Lowe’s tops earnings estimates as same-store sales jump 28%, warns that some DIY trends could fade

Lowe’s said Wednesday its fourth-quarter same-store sales climbed 28.1%, as consumers spent more on home projects during the pandemic.

That’s higher than the 22% growth that analysts expected, according to StreetAccount. Even with the strong results, Lowe’s continues to expect that sales could moderate as the pandemic eases.

Lowe’s shares were down nearly 3% early Wednesday.

Here’s what the company reported for the quarter ended Jan. 29 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $1.33 adjusted vs. $1.21 expected
• Revenue: $20.31 billion vs. $19.48 billion expected

Lowe’s reported fourth-quarter net income of $978 million, or $1.32 per share, up from $509 million, or 66 cents per share, a year earlier.

Excluding items, it earned $1.33 per share, exceeding the $1.21 per share expected by analysts surveyed by Refinitiv.

Net sales rose to $20.31 billion, outpacing analysts’ expectations of $19.48 billion.

Sales at its U.S. stores open at least a year and online grew by 28.6% in the quarter.

CEO Marvin Ellison said the company saw high demand across the board. Its sales grew 16% in all merchandising departments and more than 19% in all regions of the country. Online sales grew by 121% in the quarter, he said.

Lowe’s reiterated the forecast it gave at an investor day in December. Chief Financial Officer David Denton had said home improvement sales will likely decline in 2021 as more people get Covid-19 vaccines and spend more time outside their homes.

He laid out three scenarios for a robust, moderate or weak market. In a robust market, the retailer’s outlook for 2021 anticipates a 5% to 7% drop in demand for the home improvement sector on a mix adjusted basis. In a moderate and weak market, demand would likely drop respectively by 7% to 9% and 10%.

Even in a weak market, Denton said, the retailer is poised to improve its operating margins. He said as sales moderate with do-it-yourself customers, they may pick up with home professionals — a smaller part of Lowe’s customer base, but one that it’s looking to grow.

Jefferies analyst Jonathan Matuszewski said he is betting on the company’s robust market scenario. He said more consumers have gotten comfortable with taking on do-it-yourself projects, a pattern they will likely repeat. The firm gives Lowe’s a buy rating, with a target price of $207. That would represent a 20% gain from where shares are currently trading.

He pointed to industry surveys, which report that more than 20% of respondents that did DIY projects last year used a drill for the first time. The survey also reflected a more balanced mix of women and men customers taking on the projects.

“We believe the entry of new Americans into the world of DIY projects builds the case for Lowe’s as they lap challenging comparisons in F’22,” he said in the research note. “Additionally, we think investors underappreciate the sense of accomplishment DIYers felt from newly-acquired skills during the pandemic and what that implies for propensity to tackle future (more complex) projects.”

Fading pandemic trends could test whether Lowe’s has lasting loyalty among its newer customers, too.

Neil Saunders, managing director of GlobalData, said consumers are starting to return to old habits, like going to stores they prefer instead of ones that are closer or more convenient. As that happens, he said Lowe’s could lose some shoppers to larger retailer and competitor, Home Depot.

Home Depot’s fourth-quarter earnings also surpassed Wall Street’s expectations this week. The retailer reported strong demand for DIY project supplies, outdoor items like patio furniture and holiday decor as shoppers spend more time at home. However, it did not provide an outlook for the year, saying it wasn’t sure how long the pandemic will last and what that means for consumer spending.

Both retailers are likely to see higher costs for as long as the health crisis lasts. In its earnings report, Lowe’s said it spent more than $100 million in the fourth quarter and more than $900 million for the year on additional Covid-related pay and benefits for employees. It said it spent nearly $1.3 billion in pandemic-related expenses, including higher wages and store safety measures in the fiscal year.

The company said it spent $3.4 billion on share buybacks and paid $452 million in dividends in the fourth quarter. 

As of Tuesday’s close, Lowe’s shares were up nearly 35% over the past year. The company’s market value is $123.53 billion.

Read the complete press release here.