LOW posts mixed results as DIY demand remains soft
2min read Lowe’s (LOW) reported mixed third-quarter results, surpassing expectations on both adjusted EPS and revenue but continuing to see a decline in comparable sales. Adjusted EPS came in at $2.89, above the consensus estimate of $2.82, benefiting from a slightly lower tax rate. Revenue reached $20.17 billion, beating expectations of $19.93 billion. However, total sales declined 1.5% year-over-year, with ongoing challenges in demand for larger, discretionary do-it-yourself (DIY) items. Despite this, hurricane-related sales and growth in the Pro and online segments provided some relief to the topline performance.
The company’s comparable sales declined by 1.1%, which was better than the anticipated drop of 2.7%. Lowe’s CEO Marvin Ellison noted that the quarter’s results were stronger than expected, even when excluding the impact of storms. The Pro segment, representing approximately 25% of sales, delivered high-single-digit positive comps, reflecting ongoing strength in demand from professional contractors. In contrast, the DIY segment continued to experience softness in big-ticket discretionary spending, influenced by elevated inflation and interest rates that deter consumers from larger home improvement projects.
Inventory management remained disciplined, with Lowe’s keeping stock levels aligned with current demand. The gross margin held steady year-over-year at 33.7%, slightly below estimates, as the company navigated the shifting demand dynamics. While smaller-ticket outdoor DIY projects saw some positive traction, larger project demand remained tepid. SG&A expenses as a percentage of revenue increased slightly to 19%, higher than last year’s 18.4%, but in line with forecasts. Lowe’s operating margin also dipped slightly to 12.6%, reflecting a more conservative approach as it adjusted to lower discretionary spending in the DIY category.
Breaking down performance by customer segment, Lowe’s saw resilience in its Pro segment, bolstered by recovery and repair demand following hurricanes. The company’s digital business also made gains, with online sales seeing strong growth, partly driven by the integration of digital solutions aimed at Pro customers. For DIY customers, Lowe’s reported mixed results, with ongoing demand for small projects but continued softness in big-ticket items, which make up a substantial part of the DIY category. This division reflects Lowe’s reliance on a large DIY customer base, which currently represents about 75% of its business.
Looking forward, Lowe’s raised its guidance for fiscal-year sales to a range of $83.0 billion to $83.5 billion, slightly above previous estimates. The company also raised the lower end of its EPS forecast, now projecting $11.80 to $11.90 for the fiscal year. Same-store sales are expected to decline by 3.0% to 3.5% for the full year, an improvement from the prior guidance of a 3.5% to 4.0% drop. While shares dipped 2.45% premarket, the raised guidance reflects some optimism about steady performance into Q4, particularly from Pro customers and online sales.
Analysts are optimistic about Lowe’s potential to benefit from long-term trends in home improvement. With the potential for Fed rate cuts, demand may normalize, stimulating consumer spending in home improvement projects, which typically have a delayed response to rate changes. The company’s focus on its “Total Home Strategy,” which includes a strengthened Pro segment, enhanced digital offerings, and a diverse product assortment, positions it well for future growth cycles. Analysts expect Lowe’s to further develop its Pro customer base, especially within the small to medium-sized professional market.
In December, Lowe’s plans to hold an Analyst and Investor Conference to discuss its upcoming growth and productivity initiatives. This meeting could provide valuable insight into how Lowe’s aims to navigate shifting demand in home improvement. Overall, while Lowe’s continues to face challenges in DIY demand, its strategic investments in Pro, online, and digital infrastructure, coupled with disciplined cost management, position it well for a gradual recovery in the home improvement market as broader economic conditions improve.