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Lowe's (LOW) Q4 Earnings Meet, Revenues Miss Estimates

Zacks Equity Research
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Lowe’s Companies, Inc. LOW reported fourth-quarter fiscal 2018 results, wherein the top line missed the Zacks Consensus Estimate but the bottom line met the respective mark. Moreover, comparable sales fell short of analysts’ expectations. However, both net sales and earnings per share improved year over year. While the home improvement retailer remains optimistic about the U.S. economy, it anticipates softness in the Canadian housing market to persist in the near-term.

The company is streamlining its store portfolio, which along with its strategy of enhancing customer shopping experience with advanced technology and inventory rationalizing, is likely to generate incremental sales. There lies a significant opportunity to enhance pro-sales.

Meanwhile, Lowe’s is on track with its plans to exit Mexico retail operations, Orchard Supply Hardware business and certain non-core businesses in U.S. home improvements including Alacrity Renovation and Iris Smart Home. The decision is likely to enable the company to focus more on prospective areas such as home improvements, home furnishing products, repair and maintenance.

Shares of this Zacks Rank #3 (Hold) company are up roughly 3% during the pre-market trading session.

Q4 Performance

Lowe’s posted adjusted earnings of 80 cents a share that came in line with the Zacks Consensus Estimate and increased approximately 8.1% from 74 cents in the year-ago quarter.

Net sales of $15.6 billion fell short of the Zacks Consensus Estimate of $15.7 billion. Notably, sales in the quarter under review inched up 1% year over year. Prior to that, the company posted sales growth of 3.8%, 7.1% and 3% in the third, second and first quarters, respectively.
 
Comparable sales rose 1.7% in the quarter under review, following an increase of 1.5%, 5.2% and 0.6% recorded in the third, second and first quarters, respectively. Comparable sales for the U.S. home improvement business jumped 2.4%. Comparable sales for the U.S. business grew 2%, 5.3% and 0.5% in the third, second and first quarters, respectively.

Gross profit decreased 1.3% year over year to $4,898 million, while gross margin contracted around 74 basis points to 31.3%.

Other Financial Aspects

Lowe’s, which competes with Home Depot HD, ended the quarter with cash and cash equivalents of $511 million, long-term debt (excluding current maturities) of $14,391 million and shareholders’ equity of $3,644 million.

The company generated cash flow from operations of $6,193 million for fiscal 2018. In the reported quarter, the company repurchased shares worth $529 million and distributed $387 million as dividends.

Outlook

For fiscal 2019, management continues to project total sales growth of approximately 2% with comparable sales expected to increase roughly 3%. Additionally, Lowe’s envisions adjusted operating margin to increase 85-95 basis points and projects earnings per share in the band of $6.00-$6.10. The Zacks Consensus Estimate for the fiscal year is currently pegged at $6.05.

Don’t Miss These Solid Retail Stocks

Beacon Roofing Supply BECN has long-term earnings growth rate of 21% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fastenal Company FAST with a Zacks Rank #2 has a long-term earnings growth rate of 16%.

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