Lowe's beats earnings estimates as sales fall — and the company expects revenue to slide again this year

KEY POINTS

• Lowe's beat Wall Street's earnings and revenue expectations for its fourth quarter.
• Sales fell during the period, and the home improvement retailer expects revenue to drop again during its current fiscal year.
• In a CNBC interview, CEO Marvin Ellison said sales have been hurt by slower housing turnover and a consumer spending shift towards services rather than goods.

Lowe's on Tuesday beat Wall Street's quarterly earnings and revenue estimates, even as the company continued to see customers tackle fewer home projects.

The home improvement chain was going up against lower expectations for its fourth quarter. It had cut its full-year forecast in November, after CEO Marvin Ellison said the company had felt a "greater-than-expected pullback" on pricier items and discretionary home projects.

Lowe's said it factored economic uncertainty into its forecast for the current fiscal year, too. It said it expects total sales of between $84 billion and $85 billion, which would be a drop from $86.38 billion in fiscal 2023. It anticipates comparable sales will decline between 2% and 3% compared with the prior year, and expects earnings per share of approximately $12 to $12.30.

In a interview with CNBC, Ellison said demand for do-it-yourself projects has been hit by a drop in housing turnover and a swing in spending toward services like traveling and going to restaurants, rather than buying goods. But the U.S. consumer is healthy, he added.

"As we look at 2024, we expect DIY demand to remain under pressure in the near term," he said. "But we feel great about the medium- to long-term outlook for our business and candidly for the home improvement industry in general."

Rival Home Depot echoed similar sentiments in its earnings report last week. The company Wall Street's earnings and revenue expectations, but its sales fell year over year and the retailer's leaders described the past year as one of "moderation." The company also said customers were continuing to put off bigger projects because of higher interest rates.

Here's what the company reported for the fourth quarter compared with what Wall Street was expecting, based on a survey of analysts by LSEG, formerly known as Refinitiv:

• Earnings per share: $1.77 vs. $1.68 expected
• Revenue: $18.60 billion vs. $18.45 billion expected

Lowe's shares touched a 52-week high Tuesday and closed 1.8% higher, despite the headwinds the retailer faces. On its earnings call, Lowe's leaders said consumers are in good financial shape and said its year-over-year comparisons will get easier in the second half of the year.

The company's net income for the three-month period that ended Feb. 2 was $1.02 billion, or $1.77 per share, compared with $957 million, or $1.58 per share, a year earlier. Excluding the costs associated with Lowe's sale of its Canadian retail business, earnings per share were $2.28.

Sales fell from $22.45 billion in the year-ago period. The company said its prior-year quarter included an additional week and sales from its Canadian business.

Comparable sales dropped by 6.2% year over year, as the home improvement retailer saw weaker demand for do-it-yourself projects and poor weather in January. Comparable sales for home professionals, a category that includes plumbers, electricians and contractors, were flat year over year in the quarter, however.

Slower turnover and a value focus

Home turnover has been a major challenge for Lowe's, since more of its customers are holding off on selling or buying new houses because of higher mortgage rates. Ninety percent of the retailer's customers either own their house or have a fixed mortgage rate of 4% or lower, Ellison said.

He said it will likely take rate cuts to get those customers off the sidelines.

"When rates come down, that's going to spur housing turnover and you know what happens when you put the house on the market: You spruce up the paint. You may spruce up the yard. You'll do different projects around the house to get ready for sale and then when you buy a home, you do the same thing," he said.

Do-it-yourself customers have also looked for value and become more selective when making big purchases, Ellison said on a call with CNBC.

For example, instead of buying a suite of new appliances for a kitchen, they may purchase just a new dishwasher or refrigerator, he said. He said that switch from buying multiple items to just one was "the biggest determining factor of our sales volume coming down" in its appliance business.

Lowe's also saw customers hungry for deals on Black Friday and Cyber Monday. It had record sales during those shopping events, which are synonymous with promotions.

However, Ellison said the company hasn't seen tradedowns to cheaper brands.

In fact, Bill Boltz, executive vice president of merchandising, said on the investor call that some customers are opting for innovative items that come at a higher price. One of its top sellers is an example of that: an LG smart refrigerator that has a double freezer. It costs more than $2,500.

Loyalty program launch

To draw more store visits and online purchases, Lowe's is launching a loyalty program for do-it-yourself shoppers that will be nationwide in March — the start of its crucial spring sales season. The company already has a loyalty program for pros.

Ellison said the retailer is going after the Lowe's customer who shops at its competitors, too, whether because of convenience or promotions. He said it wants to give those shoppers a reason to choose Lowe's more consistently.

Plus, he added, the program allows it to personalize offers for a specific shopper — like making sure the customer who likes to garden gets relevant discounts and another who likes woodworking gets a different batch.

As of Tuesday's close, Lowe's shares were up nearly 6% this year. That about matches the 6% gains of the S&P 500 during the same period. Shares of Lowe's closed at $235.39 on Tuesday, bringing the company's market value to about $135 billion.

During the fourth quarter, Lowe's spent $404 million on share buybacks and paid $633 million in dividends.

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