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Lowe's misses earnings expectations, cuts guidance

Lowe's misses earnings expectations, cuts guidance

Lowe’s (LOW) slashed its earnings guidance for 2019 and missed Wall Street’s first-quarter bottom-line expectations amid higher cost pressures.

The home improvement retailer posted adjusted earnings of $1.22 per share on net sales of $17.74 billion for the three months ending May 3.

Consensus analysts expected the company to deliver adjusted earnings of $1.33 per share on revenue of $17.66 billion, according to Bloomberg-compiled data. In the year-ago quarter, Lowe’s posted diluted earnings of $1.19 per share and $17.4 billion in net sales.

Lowe’s now sees full-year earnings per share of between $5.54 and $5.74, down from the range of between $6.00 and $6.10 seen previously.

Shares of Lowe’s declined 9.95% to $100.05 each as of 6:42 a.m. ET ahead of the opening bell.

Closely watched comparable same-store sales grew 3.5% in the first quarter, ahead of the 3.2% expected. U.S. home improvement comparable sales grew 4.2%, also ahead of estimates. The metric serves as a gauge of efficiency for retail companies.

“Our first quarter comparable sales performance is a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction,” CEO Marvin Ellison said in a statement. “However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings.”

The company is “taking the necessary actions to more systematically analyze and implement retail price changes to mitigate cost pressure,” Ellison added.

One such strategy has involved improving Lowe’s retail pricing through technology. On Tuesday, Lowe’s announced it was acquiring a retail analytics platform from Boomerang Commerce, providing the company with software to help digitize its pricing system.

“We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year,” Ellison said. Lowe’s said it expects its operating margin – or operating income as a percentage of sales – to increase by between 310 and 340 basis points in 2019.

Analysts were bracing for poor weather at the start of the year weather effects to impact results for Lowe’s after Home Depot (HD) reported mixed first-quarter results Tuesday. The no. 1 home improvement company said same-store sales for the first three months of the year were hampered by wetter weather in February and deflation in lumber prices. However, Home Depot still exceeded consensus expectations on the bottom-line and reaffirmed its full-year guidance.

Shares of Lowe’s rose 20.3% for the year-to-date through Tuesday’s close.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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