Lowe’s Earnings: Disciplined Focus on Productivity Is Paying Off, Despite Choppy Macro Backdrop

The overarching theme of wide-moat Lowe’s fiscal 2023 fourth-quarter report was analogous to its wide-moat peer Home Depot’s (reported last week), sharing sentiment around soft demand in discretionary categories and big tickets (down 8.8%). We applaud Lowe’s stringent focus on driving operational efficiencies, which we surmise limited pressure in the adjusted operating margin to a mere 48 basis points (to 9.1%) despite a 6.2% decline in comparable sales. We believe Lowe’s will continue to leverage its extensive scale and pull multiple levers—such as a flexible labor model and real-time cost optimization tool, allowing it to surgically negotiate vendor pricing—to blunt near-term macro headwinds while continuing to invest in supply chain and IT infrastructure. We maintain our long-term estimates, which include low-single-digit average sales growth and nearly 15% operating margin (from 13.4% in fiscal 2023).