Skip to Content
Morningstar

Lowe’s Earnings: Weather and Macro Environment Impair Sales, but Solid Execution on Display

We plan to lower our fair value estimate on Lowe’s stock from $218; shares fully valued.

 and
""
Securities In This Article
Lowe's Companies Inc
(LOW)

Lowe’s Stock at a Glance

Lowe’s Earnings Update

We believe the better-than-expected 2023 first-quarter results for wide-moat Lowe’s LOW highlight the firm’s agile execution and ability to mitigate sales deleverage and higher wage costs. The company’s net sales of $22.3 billion (down 5.5%) and adjusted EPS of $3.67 outpaced our forecasts of $21.1 billion and $3.31, respectively.

Nonetheless, we plan to reduce our $218 fair value estimate by a mid-single-digit rate after incorporating the tempered 2023 guidance, due to a lower near-term outlook (now calling for net sales of $87 billion-$89 billion and adjusted EPS of $13.20-$13.60, from $88 billion-$90 billion and $13.60-$14.00, respectively). With a 2%-3% pop on the report, shares appear fully valued, trading near our intrinsic valuation.

In the quarter, comparable sales declined 4.3% because of the combination of lumber deflation, unfavorable weather, and softer demand as customers engaged in smaller, less-discretionary projects (in line with wide-moat Home Depot’s HD commentary on its first-quarter earnings). Still, Lowe’s pro business (the firm’s primary growth vector, in our view) booked positive sales growth even after lapping 22% growth in the prior-year quarter and accounting for an 800-basis-point drag from lumber deflation. We attribute this mark to the firm’s continuous efforts to funnel resources toward merchandising, product innovation, and supply chain to elevate customer experience and drive brand loyalty. Despite the sluggish sales, Lowe’s adjusted operating margin expanded 47 basis points to 14.4% in the quarter, as diverse productivity initiatives offset higher wages and sales deleveraging.

Taken together, despite the lackluster sales momentum that we foresee in the near term, our favorable view on the underlying fundamentals of the business remains intact. As such, we maintain our long-term outlook for 3% average sales growth (beyond fiscal 2023) and midteens operating margins by 2032.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

More in Stocks

About the Authors

Jaime M Katz

Senior Equity Analyst
More from Author

Jaime M. Katz, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She covers home improvement retailers and travel and leisure.

Before joining Morningstar in 2011, Katz was an associate for Credit Agricole Corporate and Investment Bank. She also worked in equity research for William Blair for three years and spent three years in asset management at Mesirow Financial.

Katz holds a bachelor’s degree in economics from the University of Wisconsin and a master’s degree in business administration from the University of Chicago Booth School of Business. She also holds the Chartered Financial Analyst® designation. She ranked first in the leisure goods and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

Grace Na

Associate Equity Analyst
More from Author

Grace Na is an associate equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She conducts a variety of research and related analysis on companies that fall into the consumer defensive and consumer cyclical sectors.

Before joining Morningstar in 2021, Na spent several months interning at a deal advisory group at KPMG Korea and a Chicago-based private equity firm, where she conducted various qualitative research on both public and private markets.

Na holds a bachelor's degree in finance, investment, and banking from the University of Wisconsin–Madison's Wisconsin School of Business.

Sponsor Center