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Lowe's Updates on Strategies, Buyback Program, FY19 View

In order to adapt to the changing retail environment and efficiently capitalize on the $900 billion U.S. home improvement market, Lowe's Companies, Inc. LOW has chalked out a detailed plan to augment sales, contain costs and improve cash flow generation from operations. To meet these goals, the company intends to have better customer centric approach and capture market opportunities via merchandising efforts and omni-channel endeavors.

Further, 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. Lowe’s has set long-term operating margin target of 12% and return on invested capital goal of 35%. It plans to invest $500-$550 million annually through 2021 to bolster digital initiatives.

We note that 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 company also intends to shutter 20 Lowe's stores in the United States and 31 in Canada.

The decision is likely to enable the company to focus more on prospective areas such as home improvements, home furnishing products, repair and maintenance. Moreover, it will allow the company to compete efficiently with Home Depot HD and Amazon AMZN.

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

 

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

Apart from these, Lowe’s remains committed to return excess cash to stockholders. In this respect, the company’s board of directors announced a new $10 billion share buyback program. This adds to $4.5 billion remaining as of Nov 2, 2018 under the prior program's balance. The company informed that it plans to repurchase shares worth of about $3 billion in fiscal 2018 and between $6-$7.5 billion in fiscal 2019.

Management also reiterated current fiscal view and provided fiscal 2019 guidance. For fiscal 2018, management continues to project total sales growth of approximately 4% with comparable sales expected to rise about 2.5%. Lowe’s envisions operating margin to decline in the range of 240-255 basis points and adjusted earnings in the band of $5.08-$5.13 per share. The company projects capital expenditures of $1.2 billion for the fiscal year.

For fiscal 2019, Lowe’s expects total sales to increase about 2%, while comparable sales are projected to increase about 3%. Management forecasts operating margin expansion of 235-250 basis points and projects earnings in the range of $6.00-$6.10 per share. The company plans capital expenditures of $1.6 billion for the fiscal year.

Lowe’s, which shares space with Lumber Liquidators Holdings LL, currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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