Why Lowe’s Earnings Disappointed Investors

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Lowe’s Companies Inc. (NYSE: LOW) reported second-quarter 2016 results before markets opened Wednesday. The home improvement retailer posted diluted earnings per share (EPS) of $1.31 and $18.26 billion in revenues. In the same period a year ago, Lowe’s reported EPS of $1.20 on revenue of $17.3 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.42 and $18.45 billion in revenue.

Same-store sales increased 2% in the quarter and rose 1.9% for U.S. stores. Net income rose 3.7% in the quarter to $1.2 billion.

Excluding one-time items, including a loss on a currency hedge, Lowe’s earnings totaled $1.37 per share.

In its guidance, the company pegged full-year 2016 sales to rise about 10% year over year, including an extra week compared with last year. Same-store sales are expected to increase 4%. Diluted earnings per share are forecast at around $4.06, down from a prior forecast of about $4.11. The consensus analysts’ estimate for EPS is currently $4.06 and the revenue estimate is $63.84 billion.

The update to Lowe’s guidance reflects the impact of the acquisition of RONA stores that was completed in May.

Lowe’s CEO, Robert Niblock, said:

We believe we are well positioned to capitalize on a favorable macroeconomic backdrop for home improvement in the second half of this year as we continue to execute on our strategic priorities to provide better omni-channel experiences, deepen our relationships with professional customers, and drive productivity and profitability.

The company also said it repurchased $1.2 billion worth of stock under its share buyback program and paid $251 million in dividends in the first quarter.

Compared to Home Depot’s results and increase in full-year earnings guidance, the earnings and revenue misses hammered the shares Wednesday morning. The results were doubly disappointing because the outlook for home improvement has been very strong.

Shares of Lowe’s closed down less than 0.1% on Tuesday, at $81.48, in a 52-week range of $62.62 to $83.65. The stock traded down about 5.5% in Wednesday’s premarket session to $77.01. Thomson Reuters had a consensus 12-month price target of $87.46 before the results were announced. The highest price target is $100.