Lowe’s Q4 Earnings Beat Expectations, but 2025 Outlook Remains Cautious

Lowe’s (LOW) reported fourth-quarter earnings that exceeded Wall Street’s estimates, demonstrating resilience in a challenging home improvement market. Adjusted earnings per share (EPS) came in at $1.93, ahead of the expected $1.84, while revenue of $18.55 billion slightly topped the $18.29 billion consensus estimate. Same-store sales, a critical retail metric, rose 0.2%, surpassing expectations of a 1.8% decline and marking the first year-over-year increase in nearly two years. However, despite the solid quarter, the company’s outlook for fiscal 2025 suggests only modest growth, reflecting continued pressure on the discretionary do-it-yourself (DIY) segment.

Strong Q4 Performance on Key Metrics

Lowe’s reported several key operational improvements in the quarter. Gross profit rose 1.2% year-over-year to $6.10 billion, with gross margin improving to 32.9% from 32.4% last year, slightly exceeding estimates of 32.8%. The company also showed discipline in cost management, with selling, general, and administrative (SG&A) expenses as a percentage of revenue dropping to 20.6% from 21% a year ago, also beating forecasts. Operating margin improved to 9.87%, well above expectations of 9.44% and a notable increase from the prior year's 9.07%.

Same-store sales gains were fueled by high-single-digit growth in the professional contractor (Pro) and online segments, strong holiday sales, and rebuilding demand following hurricanes. However, discretionary DIY spending remained weak, a trend Lowe’s expects to persist into 2025.

How Lowe’s Stacked Up Against Home Depot

Lowe’s results come a day after rival Home Depot (HD) also delivered better-than-expected earnings, snapping an eight-quarter streak of declining comparable sales. Home Depot’s same-store sales grew 1%, a stronger rebound than Lowe’s 0.2% increase, indicating it may be regaining ground faster. Both retailers, however, warned of ongoing macroeconomic headwinds, with higher interest rates and housing affordability concerns continuing to weigh on consumer spending.

While Home Depot has a larger market share in the Pro segment, Lowe’s has been aggressively expanding its Pro offerings to capture more contractor business. The Q4 numbers suggest some traction in this initiative, as Pro and online sales outpaced overall growth.

Fiscal 2025 Guidance: Cautious but Stable

Looking ahead, Lowe’s provided a measured forecast for the full fiscal year 2025, reflecting near-term uncertainties in the home improvement sector. The company expects:

- Total sales of $83.5 billion to $84.5 billion (vs. estimates of $84.64 billion)

- Comparable sales growth of 0% to +1% (vs. expectations of +1.4%)

- EPS of $12.15 to $12.40 (vs. estimates of $12.57)

- Operating margin of 12.3% to 12.4% (vs. estimates of 12.5%)

- Capital expenditures of approximately $2.5 billion

This guidance suggests that while Lowe’s expects stability, it does not foresee a significant near-term acceleration in demand. The forecast contrasts with Home Depot’s guidance, which also projected modest 1% comparable sales growth.

Capital Allocation and Shareholder Returns

Lowe’s remains committed to returning capital to shareholders. During the quarter, the company repurchased 5.5 million shares for $1.4 billion and paid $650 million in dividends. For the full fiscal year, Lowe’s returned $6.5 billion to shareholders through buybacks and dividends, reinforcing its focus on capital efficiency.

Stock Performance and Key Technical Levels

Lowe’s stock rose about 2.5% in premarket trading following the earnings release, with shares testing resistance at the 200-day simple moving average ($249).

Macroeconomic Factors Impacting Lowe’s

Several macroeconomic factors continue to weigh on the home improvement sector:

- Higher Interest Rates: Elevated mortgage rates have slowed home sales, reducing demand for renovation projects tied to housing turnover.

- Consumer Spending Shifts: Households have prioritized spending on essentials and experiences rather than large-scale home improvement projects.

- Ongoing Inflationary Pressures: While inflation has moderated, higher costs for building materials and labor remain a concern.

Despite these headwinds, CEO Marvin Ellison expressed confidence in the industry’s long-term strength, emphasizing Lowe’s strategic positioning to capture growth as the market stabilizes.

Conclusion

Lowe’s delivered a strong Q4 performance, surpassing Wall Street expectations on EPS, revenue, and same-store sales. The company demonstrated cost discipline, improved margins, and gained traction in Pro and online sales. However, its 2025 outlook suggests continued caution, with expectations for only modest sales growth.

While Home Depot’s same-store sales recovery was slightly stronger, Lowe’s remains focused on expanding its Pro business and maintaining operational efficiency. Investors will closely watch whether Lowe’s can sustain its recent momentum and break through the $249 technical resistance level in the coming sessions. This level will be crucial to watch, as a breakout above it could indicate renewed investor confidence in the stock. Lowe’s shares had fallen nearly 2% year-to-date leading into the report, underperforming the broader S&P 500, which has gained about 2% in the same period.