Consumer Discretionary

Lowe’s reports gross margins in 1Q that were below consensus, but the retailer’s better-than-expected sales during the quarter kept profits in line with the consensus estimate, DA Davidson analyst Michael Baker says in a research note. On the margin side, it’s a tough look for Lowe’s, which had been narrowing its margin gap with rival Home Depot for the past several years only for the gap to widen in 1Q, the analyst says. Still, the sales decline was lighter than expected and guidance was reiterated, Baker says. Lowe’s is off 1.4% in early trading.

Home improvement spending may be getting closer to a bottom as the rate of Lowe’s comparable sales declines continued to ease in 1Q, M Science analyst John Tomlinson says in a note. Same-store sales were down 4.1%, beating analyst forecasts for a 5.6% decline and an improvement from a 6.2% drop in 4Q and 7.4% decline in 3Q. Unlike its rival Home Depot, Lowe’s logged stronger quarterly results that topped analyst expectations in part from gains in its professional-customers channel, though spending on big-ticket items remains under pressure, the analyst says. Shares slide 3.1% to $222.12.

Lowe’s notched its best regional performance in 1Q come from the Western U.S., says Joe McFarland, executive vice president of stores, on a call with analysts. He says markets that saw the best weather during the quarter generated the best performance. CFO Brandon Sink notes that the performance from its professional customer cohort, which make up about a quarter of overall sales, was consistent across all regions. CEO Marvin Ellison adds that the company’s rural locations were its best performing subset of stores in 1Q, while the western markets outperformed overall.

Our 12-month target of $238, up $17, is 19.5x our FY 25 EPS view of $12.20 (down $0.06; FY 26’s down $0.28 to $13.48), a premium to historical averages. Our P/E reflects LOW’s productivity initiatives, improved customer service, and improving rate cut expectations. FQ1 (May) EPS of $3.06 (-16.6% Y/Y) beat by $0.10 on revenue of $21.4B (-4.4% Y/Y), 1% above consensus. Comp sales declined 4.1% on a 1% ticket contraction and a 3.1% transaction count decline. Notably, Pro and online sales achieved growth in Q1, with Pro backlogs flat Y/Y. Gross margin of 33.2% declined 50 bps due to investments, promotions, and a decline in credit revenue. SG&A advanced 140 bps to 18.8%, netting a 200-bp EBIT decline to 12.4%. Despite the top- and bottom-line beat, FY 25 guide remains unchanged. We see the roll-out of the loyalty program as necessary in meeting a stressed consumer. LOW assures its

Lowe’s sales were impacted by ongoing pressure on discretionary spending for big-ticket items, or ones costing $500 or more, that doesn’t appear to be going away anytime soon, Edward Jones analyst Brian Yarbrough says in a research note. The pullback will delay an eventual turnaround to positive sales growth, though long-term drivers are still intact, the analyst says. Lowe’s management says on a call with analysts that big-ticket categories will likely continue to face pressure among the retailer’s do-it-yourself customers. Shares are down 3.1% at $222.

The following is a summary of the Lowe’s Companies, Inc. (LOW) Q1 2024 Earnings Call Transcript: Financial Performance: Lowe’s Q1 reported sales of $21.4 billion, with comparable sales down by 4.1% from last year. The company delivered positive Q1 growth in Pro and online sales despite a challenging home improvement environment. Gross margin was at 33.2%, down by 49 basis points due to ongoing supply chain investments and spring promotions. Operating margin declined to 12.4%. Lowe’s generated $3.9 billion in free cash flow and made $382 million in capital expenditures. The company plans to use free cash flow in 2024 to repay a $450 million bond maturity with the remainder for share repurchases. Business Progress: Lowe’s achieved traction in its Total Home strategy, gaining Pro customers and improving online sales. It launched a successful SpringFest campaign and expanded delivery options through partnerships with DoorDash and Shipped. The company launched a