Lowe’s Earnings: DIY Customers Reduce Sales, but Long-Term Outlook Remains Unchanged

Key Morningstar Metrics for Lowe’s Companies

• Fair Value Estimate: $214.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Lowe’s Companies’ Earnings

Lowe’s Companies LOW felt the effects of weakened consumer spending in its second-quarter results, reporting a same-store sales decline of 5.1% and a total revenue drop of 5.5%. Like at Home Depot HD, reduced spending on big-ticket projects and unfavorable weather conditions weighed on performance, as evidenced by a decline of 6.5% in purchases over $500. But there were bright spots in the professional business (where comparable sales increased at a mid-single-digit rate) and online sales (which grew 2.9%). More positively, productivity improvements buffered some cost pressures, with Lowe’s delivering an adjusted operating margin of 14.4%—down about 115 basis points from last year but 35 basis points better than anticipated.

Lowe’s refined its outlook for 2024, lowering its ranges for total sales (to around $83 billion from $84 billion-$85 billion) and comparable sales declines (to 3.5%-4.0% versus 2.0%-3.0% prior). These are modestly below our respective $84 billion and negative 2% preprint estimates. We plan to adjust our full-year forecast to include a roughly 4% comparable sales decline and about $83 billion in sales. In response to lower sales, we’ll drop our 2024 operating margin by 20 basis points to 12.4%, leading to EPS of around $11.80 (down 10%), in line with the firm’s outlook for $11.70-$11.90.

However, we believe Lowe’s profitability will improve, attributing the current weakness to the economic climate. As such, when the cycle rotates favorably (likely after a few Federal Reserve interest rate cuts), the firm’s strong fundamentals should shine, allowing it to return to average annual sales growth of 3%-4% and an operating margin that rises to 14%. We therefore don’t plan any material change to our fair value estimate of $214 per share and view shares as a touch rich at 19 times our updated 2025 EPS estimate.