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Lowe’s Beats Q3 Earnings Estimate, Lifts EPS Outlook

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Lowe’s (LOW) posted mixed third-quarter earnings results today. Its top line continued to benefit from higher comps, but both its sales and comps fell short of analysts’ consensus estimates.

As expected, Lowe’s third-quarter earnings came in well ahead of analysts’ estimate and marked stellar growth. Moreover, Lowe’s raised its full-year earnings outlook, which drove its stock up. It rose about 5% in the premarket session.

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Lowe’s third-quarter earnings in brief

Lowe’s posted revenue of $17.39 billion in the third quarter, roughly flat YoY (year-over-year). However, its revenue fell short of Wall Street’s consensus estimate of $17.68 billion. Lowe’s third-quarter comps increased by 2.2%. However, its comps growth rate was below analysts’ expectation of 3.1%.

Meanwhile, its comps in the US home improvement business rose by 3.0%.

In comparison, larger rival Home Depot (HD) also disappointed investors with its third-quarter sales. Home Depot’s third-quarter sales and comps came in below Wall Street’s expectations. Lower lumber prices and a delay in benefits from strategic investments took a toll on Home Depot’s top line.

Moreover, Home Depot once again announced a cut in its sales growth outlook, which didn’t sit well with investors. Home Depot stock closed more than 5% lower on November 19. Several analysts also cut their target prices on Home Depot stock following its third-quarter results and lower sales outlook.

Lowe’s strategic promotions and pricing action supported its third-quarter margins and, in turn, its bottom line. Moreover, share repurchases further drove its EPS. Lowe’s posted adjusted EPS of $1.41 in the third quarter, which jumped 35.6% YoY and came in well ahead of analysts’ estimate of $1.35.

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Raised margin and earnings outlooks

Thanks to its strong performance in the third quarter, Lowe’s increased its full-year adjusted operating margin and earnings outlooks. Lowe’s now expects its adjusted operating margin to expand by 40–60 basis points. Previously, Lowe’s had expected its adjusted operating margin to expand by 20–50 basis points.

Lowe’s now expects its adjusted EPS to be $5.63–$5.70 in fiscal 2019. Earlier, management expected its EPS to be $5.45–$5.65.

Lowe’s has reaffirmed its sales outlook for fiscal 2019. The company forecasts about 2% growth in its top line. Moreover, it expects its comps to increase by 3%.

We believe an improved macroeconomic backdrop, including an increase in wages and a high employment rate, will continue to support the company’s top line growth. Moreover, continued spending on housing maintenance and repairs should further drive its sales. Meanwhile, Lowe’s bottom line is likely to grow at a healthy pace, reflecting higher sales, margin expansion, and a lower share count.

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