Lowe's shares fell Wednesday after the home improvement retailer reported third-quarter earnings and a profit outlook slightly short of estimates, weighed down by higher labor costs and investments in its e-commerce business.
Its same-store sales surged more than 30%, including a doubling of online sales, as the coronavirus pandemic pushed more people to its stores and website to invest in their homes.
But investors largely shrugged off those gains, looking more toward the future and how the retailer will perform after the Covid-19 crisis abates.
"What's next? I think that's what the market is really starting to ask here," Oppenheimer analyst Brian Nagel said. "The market is worried about ... how these companies perform against these very difficult comparisons."
Lowe's shares were down around 4% in early trading.
Here's how the home improvement company did during its fiscal third quarter compared with what analysts were expecting, based on Refinitiv data:
For the quarter ended Oct. 30, net income fell to $692 million, or 91 cents a share, from $1.05 billion, or $1.36 per share, a year earlier. Excluding a $1.1 billion pretax loss on extinguishment of debt, the company earned $1.98 per share, a penny short of analysts' estimates, based on Refinitiv data.
Sales rose to $22.31 billion from $17.39 billion a year earlier, beating expectations for $21.25 billion.
Same-store sales, which track sales online and at Lowe's stores open for at least 12 months, surged 30.1%, topping estimates for 22.8% growth. Online sales rose 106%.
Sales in all of Lowe's merchandising departments rose over 15%, while all regions' sales climbed more than 20%, President and CEO Marvin Ellison said.
The company said lumber was its strongest category, driven by strong demand from both professionals and do-it-yourself customers.
During the pandemic, many retailers have been paying their cashiers and store staff higher wages and bonuses, and offering extended paid time-off benefits. In the third quarter, Lowe's said it invested $245 million in Covid-related support for its frontline hourly associates. In the first nine months of the year, these added costs have tallied more than $1.1 billion.
"Lowe's is clearly taking share," Wells Fargo analyst Zachary Fadem said in a note to clients. "That said, the cost of this growth appears to be rising."
Lowe's said it expects to earn between $1.10 and $1.20 per share during its fiscal fourth quarter, while analysts had been calling for earnings of $1.17 a share. It forecasts same-store sales to grow about 15% to 20%.
Revenue growth is expected to moderate from third-quarter levels, "consistent with natural demand patterns of the home improvement sector," the company added.
The results from Lowe's come one day after Home Depot reported third-quarter earnings that beat estimates, as consumers continued to focus on home improvement during the coronavirus pandemic and sales surged 24% from a year earlier.
Lowe's has largely been playing catch up to its bigger rival during the pandemic to make upgrades to its supply chain, to support its online business and to make sure it has the right products on shelves in stores.
Lowe's has also been trying to capture a greater share of professional business, but Home Depot remains dominant in the segment. Along with do-it-yourself projects, the market for construction professionals has boomed during the pandemic.
Lowe's said it grew its professionals business more than 20% during the third quarter, thanks to new service offerings and a better customer service experience.
It said it has been working on resetting the layout of merchandise for professionals in all of its stores, to make it a more "intuitive shopping experience" for these visitors, in a bid to drive its share of the category even higher. For example, it is placing pipe cement next to pipes and other necessary pipe fittings, something it had not done before. It also said it is adding a professionals grab-and-go area in stores.
Lowe's is set to hold a meeting with investors on Dec. 9, to talk more about its plans for 2021 and its professionals business.
As of Tuesday's market close, Lowe's shares were up roughly 33% this year, giving the company a market cap of $120.8 billion.