Lowe’s Companies Inc. (LOW), the world’s second-largest home improvement retailer, recently posted better-than-expected first-quarter 2012 results. The quarterly earnings of 44 cents a share beat the Zacks Consensus Estimate by a couple of cents and jumped 29.4% from 34 cents earned in the prior-year quarter on the back of top-line growth.
Including charges related to reduction in headcounts, the quarterly earnings came in at 43 cents a share, up 26.5% from the year-ago quarter.
However, Lowe’s trimmed its earnings outlook despite the healthy results, as it still remains concerned about the housing market and the sluggish economic recovery. Management hinted that while favorable weather condition spurred the sales, soft demand for seasonal products in the later part of the period was a drag.
The shares of Lowe’s fell 6.5% or $1.86 to $26.62 during pre-market trading hours.
Net sales for the quarter climbed 7.9% to $13,153 million from $12,185 million delivered in the year-ago quarter and comfortably surpassed the Zacks Consensus Estimate of $13,009 million.
Comparable-store sales during the quarter rose 2.6%. Lowe’s also indicated that comparable-store sales for the U.S. operation jumped 2.7% during the quarter under review.
Despite a 9.2% increase in cost of sales, gross profit jumped 5.7% to $4,564 million, whereas, gross profit margin shriveled to 34.7% from 35.4% in prior-year period.
Stores Update
Lowe’s expects to open 10 new stores during fiscal 2012. As of May 4, 2012, the company operated 1,747 locations in the United States, Canada and Mexico.
Other Financial Aspects
Lowe’s ended fiscal 2011 with cash and cash equivalents of $3,072 million, total long-term debt of $9,611 million, reflecting debt-to-capitalization ratio of 38.7%, and shareholders’ equity of $15,203 million. The company generated about $2,467 million in cash flow from operations during the quarter.
Strolling Through Guidance
Lowe’s said that it now expects fiscal 2012 earnings between $1.73 and $1.83 per share, down from a range of $1.75 to $1.85 forecasted earlier. The current Zacks Consensus Estimate for fiscal 2012 is $1.87. Consequently, we could witness correction in the Zacks Consensus Estimates in the coming days, as analysts will revise their estimates to better align with management’s guidance range.
Management reiterated total sales growth of 1% to 2% for fiscal 2012 (52-week) when compared with fiscal 2011 (53-week). Compared with a 52-week 2011, sales is expected to climb approximately 3%.
Lowe’s, which faces stiff competition from The Home Depot Inc. (HD), continues to expect comparable-store sales increase between 1% and 3% during the year.
Let’s Conclude
With the global economic environment still not completely out of the woods, we believe that spending on big remodeling projects will likely remain under pressure until the housing market stabilizes, inventory levels normalize and consumer-spending rebounds.
Lowe’s recently undertook initiatives such as reformation of its store and merchandising operations to enliven competence, augment operational efficiencies and enrich the shopping experience for customers. All these benefited the company to an extent.
The company also replaced its old tag line “Let’s Build Something Together” with a new one “Never Stop Improving”, thereby reflecting the company’s new brand strategy. We believe that the new tag line would help the company to build a sense a confidence among its consumers.
The new tag line mirrors the company’s endeavor of improving and developing innovative ideas to cater to the constantly changing demands and preferences of consumers. Lowe’s also initiated an online tool, “MyLowes”, to aid consumers better manage their homes and other home remodeling projects.
We believe that “Never Stop Improving” campaign and “MyLowes” may help Lowe’s in gaining a competitive advantage.
Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Lowe’s holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.
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LOWES COS (LOW): Free Stock Analysis Report
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