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Lowe's On The Rise
Home improvement giant Lowe's (NYSE:LOW) reported first quarter earnings on Monday morning ahead of analyst projections. However, investors were disappointed by the firm's outlook for the coming quarter and sent the shares on a downward path. This trajectory shouldn't last too long as the industry has yet to recover to pre-crisis levels in terms of residential spending on improving and maintaining their residences.
IN PICTURES: Eight Ways To Survive A Market Downturn
First Quarter Sales and Profit Trends
Total sales increased 4.7% to $12.4 billion as Lowe's opened 11 new stores and same-store sales grew by a modest 2.4%. Management stated that it is starting to see sales of "bigger ticket products" and larger home improvement products that consumers were avoiding when the economy was on more tepid ground. A government home-buying credit and favorable spring weather also drove the top-line improvement.
Higher sales costs lowered gross margins slightly but SG&A and other expenses fell to 28.84% of sales for the quarter. Operating income ended up improving a slight 3.4% to $786 million, or 6.34% of sales. Higher income taxes lowered net income growth to $489 million, although this was a marginal improvement compared to last year's figures. On a per shares basis, diluted EPS increased by 6.25%.
Outlook
Lowe's said to expect full-year earnings between $1.37 and $1.47 per diluted share. Total sales should grow between 5% and 7% on a 2% to 4% comp increase and the opening of 40 to 45 new stores.
Bottom Line
Lowe's is seeing a slow recovery in its business prospects. The shares trended lower after the quarterly financial release as investors didn't like the second quarter guidance, but the longer term should see upside in the stock price. This is because spending on the home remains depressed. Despite that, the market has recently seen high levels of volatility with most stocks and sectors depreciating in the past few weeks. On the upside, economic, housing and employment data has shown some improvements.
A return to more historical levels bodes well for Lowe's, homebuilding firms such as Lennar (NYSE:LEN) and Pulte (NYSE:PLT), and housing material suppliers including Masco (NYSE:MAS) and Stanley Black & Decker (NYSE:SWK). Lowe's doesn't see a full recovery until fiscal 2011 and it could take even longer for top-line growth to return to the double digits, but at least an improvement is closer on the horizon at this point. (Home price appreciation is not assured. Can you withstand the volatility in this market? To learn more, read Why Housing Market Bubbles Pop.)
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IN PICTURES: Eight Ways To Survive A Market Downturn
First Quarter Sales and Profit Trends
Total sales increased 4.7% to $12.4 billion as Lowe's opened 11 new stores and same-store sales grew by a modest 2.4%. Management stated that it is starting to see sales of "bigger ticket products" and larger home improvement products that consumers were avoiding when the economy was on more tepid ground. A government home-buying credit and favorable spring weather also drove the top-line improvement.
Higher sales costs lowered gross margins slightly but SG&A and other expenses fell to 28.84% of sales for the quarter. Operating income ended up improving a slight 3.4% to $786 million, or 6.34% of sales. Higher income taxes lowered net income growth to $489 million, although this was a marginal improvement compared to last year's figures. On a per shares basis, diluted EPS increased by 6.25%.
Lowe's said to expect full-year earnings between $1.37 and $1.47 per diluted share. Total sales should grow between 5% and 7% on a 2% to 4% comp increase and the opening of 40 to 45 new stores.
Bottom Line
Lowe's is seeing a slow recovery in its business prospects. The shares trended lower after the quarterly financial release as investors didn't like the second quarter guidance, but the longer term should see upside in the stock price. This is because spending on the home remains depressed. Despite that, the market has recently seen high levels of volatility with most stocks and sectors depreciating in the past few weeks. On the upside, economic, housing and employment data has shown some improvements.
A return to more historical levels bodes well for Lowe's, homebuilding firms such as Lennar (NYSE:LEN) and Pulte (NYSE:PLT), and housing material suppliers including Masco (NYSE:MAS) and Stanley Black & Decker (NYSE:SWK). Lowe's doesn't see a full recovery until fiscal 2011 and it could take even longer for top-line growth to return to the double digits, but at least an improvement is closer on the horizon at this point. (Home price appreciation is not assured. Can you withstand the volatility in this market? To learn more, read Why Housing Market Bubbles Pop.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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