Lowe's (LOW) Q2 Earnings Miss, Trims FY16 EPS Outlook

After registering an earnings beat in the first quarter, Lowe’s Companies Inc. LOW succumbed to a negative earnings surprise in second-quarter fiscal 2016. Net sales also fell short of the Zacks Consensus Estimate after surpassing the same in the trailing four quarters. The lower-than-expected results compelled management to trim its full-year earnings forecast.

As a result, investors punished the stock, which was down 5.2% during the pre-market trading hours. Even the year-over-year increase in both the top and bottom lines failed to provide cushion to the stock.

The home improvement retailer posted adjusted earnings of $1.37 per share that missed the Zacks Consensus Estimate of $1.42 but grew 14.2% from $1.20 delivered in the year-ago quarter. However, including a loss of 6 cents related to a foreign currency hedge, earnings came in at $1.31 per share, up 9.2% year over year.

Net sales of $18,260 million also fell short of the Zacks Consensus Estimate of $18,543 million but grew 5.3% year over year. The company’s sales increased on the back of its efforts to provide a better omni-channel customer experience and improvement in the housing market. Comparable sales (comps) increased 2% on a consolidated basis during the quarter, while U.S. comps grew 1.9%.

Gross profit rose 5.1% year over year to $6,288 million, whereas gross profit margin came in at 34.4%, down roughly 10 basis points from the year-earlier quarter.

LOWES COS Price, Consensus and EPS Surprise

 

LOWES COS Price, Consensus and EPS Surprise | LOWES COS Quote

Other Financial Aspects

Lowe’s ended the quarter with cash and cash equivalents of $1,988 million, long-term debt (excluding current maturities) of $14,618 million, and shareholders’ equity of $6,913 million, excluding non-controlling interest of $109 million.

During the quarter, the company kept its promise of returning value to its shareholders as it repurchased stock worth $1.2 billion and distributed $251 million as dividends.

Outlook

Lowe’s updated its fiscal 2016 guidance to reflect the impact of the buyout of RONA, which was concluded in May this year.

For fiscal 2016, Lowe’s expects total sales growth (including the 53rd week) of approximately 10%, with the 53rd week expected to boost sales by 1.5%. Comps, on a consolidated basis, are estimated to grow about 4% during the fiscal year. Operating margin is expected to expand nearly 50 basis points.

Further, management now envisions fiscal 2016 earnings to be $4.06 per share, down from $4.11 projected earlier.

Moreover, the company intends to open 45 home improvement and hardware stores during fiscal 2016. As of Jul 29, 2016, the company operated 2,108 stores in the U.S., Canada and Mexico.

Zacks Rank

Lowe’s currently has a Zacks Rank #2 (Buy). Other favorably ranked stocks in the retail sector include The Home Depot Inc. HD, American Eagle Outfitters, Inc. AEO and The Children's Place, Inc. PLCE, all carrying a Zacks Rank #2.

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