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Lowe's (LOW) Beats Q3 Earnings Estimates, Raises Sales View

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Lowe’s Companies, Inc. LOW reported robust third-quarter fiscal 2021 results, with the top and the bottom line improving year over year as well as outpacing the Zacks Consensus Estimate. The company delivered the 10th straight earnings beat and the seventh consecutive sales surprise.

Results benefited from the solid execution of the Total Home strategy, which boosted the company’s comparable sales. The Total Home strategy has been resonating well with Pro and DIY customers. Focus on driving productivity helped the company boost margins.

Going ahead, management is committed toward expanding market share, operating margin and driving long-term value for shareholders. That said, the company raised its sales expectations for fiscal 2021.

Shares of the home-improvement retailer gained nearly 4% in the pre-market trading session on Nov 17. This Zacks Rank #2 (Buy) company’s shares have gained 34.3% in the past three months compared with the industry’s growth of 19.1%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Q3 in Detail

Adjusted earnings of $2.73 per share surpassed the Zacks Consensus Estimate of $2.33 and rose 38% year over year. Sales growth and margin expansion supported the bottom line.

Net sales of $22,918 million moved up 2.7% year over year and surpassed the Zacks Consensus Estimate of $21,911 million. Comparable sales increased 2.2% in the quarter under review. Comparable sales for the U.S. home-improvement business increased 2.6% in the reported quarter.

On a two-year stacked basis, the U.S. comparable sales were up 34%. This reflects the continued success of the company’s Total Home strategy. During the third quarter, the company saw 16% growth in sales to Pro customers. Sales on Lowes.com increased 25% year on year.

Gross profit increased 3.9% year over year to $7,587 million, while gross margin expanded 38 basis points (bps) to 33.1%. Operating income amounted to $2,789 million, up 28.2% year on year. Operating margin expanded 242 bps to 12.17%. Operating margin growth was supported by enhanced productivity driven by disciplined operational execution and efficient cost management.

Lowe's Companies, Inc. Price, Consensus and EPS Surprise

Lowe's Companies, Inc. Price, Consensus and EPS Surprise
Lowe's Companies, Inc. Price, Consensus and EPS Surprise

Lowe's Companies, Inc. price-consensus-eps-surprise-chart | Lowe's Companies, Inc. Quote

Other Financial Aspects & Developments

The company ended the fiscal third quarter with cash and cash equivalents of $6,121 million, long-term debt (excluding current maturities) of $23,881 million and shareholders’ deficit of $1,576 million.

Lowe’s generated cash flow from operations of $9,179 million for the nine months ended Oct 29, 2021. Capital expenditures amounted to $1,256 million. For fiscal 2021, the company expects capital expenditures of nearly $2 billion.

In the third quarter, Lowe’s bought back 13.7 million shares for $2.9 billion and paid out dividends of $563 million. The company expects to repurchase $3 billion in shares in the fourth quarter. This will bring the expected total share repurchases for the year to nearly $12 billion.

As of Oct 29, 2021, the company operated 1,973 home improvement and hardware stores across the United States and Canada. It serviced nearly 230 dealer-owned stores.

The company has been investing in providing pandemic-related support to frontline hourly associates through bonuses and incentives. In the third quarter, the company paid Winning Together profit-sharing bonus across all Lowe’s stores. This marks the seventh consecutive quarter, wherein 100% of Lowe's stores earned a Winning Together profit-sharing bonus. During the quarter, management paid $138 million to frontline hourly associates, above the targeted level by $70 million.

Outlook

Lowe’s is impressed with its performance during the first three quarters of fiscal 2021. Management highlighted that the strong sales trends have continued into November. Accordingly, the company raised its view for the fiscal.

The company now expects revenues of nearly $95 billion, up from the prior prediction of $92 billion. In the prior year, the company’s revenues amounted to $89.6 billion. The revised top-line view reflects comparable sales growth of nearly 33% on a two-year stacked basis. The Zacks Consensus Estimate for fiscal 2021 revenues is currently pegged at $93.8 billion.

The company expects gross margin rate to improve slightly year on year. The operating margin is expected to be nearly 12.4%, up from the prior view of 12.2%.

Here are 3 Key Stocks for You

We have highlighted three other top-ranked stocks in the Retail - Wholesale sector, namely Tractor Supply Company TSCO, Fastenal Company FAST and Costco Wholesale Corporation COST.

Tractor Supply Company, a rural lifestyle retailer in the United States, sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 22.8%, on average. Shares of TSCO have increased 19.9% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tractor Supply Company's current financial year sales and earnings per share (EPS) suggests growth of 19% and 23.9%, respectively, from the year-ago quarter's reported figures. TSCO has a long-term earnings growth rate of 9.6%.

Costco, which operates membership warehouses, flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 7.7%, on average. Shares of the company have jumped 16.5% in the past three months.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 9.6% and 9.7%, respectively, from the year-ago period’s levels. COST has a long-term earnings growth rate of 8.6%.

Fastenal, a national wholesale distributor of industrial and construction supplies, currently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 2%, on average. Shares of FAST have increased 11.8% in the past three months.

The Zacks Consensus Estimate for Fastenal's current financial year sales and EPS suggests growth of 5.5% and 5.4%, respectively, from the year-ago period. FAST has a long-term earnings growth rate of 9%.


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