Lowe's Mitigates Impact Of Harsh U.S. Winter, Strong Spring Sales Expected

Feb 27 2014, 1:13pm CST | by

Home improvement retailer Lowe’s released its Q4 earnings results on February 26. Earnings for the quarter stood at $306 million, a gain of nearly 6.3%. Net earnings were propelled by top-line growth as a result of the steady recovery in the U.S. housing market driving consumer appetite for home improvement products. The company’s net sales for the quarter stood at $11.66 billion, an increase of about 5.6% over Q4 2012.
/>

Lowe’s sales in spring are expected to be higher than usual as homeowners go about carrying out repair jobs due to the damage caused by the snow to driveways, roofs etc. The company expects comparable sales growth of approximately 4% and total sales growth of approximately 5% in 2014.

We have a $46 Trefis price estimate for Lowe’s stock, which will be revised shortly now that the earnings results are out.

See our complete analysis of Lowe’s here

Effect Of The Housing Market

The housing market recovery continued in October in the fourth quarter of 2013, spurred by strong consumer confidence and low mortgage rates but a slowdown occurred in November and December. New home sales rose were 463,000 in October, 445,000 in November and 414,000 in December. Sales of existing homes dipped compared to levels observed in Q2 and Q3. The reason that sales of new as well as existing homes are important for Home Depot is the spending on home improvement by new occupants.
/>

We had stated in our earnings preview note that the mixed nature of housing market data in the recent months is most likely an aberration due to unforeseen factors such as an unusually harsh winter season that slowed down business activity. Lowe’s management agreed that extreme weather conditions resulted in lower sales. The company said that it managed to respond quickly to weather conditions by fulfilling the demand for snow blowers, space heaters, heating fuels, snow shovels, ice melt and pipe fittings across the country. Even so, the harsh winter cost it about $100 million in sales. This translated to a loss of around 100 basis points as far the comparable sales growth rate is concerned. This figure could have been 4.9% instead of 3.9%. The gross margins, however, increased slightly as weather related sales contributed to higher margins.

Lowe’s’ management expressed the opinion that the housing market recovery will continue to benefit its sales in 2014. This is similar to what Home Depot said in its earnings conference call a day earlier. However, unlike Home Depot, Lowe’s didn’t offer detailed comments on how much it expects the housing market to grow or home prices to appreciate in 2014.

Quarterly Performance

Lowe’s net sales in Q4 2013 were around 5.6% higher year-over-year and reached $11.66 billion. The company’s comparable same-store sales (comps) increased by a healthy 3.9% over the previous year comparable quarter. This increase was driven by growth in the number of transactions as well as the ticket size of each transaction. Total transaction count increased by 4.4% and total average ticket increased 1.1% to $63.08. 
/>

Lowe’s also said that its ProServices business, which serves contractors and other professional customers, continued to perform very well. However, its relatively smaller share of this market in comparison to rival retailer Home Depot will ensure that the latter continues to outpace Lowe’s in terms of sales growth. Professional customers account for about 35% of Home Depot’s sales while the figure for Lowe’s is close to 25%. It is difficult for Lowe’s to catch up with Home Depot on this front because the latter has more stores in metropolitan areas where the professional customers are generally based.

Margins Remain Strong

Lowe’s gross margin was 34.67% for the quarter, up by 40 basis points from Q4 2013.

Lowe’s reported an improvement of approximately 40 basis points in gross margin due to value improvement. Margins also improved by due to a change in the product mix and lower inventory but this was essentially offset by markdowns necessary to clear seasonal product and the company’s proprietary credit value proposition.

In 2014, Lowe’s expects gross margins to continue improving. The company suffered an erosion in gross margins by 84 basis points in 2011 and 2012 and is seeking to regain 2010 levels. Beyond that it expects gross margins to remain flat.

We expect Lowe’s sales growth expectations to be revised upwards by 1-1.5% as 2014 progresses. If that does not occur, there will be a nearly 5% downside to our valuation.

See More at Trefis | View Interactive Bernstein Research (Powered by Trefis)/>/>

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Drugs to abet cancer cells suicide found
London, Nov 1 (IANS) British scientists have found a drug combination that can trigger the self-destruct process in lung cancer cells -- paving the way for new treatments.
 
 
Climate change threatens global health security: UNEP
San Juan, Nov 1 (IANS/EFE) The rapid propagation in recent years of infectious diseases such as Malaria, Chikungunya and even Ebola is one more example of how climate change threatens global health security.
 
 
US-Japan joint rain radar mission to end next year
Washington, Nov 1 (IANS) After 17 years of groundbreaking 3-D images of rain and storms, the joint NASA and Japan Aerospace Exploration Agency Tropical Rainfall Measuring Mission (TRMM) will come to an end next year, the US space agency said in a statement.
 
 
Al Qaeda threatens to disrupt Australian fuel supplies
Sydney, Nov 1 (IANS) Al Qaeda has urged Islamic militants to attack oil tankers in maritime hotspots that supply Australia with up to 70 percent of its petrol, a media report said Saturday.
 
 
 

Latest from the Network

Drugs to abet cancer cells suicide found
London, Nov 1 (IANS) British scientists have found a drug combination that can trigger the self-destruct process in lung cancer cells -- paving the way for new treatments. The combination of two drugs, called TRAIL...
Read more on Business Balla
 
Boko Haram leader says kidnapped girls married off
Lagos, Nov 1 (IANS) The leader of the Nigerian Boko Haram insurgents, Abubakar Shekau, has in a new video said the over 200 abducted schoolgirls have been married to members of the group. The video, released Friday,...
Read more on Politics Balla
 
Another Burkina Faso army officer claims power
Ouagadougou, Nov 1 (IANS) Burkina Faso's senior military officer Isaac Zida, who was in command of the presidential guard, Saturday announced via a televised speech that he has seized power as head of state during the...
Read more on Politics Balla
 
Climate change threatens global health security: UNEP
San Juan, Nov 1 (IANS/EFE) The rapid propagation in recent years of infectious diseases such as Malaria, Chikungunya and even Ebola is one more example of how climate change threatens global health security. "Climatic...
Read more on Politics Balla
 
Nine killed in Afghanistan suicide bombing
Kabul, Nov 1 (IANS) Nine security personnel were killed while 20 civilians were injured in a suicide car bombing in the eastern Afghan province of Lowgar Saturday, the provincial government spokesman said. "One...
Read more on Politics Balla
 
Al Pacino considered name change
Al Pacino considered changing his name to ''Sonny Scott'' when he started acting. The 74-year-old star was advised to alter his moniker when he began working in the movie industry because any stars with an ''ethnic...
Read more on Movie Balla
 
How to increase your popularity on Twitter
London, Nov 1 (IANS) Having a large number of followers on Twitter is a more efficient strategy to gain popularity on the social networking site than increasing your number of tweets, said a study. Messages from...
Read more on Celebrity Balla
 
US-Japan joint rain radar mission to end next year
Washington, Nov 1 (IANS) After 17 years of groundbreaking 3-D images of rain and storms, the joint NASA and Japan Aerospace Exploration Agency Tropical Rainfall Measuring Mission (TRMM) will come to an end next year,...
Read more on Politics Balla