Retail

Lowe's says US economy remains 'sound' after delivering mixed earnings report

Key Points
  • Lowe's fourth-quarter same-store sales miss analysts' expectations. 
  • The home improvement retailer cites a weak housing market in Canada as impacting results. 
  • CEO Marvin Ellison says "U.S. macroeconomic fundamentals remain sound for 2019." 
An employee organizes buckets for sale inside a Lowe's Cos. store in Burbank, California.
Patrick T. Fallon | Bloomberg | Getty Images

Lowe's on Wednesday delivered a mixed earnings report for the fourth quarter, but soothed investors' concerns by hinting at early signs of strength in its spring business and continued strength in the U.S. in 2019.

Lowe's said a weak housing market in Canada hurt its latest quarterly results. CEO Marvin Ellison noted, however, that "U.S. macroeconomic fundamentals remain sound for 2019." The company offered up a forecasted range for the year that was slightly better than expected.

"When you look at the consumer, they remain upbeat because of employment and income growth," Ellison later told CNBC. "The consumer has the most healthy balance sheet we've seen in a long time."

Lowe's is expecting more Americans will be renovating their homes this year rather than buying new ones, and so they'll be stocking up on paint, tools and even new appliances. "People are investing in their existing homes," Ellison said.

For the quarter ended Feb. 1, Lowe's reported a net loss of $824 million, or $1.03 per share, compared with net income of $554 million, or 67 cents a share, a year ago. Excluding one-time items, Lowe's earned 80 cents per share, a penny a share ahead of analysts' forecast based on Refinitiv data.

Lowe's said the latest results included $1.6 billion in pretax charges: $952 million was tied to a goodwill impairment charge Lowe's took for its business in Canada.

"We anticipate continued weakness in the Canadian housing market in the near-term, but remain confident in our market position in Canada and the long-term potential of that business," Ellison explained.

Revenue during the fourth quarter rose to $15.65 billion from $15.49 billion a year ago. That was short of analysts' expectations for $15.74 billion.

Lowe's said sales at its stores open for at least 12 months climbed 1.7 percent during the quarter, missing expectations for growth of 2.1 percent. Same-store sales for its U.S. home improvement business were up 2.4 percent, Lowe's said.

The results from Lowe's come just one day after rival Home Depot's mixed report. Bad winter weather and a cooling real estate market in the U.S. hurt the largest home improvement retailer in the country during the fourth quarter. Home Depot's outlook for 2019 also wasn't as strong as some analysts were expecting, as the state of the housing market could still pose challenges for the industry in the year ahead.

Lowe's is calling for earnings per share of between $6 and $6.10 in fiscal 2019. Analysts had been expecting $6.04 per share. Lowe's says it expects annual revenue to be up about 2 percent, and same-store sales to climb roughly 3 percent this year.

Now, with Ellison at the helm, Lowe's has been overhauling its business in a bid to stay competitive with Home Depot. It's ending its retail operations in Mexico and has been shutting stores in North America to focus on its most profitable locations.

"Regardless of what you think of the economic environment — the housing environment — we think Lowe's has a lot of company-specific initiatives in place to drive profitability this year," Telsey Advisory Group analyst Joseph Feldman said.

On Wednesday, Ellison said the company was already seeing strong results from some of its "early spring" categories. Earlier this year, the company said it planned to hire more than 65,000 people in 2019 — some permanently and others on a seasonal basis — to help it meet peak spring demand.

As of Tuesday's market close, Lowe's shares are up about 14 percent from a year ago, bringing the retailer's market cap to roughly $84.3 billion.