Why Is Lowe's (LOW) Up 3.3% Since Last Earnings Report?
A month has gone by since the last earnings report for Lowe's (LOW). Shares have added about 3.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lowe's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lowe's Q2 Earnings & Sales Beat Estimates, Rise Y/Y
Lowe’s reported robust second-quarter fiscal 2020 results, wherein both earnings and sales outpaced the Zacks Consensus Estimate and grew year over year. Notably, the company delivered the fifth-straight earnings beat and the second-consecutive sales surprise in the quarter.
Results benefited from the company’s retail-fundamentals strategy with improved technology and operational channels, which aided it to meet consumer demand. Notably, the consumer focus on the home, core-repair and maintenance activities fueled sales. The company saw comparable-sales growth of over 20% across all its merchandising divisions, while all the U.S. geographic regions posted comparable-sales increase of at least 30% in the fiscal second quarter. Moving ahead, momentum in sales continued in August.
Furthermore, management has been making investments in omni-channel capabilities to drive growth. Apparently, sales at lowes.com increased 135% in fiscal second quarter. On May 20, management withdrew the guidance for fiscal 2020 due to the lack of visibility about future trends, owing to the coronavirus outbreak.
Q2 in Detail
Adjusted earnings of $3.75 per share surpassed the Zacks Consensus Estimate of $3.03 and surged a whopping 74.4% year over year.
Net sales of $27,302 million jumped 30.1% year over year and surpassed the Zacks Consensus Estimate of $24,708 million. Notably, comparable sales increased 34.2% during the quarter under review. Comparable sales for the U.S. home-improvement business reflected a robust rise of 35.1% in the quarter, following an increase of 12.3% in the preceding quarter.
Gross profit improved nearly 38% year over year to $9,304 million, while gross margin expanded 197 basis points (bps) to 34.1%, driven by strong top-line growth. Further, adjusted operating income margin grew 311 bps to 14.5% on improved operating efficiencies.
Other Financial Aspects
In the reported quarter, Lowe’s invested $460 million to support the frontline hourly associates, communities and store safety. During the first half of fiscal 2020, Lowe's spent $560 million to financially support its associates amid the pandemic, and $100 million as community pandemic relief. Moreover, its second-quarter performance led to a record quarterly Winning Together profit-sharing bonus for the company’s hourly associates at 100% of its outlets, worth $107 million.
Moreover, the company ended the quarter with cash and cash equivalents of $11,641 million, long-term debt (excluding current maturities) of $20,197 million and shareholders’ equity of $4,356 million. It generated cash flow from operations of $11,752 million as of Jul 31, 2020. For fiscal 2020, management still expects capital expenditures of about $1.6 billion.
During the first six months of fiscal 2020, Lowe’s repurchased shares worth $966 million and distributed $836 million as dividends. It had earlier suspended the share-repurchase program for the rest of fiscal 2020.
As of Jul 31, 2020, the company operated 1,968 home-improvement and hardware stores across the United States and Canada.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 15.67% due to these changes.
At this time, Lowe's has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lowe's has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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