Home improvement retailer
) posted its Q4 2012 results, and investors will be pleased with
the way things have turned out for the company during the full
year. After years of top line stagnation following the housing bust
of 2009, Lowe's has finally marked something of a turnaround in
2012, with steady growth in both net sales and margins. The growth
can be attributed to the recovery in the U.S. housing market, which
has improved consumer appetite for home improvement
products. Fourth quarter sales were also lifted due to
repair-related spending, following the damage caused by hurricane
Sandy towards the end of 2012. Investors should note that the
company's Q4 2012 was a week shorter than Q4 2011, and this has
weighed on comparisons with the Q4 and full year results of
See our complete analysis of Lowe's here
Top Line Receives Housing Boost, Sandy Sales Also Pitch
Lowe's net sales in Q4 2012 (adjusted for the extra week) were
up by around 2.8%, in line with the company's performance over the
first nine months of 2012, when net sales were up by 2.6%. The main
sales drivers in the fourth quarter were again macroeconomic in
nature - primarily declining unemployment, increasing home
occupancy rates, higher rates of home construction and spending as
well as new home sales.
The company's efforts at revamping its in-store display and
product arrangement also helped as comparable same-store sales
(comps) increased by a healthy 1.9% over the quarter. The company
has a 'Value Improvement' plan in place designed specifically to
help improve factors such as easier purchase for customers through
new product labeling, arrangement and general store layouts.
Sales were also given a boost by repair-related purchases
following hurricane Sandy - the company estimates the net sales
effect to be around 70 basis points. The company believes only a
fraction of the total repair work was initiated in Q4 2012, and the
sales boost is likely to be felt throughout 2013.
For the full year 2012, sales stood at about $50.5 billion, up
by around 2.2% adjusted for the extra week in 2011. Comparable
same-store transactions increased by 0.5% while comparable average
ticket prices increased by 0.9%.
Moving forward, we expect the recovery of the housing market to
continue at a steady pace fueled by declining unemployment,
increasing population and low inventory levels. This should equate
to continued growth in sales for Lowe's.
Promotions Hurt Margin Gain
Lowe's gross margins were up by 5 basis points during the final
quarter. The gross margins were boosted by the company's 'Value
Improvement' plan, which also works towards making Lowe's stores
more efficient through better inventory management. The plan
boosted margins were more than 30 basis points. However, this
benefit was almost entirely offset by factors such as the
company's proprietary credit value proposition, which
offers customers a choice of 5% off everyday or promotional
financing mix. This plan helps Lowe's comps by attracting more
customers, but takes its toll on the cost structure. Going forward,
we expect the company to make some slow, but steady gains in
margins as the 'Value Improvement' plan progresses.
We have a $36 Trefis price estimate for Lowe's stock,
which we will revise based on the latest results.
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Price at Trefis