A Look at Lowe’s First Quarter
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The housing sector, as we all know, took a hit in the year 2008 with the recession cropping up. The sector is highly dependent on the economic conditions of a country. So with the economic uncertainty lingering all over the world, will it be fair to expect companies in this sector to do well? Well, that’s the question which will be answered by the home improvement company Lowe’s Companies (NYSE: LOW) which posted its first quarter results last week. To our surprise, the performance beat the Street expectations but the shares fell drastically after the announcement. It brought too many surprises indeed. Let’s analyze what happened.
Into the Numbers
Revenues for the quarter surged 8%, reaching $13.2 billion compared to the same period last year. Warmer winters drove demand for the company’s products, pushing up the sales in the process. Another possible reason might be the awaited elections in the country which have brought hopes to consumers of economic recovery, thereby increasing volumes.
The same store sales for the outdoor category witnessed high growth but the indoor segment sales were weak, weighing on the top line to some extent. Also, the decrease in promotional activity in the later half of the quarter led to lower sales compared to the first half. These factors affected the overall same store sales which grew by 2.6% only. But the positive point to focus on is the fact that even after such bumps, the company maintained a good pace and posted a staggering increase of 26.5% in profits over last year.
Key Strategies against Competition
Lowe’s is the second largest home improvement company, its biggest competitor being Home Depot (NYSE: HD). Recently, Lowe’s has been losing market share to Home Depot. Also, the rival has been performing much better than Lowe’s over the last three years. But the company has been working hard to beat Home Depot by increasing stores, cutting product prices and focusing more on its website in an effort to make its e-commerce business stronger.
The Road Ahead
The Mooresville based company lowered its earnings outlook by 2 cents a share to a range of $1.73 and $1.83 keeping the revenue projections same. The reason for the same was huge costs because of the employee buyout program which is expected to affect the second quarter results.
Lowe’s results have been improving recently but the weak outlook has made the investors react negatively, sending shares down by 10%. Also, there has been some kind of uneasiness prevailing in the environment as the consumers are pretty skeptical about the market and are cautious about their buying. The housing market is making a sluggish recovery and still needs to go a long way before it reaches pre-recession levels. For the time being, I believe it will be prudent to watch Lowe’s from a distance and check for signs of a strong revival in the housing and construction markets.
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