Lowe’s did something that Home Depot didn’t – But its stock is still falling

The big box home improvement store beat earnings estimates.

Home improvement store Lowe’s (NYSE:LOW) did something that its rival Home Depot didn’t do this quarter — it beat earnings estimates. Yet Lowe’s stock was still trading lower, down about 2%, as the retailer faces a challenging economic environment.

Lowe’s saw its revenue in the first quarter decline 2.3% to $20.9 billion, but it was in line with analysts’ expectations.

Net earnings were down about 7% to $1.64 billion in the quarter, while earnings were down about 4.5% to $2.92 per share. That was better than analysts expected, as the consensus called for earnings of $2.88 per share. One day earlier, Home Depot missed earnings estimates for the first time in five years.

Comparable store sales dropped 1.7% in the quarter compared to the same quarter a year ago, due mainly to unfavorable weather earlier in the quarter. That was partially offset by mid-single-digit Lowe’s Pro, its reward program for contractors, and online comparable sales growth. 

“Despite near-term uncertainty and housing market headwinds, our team’s unwavering focus on exceptional customer service has elevated satisfaction scores and earned Lowe’s the #1 ranking in Customer Satisfaction among Home Improvement Retailers by J.D. Power,” Marvin Ellison, Lowe’s chairman, president and CEO, said.

On the earnings call with analysts, Ellison said Q1 results were challenged by lower demand for bigger ticket discretionary projects, along with a start to spring due to weather.

Maintaining its guidance

Lowe’s maintained its guidance for the rest of the fiscal year, calling for total sales of $83.5 to $84.5 billion, which would be up slightly at the midpoint from $83.6 billion in sales in 2024. Further, comparable sales are expected to be flat to up 1% as compared to prior year.

Diluted earnings per share are projected to be approximately $12.15 to $12.40, up at the midpoint from $12.23 in 2024. Also, the operating margin is targeted at 12.3% to 12.4%, up a bit from 2024 and unchanged from the previous guidance.

The drop in big-ticket project spending is in part due to high mortgage rates, as often consumers take on big projects when preparing to sell. But since mortgage rates are so high, consumers are still putting those projects off.

“We’ve yet to really see at scale the consumer re-engage in larger discretionary categories, still mainly sitting on the sidelines. I think the good news is the trends aren’t getting any worse,” Bill Boltz, Lowe’s CFO, said on the earnings call.

On the matter of tariffs, Ellison said the company plans to maintain competitive pricing.

“I think the key point for us is that we’re going to be really price competitive in the home improvement channel, like we always are,” Ellison said on the call. “We’re not in the habit of donating market share to the competition. And so, in this environment, we’re going to be as keenly focused on competing on price as we are every single day.”

Dividend king

Lowe’s stock was down about 2% Wednesday and is off 8% year-to-date. Lowe’s stock has a median price target of $263 per share, which suggests 16% upside. Its reasonably valued with a P/E of 18 and it has one of the best dividends in the world.

Lowe’s is a Dividend King, having raised its dividend for 61 consecutive years. It currently pays out $1.15 per share at a yield of about 2.00%. For the reliable dividend alone, and its potential upside, the stock is worth consideration, especially on a dip.