Expect Healthy Growth From Lowe's in 2017

Solid macroeconomic fundamentals support

Lowe’s 2017 outlook calls for revenue to rise 5%, helped by same-store sales growth of 3.5%, the expansion of 35 locations, and the inclusion of Rona for the first half. This is slightly softer than the 6% top-line growth, in line with the 3.5% comps, and slower than the location growth we anticipated. The revision downward of square footage growth and top-line performance will offset the higher productivity we plan to incorporate into our model after the recent restructuring to ensure appropriate store staffing levels. Inventory levels rose 10.6% to $10.5 billion, but more than half was attributable to the addition of Rona, which appeared to be the only inflated number in the quarter. The company continues to generate rising free cash flow, and with a recently authorized $5 billion repurchase plan, we think Lowe’s will buy back the $3.5 billion in shares it plans and continue to raise its dividend over the year ahead.

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