Lowe’s (LOW) Q1 2023 quarterly earnings
at Lowe’s cut its full-year outlook on Tuesday, as lumber prices fell, unfavorable weather hurt demand for seasonal goods and do-it-yourself shoppers bought fewer big-ticket items.
Shares of the company closed nearly 2% higher on Tuesday, however, as the retailer beat Wall Street’s revenue and earnings for the first fiscal quarter.
On a call with investors, CEO Marvin Ellison said the company expects “a pullback in discretionary consumer spending over the near term.”
But Lowe’s is in a better place than other retailers, he said. Two-thirds of its sales come from non-discretionary purchases, such as new appliances to replace broken ones.
The US housing stock is getting older, which is driving more repairs and other projects. And as days get sunnier and warmer, spring department sales are going back up, he said.
“While we can’t predict the duration of what we think will be more short-term disruption, we believe the mid- and long-term health of this sector is extremely strong,” he said.
Ellison said the company has not seen a change in demand in markets where rising interest rates have contributed to cooling home prices. He declined to share details about sales trends in May, but said they are in line with the company’s guidance.
Here’s how the company reported for the three months ended May 5 compared to Wall Street expectations, based on a survey of analysts by Refinitiv:
- Earnings per share: $3.67 adjusted versus $3.44 expected
- Revenue: $22.35 billion vs $21.6 billion expected
Lowe’s net income for the three months was $2.26 billion, or $3.77 per share, compared with $2.33 billion, or $3.51 per share, a year earlier.
Net sales fell nearly 6% to $22.35 billion from $23.66 billion in the prior year, but exceeded Wall Street expectations.
Comparable sales fell 4.3% in the first fiscal quarter. That’s lower than the 3.4% decline Wall Street was expecting, according to StreetAccount.
Lowe’s is the latest retailer to warn of slower sales ahead, as consumers become more frugal and reluctant to spend on discretionary items. Many other vendors, including Walmart, Target and Home depothe also noticed less buying outside of the needs.
Lowe’s said it now expects total sales for the full year to be between $87 billion and $89 billion, down from the $88 billion to $90 billion it had previously forecast. It said it expects comparable sales to decline 2% to 4% this fiscal year, below the flat to 2% decline it had previously said.
It said adjusted earnings per share will be between $13.20 and $13.60, down from the previous range of $13.60 to $14.00.
For Lowe’s and Home Depot, however, the time of year adds pressure. Spring is the biggest sales season for home improvement.
Not only are the companies competing for customers’ dollars as higher prices for groceries and more take up more of household budgets. They are also dealing with a shift in demand, as a spree of home projects fueled by the Covid pandemic wanes and consumers judge other spending priorities, such as travel, summer vacations and dining out.
Lowe’s competitor, Home depot, posted a revenue loss with its quarterly report last week. The company missed sales expectations for the second quarter in a row and cut its full-year forecast, as customers skipped big-ticket items like grills and opted for smaller home projects and cheaper.
Like Lowe’s, Home Depot also reported lower sales due to colder and wetter weather in the western US and falling lumber prices.
However, Lowe’s and Home Depot have a different mix of sales. About 75% of Lowe’s sales come from DIY customers, while Home Depot typically gets about half of its sales from home professionals.
Led by Ellison, Lowe’s has courted home professionals, who tend to be a more stable source of business, less sensitive to bad weather and more likely to complete a project. It has relaunched its loyalty program for those plumbers, contractors and electricians and has caught up on website improvements.
E-commerce was one of the strengths of the season. Online sales grew 6% compared to a year ago, as home pros shopped on the company’s website and DIY shoppers used digital tools to help them see and doing an estimate before tackling a project, Ellison said on the call.
Comparable sales to home professionals also rose in the first quarter compared to a year ago. However, the majority of Lowe’s business – about 75% – comes from DIY customers.
Lowe’s total comparable sales were negative every month of the quarter, but the steepest year-over-year drop came in March, as the metric declined 5.4%, CFO Brandon Sink said. Comparable sales fell 3% in February and fell 3.9% in April. He attributed the decrease in March and April to unfavorable weather.
Sink said Lowe’s expects sales from pros to outpace those from DIY customers for the rest of the year. Professionals have a healthy backlog of jobs and are still seeing demand from customers, he said.
The retailer also scrapped new sales opportunities in rural areas during the quarter. In some stores, he has expanded the variety of items to add more clothing and farm or farm products that have a higher profit margin. In some of these markets, Lowe’s competes with other players including Tractor Supply.
Lowe’s shares closed Monday at $203.15, bringing the company’s market value to $121.15 billion. Its stock is up nearly 2% so far this year, trailing the S&P 500’s gains of 9%.