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Why Did Lowe’s Net Margins Rise in 2Q17?

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

2Q17 performance

During 2Q17, Lowe’s Companies (LOW) posted gross margin, EBITDA (earnings before interest, tax, depreciation, and amortization) margin, and net margin of 34.2%, 14.2%, and 6.8%, respectively. In comparison, in 2Q16, the margins were at 34.4%, 13.9%, and 6.7%, respectively.

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Factors that affected Lowe’s 2Q17 margins

During the quarter, Lowe’s gross margins fell 0.2% due to a rise in promotional initiatives, inflation, and an unfavorable product mix. Inflation lowered the company’s gross margins by 0.1%.

The SG&A (selling, general, and administrative) expenses for 2Q17 fell 1.0% to 20.2% of total revenue compared to 21.2% in 2Q16. The sale of the holding in the Australian joint venture lowered the company’s SG&A expenses 0.49%, while losses resulted in 2Q16 due to the settlement of a foreign currency hedge during the RONA acquisition. The decline in SG&A expenses expanded the company’s EBITDA margins.

Also, the D&A (depreciation and amortization) expenses fell from 2.0% to 1.8%, while the interest expenses also fell from 0.9% in 2Q16 to 0.8% in 2Q17. The decline in expenses and lower effective tax rate expanded Lowe’s net margins by 0.1%.

Peer comparisons

During the quarter, Home Depot (HD) and Williams-Sonoma (WSM) posted net margins of 9.5% and 4.4%, respectively. Bed Bath & Beyond (BBBY) is expected to post a net margin of 4.4%.

Outlook

For the next four quarters, analysts are expecting Lowe’s to post a gross margin, EBITDA margin, and net margin of 34.3%, 12.2%, and 5.7%, respectively. In the corresponding four quarters of the previous year, the company posted revenues of 34.3%, 12.2%, and 5.5%, respectively.

Next, we will look at Lowe’s 2Q17 EPS.

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