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Why Is Lowe's (LOW) Down 1.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Lowe's (LOW). Shares have lost about 1.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lowe's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lowe's Q4 Earnings Surpass Estimates, Sales Rise Y/Y

Lowe’s Companies, Inc. posted mixed fourth-quarter fiscal 2022 results, with the top line missing the Zacks Consensus Estimate and the bottom line beating the same. Also, both metrics improved from the previous fiscal year’s quarterly readings.

Quarter in Detail

Earnings per share (EPS) of $2.28 surpassed the Zacks Consensus Estimate of $2.21 and rose 28% from the fourth-quarter fiscal 2021 tally.

Net sales of $22,445 million increased 5.2% year over year but missed the Zacks Consensus Estimate of $22,702 million. Comparable sales (comps) inched down 1.5% in the quarter under review. Comparable sales for the U.S. home-improvement business dipped 0.7% in the reported quarter. Pro-customer sales jumped 10%, recording the 11th consecutive quarter of a double-digit increase. Lowes.com sales climbed 5%.

The fiscal fourth quarter had 14 weeks, compared with 13 weeks in the prior-year quarter. The 14th week contributed roughly $1.4 billion in sales.

Gross profit inched up 3.3% year over year to $7,256 million, while the gross margin contracted 60 basis points (bps) to 32.3%. Operating income amounted to $1,704 million, down 7.8% year over year. The operating margin significantly contracted to 7.6% from 8.7% recorded in the year-earlier quarter.

Other Financial Aspects & Developments

LOW ended the quarter with cash and cash equivalents of $1,348 million, long-term debt (excluding current maturities) of $32,876 million and shareholders’ deficit of $14,254 million.

Lowe’s generated cash flow from operations of $8,589 million for the fiscal year. Capital expenditures amounted to $1,829 million for fiscal 2022. For fiscal 2023, LOW expects a capex of up to $2 billion.

In the reported quarter, Lowe’s bought back 10 million shares for $2 billion and paid out dividends of $643 million. In fiscal 2022, it bought back 71 million shares for $14.1 billion and paid out dividends of $2.4 billion.
    
As of Feb 3, 2023, Lowe’s operated more than 1,700 home-improvement stores across the United States.

Outlook

Management issued its guidance for fiscal 2023. LOW expects revenues of $88-$90 billion. In fiscal 2022, Lowe’s revenues were $97.1 billion.

Comparable sales in fiscal 2023 are envisioned in the range of flat to a 2% fall. The operating margin is expected to be 13.6-13.8%. Management anticipates earnings per share of $13.60-$14.00 for the fiscal year compared with $10.17 earned in fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Lowe's has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lowe's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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