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Why Lowe’s Revenue Growth Outdid Expectations

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Lowe’s beat guidance and Wall Street expectations in fiscal 2016

Lowe’s (LOW) grew revenue 5.1% year-over-year to $59.1 billion in fiscal 2016. The company’s revenue expanded both in the year and the quarter due to higher same-store sales at existing stores as well as new store rollouts. The company increased its net store count by 17 in the fiscal year, and by eight in the fourth quarter. That was in the middle of its stated target of 15–20 new store openings in the year.

Same-store sales growth came in at 4.8% for the company overall with US comps growing at 5.1% in fiscal 2016. The results exceeded the company-provided guidance, which had projected revenue growth of 4.5%–5.0% in fiscal 2016 with full-year comps expected to range between 4.0%–4.5%.

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Lowe’s revenue record versus market consensus

In fiscal 4Q16, Lowe’s reported revenue growth of 5.6%, growing its top line to $13.2 billion and beating the Wall Street analyst consensus revenue number of $13.1 billion. Lowe’s beat the consensus revenue estimate in three out of the four quarters in fiscal 2016.

E-commerce performance

Lowe’s sales growth also benefited from higher e-commerce sales, which grew 26% year-over-year in the fourth quarter. Digital sales now represent about 3% of Lowe’s sales, according to Ricky D. Damron, chief operating officer of Lowe’s.

Home improvement and home furnishing retailers are increasingly focused on omni-channel initiatives. Digital sales are representing an increasing proportion of overall sales for these retailers. Part of the reason for the increase is the strategy combination of brick-and-mortar and web channels applied by the firms. Online sales made up 5.3% of total sales for Home Depot (HD) in fiscal 2016. In fiscal 2015, web sales constituted 50.5% of sales for Williams-Sonoma (WSM), 11% of sales for Pier 1 Imports (PIR), and ~50% of sales for Restoration Hardware (RH).

LOW, HD, and WSM together make up 13.9% of the portfolio holdings in the SPDR S&P Homebuilders ETF (XHB).

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