Lowe's share fell 10% on Wednesday as higher costs weighed on first-quarter earnings, which lagged analysts' estimates, and prompted the construction market to cut back on its full-year forecast.
Lowe & # 39; s is in a transitional phase since CEO Marvin Ellison joined the retailer less than a year ago. The company is trying to improve its business, but its investments are weighing on its profits. However, the lower outlook worried investors significantly and triggered a sell-off. The shares recently fell by almost 12%.
Refinitiv estimates that the company developed as follows compared to Wall Street expectations:
- Earnings per share: $ 1.22 adjusted versus $ 1.33 estimated
- Sales: $ 1
- Same sales: up 3.5% from an estimated 3.2%.
"Our comparable first quarter sales performance is a clear indication that the consumer is healthy and we are focusing on retail fundamentals," Ellison said in a company release. "However, the unexpected impact of the convergence of cost pressure, the significant change in our merchandising organization, and ineffective legacy pricing tools and processes led to a decline in gross margin in the quarter, which impacted earnings." Billion or $ 1.31 per share of $ 988 million or $ 1.19 per share a year ago.
Adjusted, Lowe analysts predicted a profit of $ 1.22 per share, well below $ 1.33 per share.
] Ellison said earnings was impacted by cost increases that reduced gross margin by 90 basis points and unprecedented changes in the merchandising business.
"We are still in the early stages of our transformation, and we expect the changes we make to result in improved gross margins throughout the year," Ellison said.
Sales increased 2.2, exceeding analyst estimates of $ 17.66 billion. Online sales increased 16% in the last quarter, the company said.
Chuck Grom of Gordon Haskett Research Advisors praised Lowe's for expanding its top position. Efforts to gain market share in the home improvement industry while increasing productivity explain the weaker margins, he said in a statement to customers on Wednesday.
In the first quarter, Lowe's revenue in the same business increased 3.5%, better than the 3.2% estimate. In the US, revenue growth in the same business was even higher, rising by 4.2%.
According to Chief Financial Officer David Denton, Lowe's same business fell 4.1% in February, 3.5% in March and 7.2% in April. Domestically, Lowe's sales fell 0.9% in February, 4% in March and 8% in April.
"This is the first quarter in a while when Lowe's clearly superior Home Depot is up," said Brian Nagel of Oppenheimer on Wednesday opposite CNBC's Squawk Box.
Lowe's results come just one day after the leader in Home Depot was superior. expected result for the first quarter on Tuesday. Despite the second-wettest February weather in US history and a reduction in timber costs, Lowe posted strong results. Home Depot reiterated its forecast for fiscal year 2019.
For fiscal year 2019, Lowe's total revenue is expected to increase by 2% while sales in the same business are expected to increase by 3% range from $ 5.54 to 5.74 per share. Adjusted earnings are expected to be between 5.45 and 5.65 USD per share.
In the final quarter, Lowe & # 39; s expects to achieve earnings growth of $ 6 to $ 6.10 per share, with sales growth of approximately 2%. At that time it was assumed that sales in the same business would increase by about 3% in the financial year 2019.
Despite the lower prognosis and the lower earnings error, Nagel was optimistic about the results.
"I think if the dust dissolves, it will be positive." The market will say that Lowe's been under-farmed for a very long time, they've figured out what to do, they're starting to see The results lead to better sales, with only additional investment being needed in the short term, "he said.
At the close on Tuesday, Lowe's market value was $ 88.4 billion, with shares rising more than 20% since the beginning of the year. Home Depot, with a market capitalization of approximately $ 211.1 billion, has gained more than 11 percent since the beginning of the year.
Correction: The CEO of Lowe's is Marvin Ellison. In an earlier version, his name was given incorrectly.