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Why Lowe’s Adjusted EBIT Margin Fell in Q4

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Fourth-quarter performance

In the fourth quarter, Lowe’s (LOW) posted an adjusted EBIT (earnings before interest and tax) margin of 6.5%—compared to 7.5% in the fourth quarter of 2017. The decline was due to the lower adjusted gross margin and increased SG&A (selling, general, and administrative) expenses.

During the fourth quarter, Lowe’s adjusted gross margin fell 0.56% to 31.5%. The decline was due to the accelerated clearance activity for holiday inventory, increased supply chain costs due to the addition of new facilities to the network, tariffs, and an increase in other product costs. However, the adoption of a new revenue recognition standard offset some of the declines in the gross margin.

The company’s SG&A expenses for the quarter increased 0.77% due to the adoption of a new revenue recognition standard, which was partially offset by the improvement in operational expense management.

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Peer comparisons and outlook

During the same period, Home Depot (HD) posted an EBIT margin of 13.7. Analysts expect Williams-Sonoma (WSM) and Bed Bath & Beyond’s (BBBY) EBIT margins to be 11.9% and 6.3%, respectively.

For 2019, analysts expect Lowe’s adjusted EBIT margin to improve from 8.6% in 2018 to 9.4%. For the same period, the company’s management expects its adjusted operating margin to improve 0.85%–0.95%.

Next, we’ll discuss Lowe’s fourth-quarter EPS.

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