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Analysts Expect Lowe’s Margins to Expand in 4Q16

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Dec. 4 2020, Updated 10:52 a.m. ET

4Q16 expectations

Analysts are expecting Lowe’s Companies (LOW) to post a gross margin of 34.6%, an EBITDA (earnings before interest, tax, depreciation, and amortization) margin of 10.8%, and a net margin of 4.4%. In 4Q15, these margins were 34.7%, 10.3%, and 4.1%, respectively.

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Factors that could affect Lowe’s margins

The negative impact from the RONA business mix is expected to lower Lowe’s 4Q16 gross margins. But analysts are expecting EBITDA margins and net margins to improve in 4Q16 compared to 4Q15 due to lower SG&A (selling, general, and administrative) expenses and the sales leverage from positive same-store sales growth.

Analysts are expecting SG&A expenses to fall from 24.6% of the total revenue in 4Q15 to 24.1% in 4Q16. Depreciation and amortization expenses are expected to fall from 3.0% to 2.5% for the quarter, thus boosting Lowe’s net margins. However, analysts are expecting the 4Q16 tax rate to be on the higher side, which is expected to offset some of the growth in net margins.

Peer comparisons

In 4Q16, analysts expect Home Depot (HD), Bed Bath & Beyond (BBBY), and Williams-Sonoma (WSM) to post EBITDA margins of 15.1%, 14.5%, and 16.3%, respectively.

Outlook

For the next four quarters, analysts are expecting Lowe’s to post EBITDA and net margins of 12.2% and 5.6%, respectively. In the corresponding quarters of the previous year, the company posted EBITDA and net margins of 12.0% and 5.3%, respectively.

Next, we’ll take a look at Lowe’s 4Q16 EPS (earnings per share) estimates.

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