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What Factors Will Affect Lowe’s Future Performance?

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Lowe’s stock price performance after fiscal 2016 earnings release

Lowe’s (LOW) stock price rose 1.1% to $68.62 on February 24, the day the company declared fourth quarter results for fiscal 2016. Peer Home Depot (HD) was also up by 0.87% to $125.61. Bed Bath & Beyond (BBBY) rose 1.8% to $48.34.

The S&P 500 Index (SPY) (IVV) (VOO) was up by 0.44% while the Consumer Discretionary Select Sector SPDR Fund (XLY) and the SPDR S&P Homebuilders ETF (XHB) were up by 0.58% and 0.95%, respectively, on February 24. Lowe’s is down 9.1% year-to-date compared to -4.5% for HD, -4.7% for the overall S&P 500 Index, and -4.3% for the Consumer Discretionary Select Sector SPDR Fund (XLY)[1. As on February 26, 2016].

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Why Lowe’s management is positive about prospects

Despite Lowe’s disappointing stock market performance, the company’s management is bullish on the prospects for the home improvement retail industry this fiscal year. Rising employment, increasing real disposable incomes, and higher housing prices and turnover could provide tailwinds that are likely to continue to spur growth for the company and the industry.

As per the results of an internal survey, around half of Lowe’s customers mentioned that the value of their homes has risen. They’re also more likely to spend their income on home improvement projects compared to other discretionary spending avenues despite their overall spending levels being unchanged. This may boost future sales for Lowe’s.

Potential headwinds

Despite the positive trends that were seen in the home improvement industry in 2015, GDP (gross domestic product) growth has shown signs of slowing in the fourth quarter of 2015. A further slowdown cannot be ruled out due to both international and domestic factors in both the manufacturing and service economies. This could result in slower-than-anticipated growth for Lowe’s and for the industry in general in fiscal 2017.

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