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It has been about a month since the last earnings report for Lowe's (LOW). Shares have added about 2.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lowe's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lowe's Earnings & Sales Beat Estimates in Q2
Lowe’s reported robust second-quarter fiscal 2021 results, with the top and the bottom line improving year over year as well as outpacing the Zacks Consensus Estimate. Notably, the company delivered the ninth straight earnings beat and the sixth consecutive sales surprise.
Going ahead, management is committed toward expanding market share and boosting operating margin expansion. The company raised sales expectations for fiscal 2021.
Q2 in Detail
Adjusted earnings of $4.25 per share surpassed the Zacks Consensus Estimate of $3.99 and rose 13% year over year. Sales growth and margin expansion supported the bottom line.
Net sales of $27,570 million inched up 1% year over year and surpassed the Zacks Consensus Estimate of $26,989 million. Comparable sales declined 1.6% in the quarter under review. Comparable sales for the U.S. home-improvement business declined 2.2% in the reported quarter.
On a two-year stacked basis, the U.S. comparable sales were up 32%. This reflects the continued success of the company’s Total Home strategy. During the second quarter, the company saw 21% growth in Pro, 10% growth in Installation Services and strong comparable sales across Decor product categories. Sales on Lowes.com increased 7% year on year.
Gross profit inched up 0.1% year over year to $9,312 million, while gross margin expanded 30 basis points (bps) to 33.78%. Operating income amounted to $4,210 million, up 6.4% year on year, while operating margin expanded 78 bps to 15.27%.
Other Financial Aspects & Developments
The company ended fiscal second quarter with cash and cash equivalents of $4,835 million, long-term debt (excluding current maturities) of $21,967 million and shareholders’ deficit of $175 million.
Lowe’s generated cash flow from operations of $6,913 million for the six months ended Jul 30, 2021. Capital expenditures amounted to $846 million during the first half of fiscal 2021. For fiscal 2021, the company expects capital expenditures of nearly $2 billion.
In the second quarter, Lowe’s bought back 16.4 million shares for $3.1 billion and paid out dividends of $430 million.
The company has been investing in providing pandemic-related support to frontline hourly associates through bonuses and incentives. In the reported quarter, the company paid Winning Together profit-sharing bonus across all Lowe’s stores. Management invested $91 million to frontline hourly associates, which was above the targeted level by $20 million. This marks the sixth consecutive quarter of providing Winning Together profit-sharing bonus.
Lowe’s is impressed with its performance during the first half of fiscal 2021. Management highlighted that the strong sales trends have continued into August. Accordingly, the company raised its view for the fiscal.
The company now expects revenues of nearly $92 billion, up from the prior prediction of $86 billion. The latest top-line view indicates growth of nearly 2.7% year on year. Moreover, it reflects comparable sales growth of nearly 30% on a two-year stacked basis.
The company expects gross margin rate to improve slightly year on year, while operating margin is expected to be nearly 12.2%. The company expects to repurchase shares worth at least $9 billion in fiscal 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
At this time, Lowe's has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Lowe's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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