The softness will likely be in the DIY channel. However, the company is optimistic that it could be offset by strength in its Pro category.  

What Are Analysts Saying? 

According to the Lowe's analyst ratings on MarketBeat, Oppenheimer reiterated its Outperform rating on August 8. It also gave the stock a $275 price target which is a 22% increase from the share price of $223.75 on August 22.  

However, that price target is an outlier from the consensus price target, which is supposed to go up by 3.4% in the next year. Despite the post-earnings jump, LOW stock faces resistance at its 50-day simple moving average (SMA).