Lowe's Earnings Beat Market Expectations

Lowe's reports second quarter earnings that beat analysts' expectation; new CEO's turnaround off to a good start. Read more here!

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Lowe’s reported second quarter earnings and revenue that topped analysts’ expectations. However, same-store sales didn’t quite meet estimates and weren’t as strong as competitor Home Depot.

The North Carolina-based retailer also announced that it will be shuttering its 99 Orchard Supply Hardware stores by year-end to “aggressively rationalize store inventory.” This was one of CEO Marvin Ellison’s largest decisions since joining the company on July 2. 

Lowe’s slashed its full-year outlook because of this, stating it expects to incur between $390 million and $475 million in charges linked to the clothes in the second half of 2018.

Lowe’s shares dropped more than 5 percent during premarket trading on the earnings report before mounting a strong rebound. The stock was higher more than 9 percent in midday after Ellison outlined the business’s turnaround plan on an analyst call.

“For me, having worked for three different retailers, the one thing retailers do a good job of is evaluating their real estate portfolios on an annual basis,” said Ellison in an interview. “Closing Orchard Supply was a very difficult decision,” but it let Lowe’s to spend shareholder’s money somewhere else, including the improvement of the supply chain, he explained.

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Net income for the quarter than ended on August 3 was $1.52 billion, or $1.86 per share, compared with $1.42 billion, or $1.68 per share, reported a year ago. Not including one-time items, Lowe’s earned $2.07 per share, 5 cents exceeding analysts’ expectations.

Revenue increased 7.1 percent to $20.89 billion, again topping the $20.78 billion expected by analysts.

Sales at Lowe’s stores open for at least 12 months were 5.2 percent higher, compared with the predicted growth of 5.3 percent. Meanwhille, Home Depot reported same-store sales growth last week of 8 percent for the second quarter, far exceeding Lowe’s.

“The company has unfortunately become distracted over the past few years. And specifically we have chased initiatives that did not add value and were not core to our retail business,” Ellison explained to analysts during a conference call. “Our in-store technology is dated, overall execution is impaired by complexity, we have a large number of out-of-stocks in our stores that must be addressed, and we need to increase the rigor with which we evaluate capital investments.”

Ellison, who is JC Penney’s former chief executive and a top executive at Home Depot for over a decade, just came to power as CEO of Lowe’s last month, replacing Robert Niblock. The home improvement retailer has since brought on a new head of stores, who is Joseph McFarland, also coming from Penney. There’s also a new head of supply chain, Donald Frieson, who came from Walmart.

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