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Lowe's shares slide on disappointing quarter

Lowes store

Lowe's, the second largest home improvement retailer in the US, suffered a sharp fall in their share price yesterday after they reported lower than expected quarterly profits and sales.

Sales for the last quarter increased 10.7% from $15.2 billion to $16.9 billion, whilst like for like revenue increased 1.9% (2.0% for US business), below the 2.6% anticipated by city analysts. 

Lowe's results were a contrast to those of The Home Depot, which reported quarterly profit and same-store sales last week, well above analysts' estimates, buoyed by consumer spending on higher value home improvement items.

Read - Home Depot shines whilst many US retailers falter.

Lowe's primary focus on the do-it-yourself customer has created space between themselves and Home Depot, whose preferred focus on high-spending professional contractors has resulted in it gaining from the buoyant housing market.

Home improvement has remained a bright spot in an otherwise depressed U.S. retail industry, as a strong labor market and historically low mortgage rates continue to drive demand for housing.

Lowe's Business Outlook

The company reaffirmed its operating outlook for Fiscal Year 2017; however, diluted earnings per share have been updated to reflect the loss on extinguishment of debt and resulting lower interest expense.

Fiscal Year 2017 -- a 52-week Year (comparisons to fiscal year 2016 -- a 53-week year; based on U.S. GAAP) 

  • Total sales are expected to increase approximately 5 percent
  • Comparable sales are expected to increase approximately 3.5 percent
  • The company expects to add approximately 35 home improvement and hardware stores.
  • Operating income as a percentage of sales (operating margin) is expected to increase approximately 120 basis points. 
  • The effective income tax rate is expected to be approximately 37.8%.
  • Diluted earnings per share of approximately $4.30 are expected for the fiscal year ending February 2, 2018; reflective of the loss on extinguishment of debt and resulting lower interest expense.

Source: Insight Team & Lowes Corporate press release

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25 May 2017

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