Lowe’s (LOW) is set to report third quarter fiscal 2018 earnings results before the opening bell Tuesday. And with better-than-expected results recently released from larger rival Home Depot (HD), expectations among Lowe’s investors are understandably high.
Lowe’s shares — up just 0.3% year to date — have underperformed not only the 2.3% rise in the S&P 500 index, but also the 3% rise in the SPDR S&P Retail ETF (XRT). There has been concerns that the housing market was on the decline. Despite looming evidence of a softening housing climate, investors will look to see if Lowe’s can keep up with Home Depot’s pace, particularly in an economic environment that’s still producing strong job and wage growth.
For Lowe’s, which continues to enjoy solid traffic at its stores — driven by strong demand for building materials, garden equipment and supplies — the company’s merchandising initiatives and the management’s efforts to enhance its online capabilities will be closely watched on Tuesday. What’s more, third quarter same-store-sales growth (SSSG) will be a key benchmark to gauge the underlying strength of the business.
In the three months that ended October, the Mooresville, NC-based company is expected to earn 98 cents per share on revenue of $17.34 billion. This compares to the year-ago quarter when earnings came to $1.05 per share on revenue of $16.77 billion. For the full year, ending in December, earnings of $5.15 per share would rise 17.3% year over year, while full-year revenue of the $71.59 billion would rise 4.3% year over year.
In the second quarter Lowe’s SSSG was 5.2%, which not only fell short of consensus estimates of 5.4%, it trail Home Depot’s 8.1% rise. On Tuesday analysts will want to see the extent to which the management can effect a sequential improvement on these metrics. In recent quarter, Lowe’s has increased its focus on servicing professional customers — a demographic known to place larger orders compared to the do-it-yourself segment, which deals with small ticket items.
With the housing market now showing signs of slowing down, the management sees this strategic move as a way to not only can add a significant long-term boost to revenues, servicing professional customers can get profits and SSSG moving back in the right the direction. To what extent will this initiative move the needle on Tuesday?
Another area of focus will be the company’s recent decision to close all of its Orchard Supply Hardware stores and saying it will aggressively rationalize its store inventory, including shuttering 20 U.S. stores. Lowe’s bought Orchard Supply Hardware only five years ago, spending $205 million. Believing a slimmer version of itself will help it better compete with Home Depot, Lowe’s said that a stronger focus on its most-profitable stores will improve the overall health of its store portfolio. Investors are hoping Tuesday’s results and guidance reflect some of that optimism.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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