September 24, 2023

Low’s reported earnings Wednesday morning.

Bruce Bennett/Getty Images

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Lowe’s earned more than expected in the fourth quarter but fell short on revenue, prompting warnings of a slowdown in the home-improvement market and a slide in the stock.

The company reported adjusted earnings per share of $2.28, which was above the $2.21 expected by analysts. Its sales were $22.4 billion, compared to expectations of $22.7 billion, according to FactSet.

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Lowe’s (ticker: LOW) projects 2023 sales of between $88 billion and $90 billion. Earnings per share will range between $13.60 and $14, versus estimates of $13.76.

The company repurchased 71 million shares for $14.1 billion in the latest fiscal year, which was $1.1 billion above estimates. It also paid out $2.4 billion in dividends, bringing the total amount returned to shareholders to $16.5 billion.

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Given that Lowe’s management assured investors that the company was on track to meet its targets for the fiscal year during its early December analyst day, its earnings and guidance shouldn’t come as much of a surprise to the markets. Was – and it doesn’t seem like enough.

“Less puts your cards on the table in decemberAnd took some ‘de-risk’ from the FY23 outlook by calling for share gains and +margins even in a bear case scenario, wrote Wells Fargo analyst Zachary Fedem in a research note Wednesday. “That said, the macro remains very fluid.”

The stock had fallen 6.5% to $192.30 as of Wednesday afternoon, according to Dow Jones market data, on track for its biggest percentage decline since November 2020.

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Last week, Home Depot (HD) warned that demand for home improvements would cool in 2023, a sentiment echoed at Lowe’s on Wednesday.

“The long-term outlook for Home Improvement remains strong,” said Chief Financial Officer Brandon Sink in a call with investors. “However, residential investment will be under some pressure in 2023. Given higher levels of inflation, higher interest rates and a more cautious consumer, we are forecasting a slight downturn in the home improvement market.

Signs of slowing home improvement demand were reflected in Lowe’s fourth-quarter comparable sales, which fell 1.5% — worse than projections that sales would be flat. The company said comparable sales for the current fiscal will be flat and down 2% compared to 2022.

The softness in comparable sales isn’t entirely unexpected. Some analysts, including Cowen’s Max Rakhlenko, had predicted he would fall short. Monthly visits to Lowe’s have declined recently, by 18% in November, 12.6% in December and 11% in January, according to the data. placer.e. Rakhlenko rates Lowe’s stock at Market Perform and has a price target of $220.

One bright spot in the report was that the company grew its pro business, which aims to grow contractors in the US, by 10%.

The margin outlook of the company also remained positive. Gross margin fell 0.6 percentage points to 32.3% in the fourth quarter, but Lowe’s predicts it will be able to expand its operating margin during the year.

“The margin closing thesis story continues,” wrote DA Davidson analyst Michael Baker.

During its analysts’ day in December, Lowe’s presented three possible scenarios for fiscal year 2023, which accounted for a strong, moderate and weak market. Current guidance is closer to a medium market outlook.

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“The dilution scenario that we called out is still very much off the table for us,” CEO Marvin Ellison said. “I think we said at the time that it would require a significant economic shock and we don’t see that playing out.”

Write to Sabrina Escobar at [email protected]