Lowe’s Earnings: DIY Sales Remain Soft, but Pro Strength and Cost Control Cushion the Impact

Morningstar’s Metrics for Lowe’s

• Fair Value Estimate: $230.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Lowe’s Earnings

Wide-moat Lowe’s LOW fiscal first-quarter results were largely in line with our expectations, with $20.9 billion in revenue matching our estimate and an 11.9% operating margin slightly exceeding our projection by 10 basis points. While industrywide pressures, including sluggish home turnover, cautious consumer spending, and unfavorable weather, helped drag down comparable sales 1.7%, the figure came in a tad better than the 2.0% drop we had anticipated.

Although we don’t surmise these headwinds are likely to dissipate in the near term, we’re encouraged that Lowe’s held firm to its full-year outlook, which factors in ongoing macro challenges with expected tariff impacts, aiming for flat to 1.0% comparable sales growth and an operating margin between 12.3% and 12.4% (implying a flat to a 10-basis-point improvement compared with the prior year). We still believe the firm’s targets are achievable, underpinned by ongoing productivity initiatives, alongside robust negotiating leverage with suppliers and active endeavors to reduce its reliance on China (currently around 20% of direct and indirect purchases).

These efforts should collectively preserve margins while reinforcing its everyday low pricing strategy. Meanwhile, we posit the firm is prudently investing to bolster customer engagement, which should support positive comparable sales growth. As a result, we don’t plan a material change to our $230 fair value estimate and view shares as fairly valued.

DIY consumers remained cautious in the quarter, holding back on big-ticket discretionary purchases, according to management. That said, we are pleased that average ticket increased 2.1%, helping offset a 3.8% decline in traffic, thanks to strength in pro and essential appliance sales. Despite near-term pressure, we believe investments in its DIY and pro loyalty programs and technology upgrades will help continue to engage consumers in underserved rural markets, leaving our long-term 3% average comparable growth forecast unchanged.