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Lowe's earnings fall short of Wall Street expectations

  • Lowe's reports fourth-quarter revenue and same-store sales that top expectations.
  • Earnings fall short as profit margins are squeezed.
  • Lowe's is overshadowed by rival Home Depot's stronger results.

Lowe's on Wednesday reported fourth-quarter revenue and same-store sales that topped expectations, but earnings fell short as profit margins were squeezed.

Lowe's shares were down more than 7 percent on the news.

Here's what the company reported compared with what analysts were expecting, based on a Thomson Reuters survey:

  • Adjusted earnings per share: 74 cents vs. 87 cents expected.
  • Revenue: $15.49 billion vs. $15.33 billion.
  • Same-store sales: 4.1 percent increase vs. growth of 3.1 percent.

"As we enter 2018, we are working diligently to improve execution with a focus on conversion, gross margin, and inventory management," CEO Robert Niblock said in a statement. "Given the rapidly evolving competitive landscape, we are also accelerating our strategic investments leveraging the benefits of tax reform."

Lowe's net income dropped to $554 million, or 67 cents a share, compared with $663 million, or 74 cents per share, a year earlier, which included an extra week. Excluding one-time items, Lowe's earned 74 cents a share, 13 cents short of analysts' expectations.

Revenue during the period fell about 2 percent to $15.49 billion, but exceeded Wall Street expectations for $15.33 billion.

Same-store sales — a key metric for retailers — were up a little more than 4 percent, again surpassing expectations. Rival Home Depot, though, saw an increase of 7.5 percent during the period.

"Home Depot is a much better run company," Oppenheimer & Co. analyst Brian Nagel told CNBC's "Squawk Box." "But as the dust clears today, I think there could be a positive in this [earnings report]."

Lowe's, like Home Depot, has benefited from a strong U.S. housing market and an aging millennial population starting to invest in permanent residencies. The North Carolina-based company recently launched DIY apps and augmented-reality assistants to cater to a younger and more tech-savvy audience.

Late last year, though, Lowe's was targeted by activist investor D.E. Shaw & Co. for not performing well enough relative its peers.

"In my view, the activist intervention with Lowe's is long overdue," Nagel said Wednesday. The outside pressure should move Lowe's toward being "a much more aggressive" company, as it repositions itself in the market and the home improvement category, he said.

Lowe's latest initiatives include reinvesting capital in its workforce — announcing bonuses and a higher benefits package due to U.S. tax reform — and growing the supply chain by opening its first direct-to-consumer fulfillment center in Nashville, Tennessee.

Also, the company announced on Wednesday a deeper partnership with Sherwin-Williams, making Lowe's the sole national home retailer of certain paint brands outside of Sherwin-Willaims' stores.

Looking to the full fiscal 2018, Lowe's expects total revenues to grow about 4 percent and same-store sales to increase roughly 3.5 percent. The company said it expects to build 10 new stores in 2018.

As of Tuesday's market close, Lowe's shares have climbed more than 25 percent from a year ago.