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What to see – The Motley Fool



Thanks to the positive results of giants such as Walmart and Home Depot in recent weeks, investors have become more optimistic about retail. Lowe & # 39; s has a chance to bolster that optimism with its second-quarter earnings before the market opens on August 22.

It will be the first earnings report under new CEO Marvin Ellison was a key figure for rival Home Depot for many years. But this fact is just one of several reasons why shareholders will pay attention to this report.

Let's take a look at the trends investors are watching in Lowe's upcoming announcement.

  A customer inspects a piece of wood.

Image source: Getty Images

Growth in revenue growth

The key number under review will be comparable – store sales, and all signs point to a significant acceleration of this fundamental ratio. Home Depot has doubled its growth rate between the first and second quarters as customers make their spring purchases a little later than usual. Lowe's executives suggested at the end of May that a similar trend would pay for his business, so take a big boost here.

Lowe's could not close the performance gap with his bigger rival. It is unlikely to match the growth rate of 8% in the second quarter, as the comps were below 1% in the first quarter, compared to a 4% jump for the main competitor.

Home Depot raised its growth outlook for 2018 from 5% to 5.3% after its second-quarter report. Therefore, it will be interesting to see if Lowe's annual target ever rises from the current 3.5% forecast of the management.

Profit Margin Stabilization

Lowe & # 39; s aims to improve its gross profit margin this year through higher prices and better inventory management Investors can expect a detailed update from Ellison and his team on progress towards this goal.

The company's operating margin, which takes into account distribution costs and better describes overall profitability, is far below Home Depot's operating margin. In the last quarter, the value of Lowe was 8.4%, compared to Home Depot at 13.6%. In the longer term, Home Depot's margin has doubled since the housing recession to 14.5% of sales, while Lowe remains in the single digits. Closing this gap is likely to be a major goal for Ellison.

 HD Operations Edge (TTM) Map

HD operational boundary data from YCharts. TTM = sluggish 12 months

I am pleased

It is only Ellison's first quarter as CEO of Lowe, and so it is possible that the new leader will not announce any far-reaching strategic changes to the retailer's operating strategies or financial goals. However, with many years of industry experience including leading the US department of Home Depot, Ellison could have some thoughtful ideas of where he would like to take Lowe during his tenure.

That means investors may hear about new initiatives aimed at accelerating market share growth on Wednesday, perhaps through more aggressive attacks on home repair professionals who have recently raised Home Depot's results. Lowe & # 39; s could also take the opportunity to postpone its return on investment policy to align it more closely with its competitors. Currently, 35% of annual earnings are distributed as dividends, compared to Home Depot's 55%.

Lowe's updated industry outlook is likely to reflect the trends that support moderate growth, including a healthy economy and rising housing prices. Against this tailwind is the fact that sales in the second half of the year increased compared to the same period of the previous year, which was influenced by the rebuilding of the hurricane. Overall, Lowe's forecast should be at least many times higher, just as Home Depot did earlier in the month.

                                            
                                        
                                    

                                        

Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool has the following options: Short September 2018 calls $ 180 on Home Depot and long January 2020 $ 110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.


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