On Tuesday, Lowe’s (NYSE: $LOW) reported its second quarter fiscal 2024 results to a negative market reception. The stock sank following a downgraded forecast.
Lowe’s Second Quarter Results
Lowe’s reported a 5.6% decline in revenue YoY to $23.6 billion from $25 billion the previous year. It also reported a 5.1% decline in comparable sales.
The company attributed the decline to increased pressure on discretionary spending for big-ticket DIY projects. It also cited unfavorable weather as one reason for the decline in its seasonal and other outdoor categories.
The company’s EPS of $4.10 was slightly better than forecasts of $3.97, while revenue of $23.6 billion was below forecasts of $23.91 billion.
Lowe’s Disappointing Forecast
Lowe’s expects total sales of $82.7 to $83.2 billion for fiscal 2024, down from the previous forecast of $84 billion to $85 billion. The company forecasts comparable sales will decline by 3.5% to 4%, a bigger decline than the previous estimate of a 2% to 3% decline.
In the new outlook, Lowe’s expects adjusted EPS of $11.70 to $11.90, up from the previous forecast of $12 to $12.30.
What The Leadership Team Had To Say
During the earnings call, the executive team cited high interest rates as one reason for declining sales. Brandon Sink, Lowe’s CFO, stated that they were having a hard time predicting when the Fed would lower interest rates.
The CFO added that they were actively monitoring recovery metrics and the Fed’s rate. They aim to be properly set up to take advantage of any market upturn to drive future growth.
On a positive note, Lowe’s CEO Martin Ellison noted that home prices had continued to appreciate. As such, homeowners had historically high levels of home equity. He noted that disposable personal income was rising faster than inflation. Additionally, aging homes mean people must make repairs and improvements. Based on these trends, Lowe’s remains optimistic about the future of its business.
High Interest Rates Impact Lowe’s
According to Lowe’s CEO, 90% of Lowe’s customers are homeowners with fixed 30-year mortgages of 4% or less. He noted that the high interest rates made these customers more hesitant to take out a new mortgage.
Despite the decline in DIY home improvement sales, Lowe’s saw an uptick in online sales and sales to professionals like electricians and contractors. Ellison noted that their professional sales segment saw a mid-single-digit increase in comparable sales while there was a 2.9% increase in online sales.
Lowe’s has been working to create an incentive program for professionals to increase sales. Thus far, those efforts have paid off, with the segment being the strongest during the quarter.
Lowe’s Stock Sinks On Disappointing Outlook
Following the downgraded outlook, LOW stock closed 1.18% lower at $240.33 per share. The stock is still up 9.92% this year and 10.45% in the past 12 months. Its current price is above the 50 and 200 DMA of $230.74 and $225.51, respectively.
Analysts are cautiously optimistic about its future. They give it an overall moderate buy rating with 11 buy and 11 hold ratings. The analysts forecast a wide range for the stock, with a high of $290.0 and a low of $229. Based on the last closing price, their average forecast of $254.37 is a 5.84% upside.
Is Now The Time To Buy LOW Stock?
While Lowe’s stock forecasts a decline in revenue and EPS for 2024, it is still a great stock to hold in the long term. The main factor holding it back is the current macroeconomic headwinds.
However, these are temporary challenges. Once rates come down, most DIY projects will kick off again, helping the company boost sales. Best of all, Lowe’s is actively analyzing the market to ensure it benefits from changing macroeconomic conditions.
Adding LOW to your portfolio now could have numerous long-term benefits.
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