Lowe’s Sees Online Sales Rise 16 Pct.; Shares Hit By High Costs

Lowe’s reported its Q1 earnings on Wednesday (May 22), and the results were mixed – the company’s online sales were up 16 percent, while shares fell 10 percent due to higher costs, forcing the company to cut its forecast, according to a report by CNBC.

The value of Lowe’s at the close of the market on Tuesday (May 21) was $88.4 billion, and its shares are up about 20 percent since the beginning of 2019. The company has been in a transitional period since new CEO Marvin Ellison joined about a year ago.

Many of the retailer’s improvement investments are weighing down profits, and the cut forecast caused a selloff. Earnings per share were $1.22 adjusted, while they were estimated to be $1.33. Revenue was better: $17.74 billion versus $17.66 billion estimated. Also, same-store sales beat expectations, up 3.5 percent versus the 3.2 percent estimated.

Lowe’s reported that net income was up, reaching $1.05 billion from $988 million a year ago.

“Our first quarter comparable sales performance is a clear indication that the consumer is healthy, and our focus on retail fundamentals is gaining traction,” Ellison said in a release. “However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter, which impacted earnings.”

Ellison noted that cost increases hit gross margins by 90 points as the company completely revamped merchandising operations. “We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year,” he added.

Lowe’s said it expects net income for fiscal 2019 to be around $5.54 to $5.74 a share. Adjusted, it will earn about $5.45 and $5.65 a share.

Oppenheimer’s Brian Nagel said he thinks the results of the quarter are good: “I think when the dust clears on this, it’s going to be a positive. The market’s going to say Lowe’s has been under-managed for a very long period of time, they figured out what they need to do, they’re starting to see the results in better sales … there’s just extra investment that needs to be made here in the near term.”