Lowe’s Earnings: Results Weighed Down by Weak DIY Spending but Bolstered by Pro Momentum

Key Morningstar Metrics for Lowe’s Companies

• Fair Value Estimate: $220.00
• 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 echoed the sentiment of competitor Home Depot HD, as the firm’s third-quarter results could not escape the negative impact of macroeconomic uncertainty and relatively high interest rates on DIY customer spending. Total sales of $20.2 billion were slightly higher than our $19.8 billion forecast, attributable to hurricane-related activity and pro comps that were better than implied.

Though the top line came in ahead, the adjusted operating margin fell to 12.3% (90 basis points), hurt by product mix pressure and storm-related expenses. However, we see this as an isolated event and do not expect to modify our long-term assumption of a 13.4% average operating margin over the next decade. As such, we do not plan to materially adjust our $220 fair value estimate, and we see shares as overvalued.

Higher-than-expected mortgage and interest rates have depressed DIY spending, but we see Lowe’s as primed to benefit from its commitment to DIY customers (the DIY-focused loyalty program, next-day home delivery) once the macroeconomic environment improves in the second half of 2025 and beyond. Lowe’s will benefit from DIY consumer tailwinds and the continued capture of small-to-medium pro market share (a $250 billion total addressable market). We think Lowe’s can capitalize on its opportunity to grow in the pro market without sacrificing its core DIY customer experience, bolstering its wide moat. As a result, we project same-store sales growth of around 3% on average over the next decade.

Furthermore, we don’t expect tariffs proposed by the incoming Trump administration to materially affect profits. The previous rounds of tariffs hurt Lowe’s gross margin by 25 basis points in 2019. Even still, the gross margin that year was in line with our long-term forecast of 33.4%. More importantly, we expect the fundamental improvements in Lowe’s sourcing processes to help better mitigate tariff impacts this time, limiting our concern.