On Jun 12, 2014 we issued an updated research report on
Lowe's Companies Inc.
) following the company's first-quarter fiscal 2014 earnings
Lowe's posted lower-than-expected results in spite of a
year-over-year rise. Unfavorable weather conditions were mainly to
be blamed for this weak performance. Excluding the tax-related
benefit and charges, Lowe's earnings came in at 58 cents per share,
up 18.6% year over year but below the Zacks Consensus Estimate of
61 cents per share.
Lowe's witnessed a 2.4% rise in total revenue to $13,403 million
but fell short of the Zacks Consensus Estimate of $13,875 million.
Moreover, Lowe's reaffirmed its fiscal 2014 sales outlook while
raising its earnings guidance. The company continues to expect its
sales and comparable-store sales to register year-over-year growth
of approximately 5% and 4%, respectively, whereas it anticipates
its earnings for fiscal 2014 to be approximately $2.63 per share
compared with the earlier guidance of $2.60 per share.
Additionally, Lowe's efforts to expand in high-growth markets to
improve sales and profitability are impressive. The company's
decision of closing its underperforming stores along with its
strategy of enhancing customers' shopping experience and
merchandising transformation is likely to help generate incremental
sales. The company has reset product differentiation in 1,400
stores and expects to extend it to the remaining stores by the
first half of fiscal 2014.
A special mention for the ProServices business that excelled in the
quarter and is expected to perform consistently well going forward.
Further, the company has introduced its 'Outdoor Living Experience'
section in some of the outlets to help customers find necessary
products to construct their entire outdoor room under one
roof. Moreover, the company's sustained focus on price
management and addition of extra labor hours will help boost its
The company's strong liquidity positions it well for future growth
and enhancement of shareholder return.
However, the mixed recovery signals from the housing market are
discouraging. A severe winter froze its growth prospects during the
initial part of the year. Nevertheless, with the improvement of
weather, key growth indicators like employment, income and consumer
spending have recently begun to recover.
Meanwhile, declining home sales in the last couple of months do not
give positive signals. Despite this, management remains upbeat
about recovery in the coming months owing to the expectation of a
stronger job market and growth in income as well as an improvement
in credit conditions. We remain skeptical about the stock as
recovery appears to be a time-consuming affair.
Currently, Lowe's carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Better-ranked stocks worth investment in the retail sector include
Build-A-Bear Workshop Inc.
Citi Trends, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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