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Lowe's stock falls on earnings, sales miss

  • Earnings per share: $1.03 adjusted vs. an estimate of $1.06, according to Thomson Reuters analysts.
  • Revenue: $16.86 billion vs. a $16.96 billion forecast.
  • Same-store sales: 1.9 percent increase vs. a forecast for 2.9 percent growth, according to FactSet.

Lowe's first-quarter earnings and sales fell short of Wall Street estimates, sending shares of the home improvement retailer tumbling in premarket trade.

In the wake of a strong first quarter for rival Home Depot, which recently reported better-than-expected same-store sales fueled by strong sales of big-ticket items, expectations for Lowe's were high.

But the results Lowe's turned in weren't as robust as hoped, given the momentum in the housing sector. Here's what Lowe's reported vs. what the Street was expecting:

  • Earnings per share: $1.03 adjusted vs. an estimate of $1.06, according to Thomson Reuters analysts.
  • Revenue: $16.86 billion vs. a $16.96 billion forecast by Thomson Reuters.
  • Same-store sales: 1.9 percent increase vs. a FactSet forecast for 2.9 percent growth.

"From a stock perspective, the headline may not spark a lot excitement, as expectations had moved up into the print and the bar was set higher by [Home Depot]," Credit Suisse analyst Seth Sigman wrote in a note to clients. "But, in our view, the story hasn't been Q1; with easier sales and comparisons starting in Q2, and healthy underlying trends, supporting potentially both EPS and valuation upside as we move through this year."

Shares of the stock were falling around 4 percent following the news. At one point, they tumbled 7 percent.

Total sales for the first quarter rose 10.7 percent, to $16.9 billion from $15.2 billion, from the same period last year, nonetheless still coming in short of forecasts.

Lowe's net income dropped to $602 million, or 70 cents per share, during the first quarter, from $884 million, or 98 cents per share, a year ago.

The latest period included a $464 million pretax loss on debt reduction, stemming from a $1.6 billion cash tender offer. Excluding this loss, Lowe's earned $1.03 a share, shy of what analysts were expecting.

Lowe's has updated its earnings outlook for 2017 to reflect this loss and the resulting lower interest expense.

Lowe's reaffirmed Wednesday that it expects revenue to increase roughly 5 percent by the end of the year, with sales at its established stores rising 3.5 percent. It now anticipates earning $4.30 per share for the fiscal year 2017, adding about 35 home improvement and hardware stores.

"A solid macroeconomic backdrop, combined with our project expertise, drove above average performance in indoor projects," CEO Robert Niblock said in a statement. "We also continued to advance our sales to Pro customers, delivering another quarter of comparable sales growth well above the company average."

A Lowe's employee walks through the store during the grand opening of the Lowe's store in San Francisco, California.
Getty Images
A Lowe's employee walks through the store during the grand opening of the Lowe's store in San Francisco, California.

With rising home prices leading Americans to invest more in their properties, the home improvement sector has been a rare outperformer in retail of late.

While Lowe's same-store sales didn't increase as much as analysts were expecting for the quarter, growth of 1.9 percent is still healthier than the comparable numbers many other retailers have been reporting.

But it's natural for investors to compare Lowe's growth to that of Home Depot. In the first quarter, Home Depot's same-store sales gained 5.5 percent, and it expects that metric, which tracks stores open at least 12 months, to rise 4.6 percent for this year.

The sales environment was challenging for Home Depot and Lowe's to start the year, Oppenheimer analyst Brian Nagel told CNBC on Wednesday.

But when comparing the two, "[Lowe's is] in a bit of a hole here," Nagel said. "I think Home Depot is the better performing company. We saw another indication of that today."

Home Depot is better at "a lot of little things," Nagel said, including adjusting merchandise and figuring out how to keep sales flowing in an "erratic" weather environment.

"The same-store numbers are perfectly respectable but are notably weaker than the figures Home Depot put out earlier in the month," GlobalData Retail Managing Director Neil Saunders said in an email, adding to Nagel's argument.

"In our view, Home Depot still has the edge when it comes to brand visibility with customers undertaking bigger hard-improvement projects — something that has served it well over the past few months. To be fair, Lowe's is not completely deficient in these areas, but it does play second-fiddle to its bigger rival."

As of Tuesday's close, Lowe's stock has climbed about 16 percent this year and is up 3.4 percent over the past 12 months.

LOW 12-month performance

Source: FactSet