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Lowe’s Stock Rises after Impressive Q1 Performance

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Today, Lowe’s Companies (NYSE:LOW) reported its first-quarter earnings, which ended on May 1. For the quarter, the company reported an adjusted EPS of $1.77 on revenues of $19.68 billion. The company beat analysts’ EPS expectation of $1.32 and revenue expectation of $18.32 billion. Lowe’s SSSG (same-store sales growth) was at 11.2%—higher than analysts’ expectation of 3.3%. Meanwhile, the company withdrew its fiscal 2020 guidance citing uncertainty about COVID-19’s impact on the economy.

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In the press release, CEO Marvin R. Ellison said, “Our strong first quarter performance, which continues into May, also reflects the benefits of our retail fundamentals strategy, the improvement in our execution, and the resiliency of our home improvement business model. I am also pleased with our ability to pivot to serve increased online demand with Lowes.com sales increasing 80% in the quarter.” The strong first-quarter performance drove the company’s stock price. Today, Lowe’s was trading at 5.6% higher in the pre-market trading hours.

Lowe’s revenue rose

Lowe’s revenue rose 10.9% YoY (year-over-year) from $17.74 billion to $19.68 billion. The positive SSSG of 11.2% drove the company’s revenue. The decline in the total store count, due to closing 34 underperforming stores in Canada, offset some of the revenue growth. By the end of the quarter, the company operated 1,970 home improvement and hardware stores, which covered approximately 207.8 million square feet of retail selling space. In the same quarter of the previous year, the company operated 2,002 stores covering approximately 209 million square feet of retail selling space.

For the quarter, Lowe’s reported an SSSG of 11.2% driven by an SSSG of 12.3% in its home improvement business. Also, amid the social distancing guidelines and the company’s investment to improve its online experience, it reported a strong 80% YoY growth in its online sales.

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Lowe’s reported double-digit EPS growth

For the quarter, Lowe’s reported net profits of $1.34 billion or $1.76 per share. However, removing one-time items, the company’s adjusted EPS was $1.77. The EPS represents a growth of 45.1% from $1.22 in the same quarter last year. The sales growth, improved gross margin, lower SG&A expenses as a percentage of the total revenue, and a lower number of shares outstanding drove the company’s revenue. Meanwhile, increased interest expenses offset some of the increases in the EPS.

For the quarter, the company’s gross margin improved from 31.5% to 33.1%. The SG&A fell from 21.8% of the total sales to 21.3%. Lowe’s interest expenses increased from $162 million to $205 million. Due to share repurchases in the trailing four quarters, the number of shares outstanding declined from approximately 797 million shares in the same quarter last year to 756 million shares. During the first quarter, the company repurchased 9.6 million shares for approximately $947 million. However, Lowe’s announced that it won’t repurchase any more shares this year.

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Liquidity

Due to the uncertain outlook, Lowe’s raised $4 billion by issuing senior unsecured notes. The company also raised its capacity to avail revolving credit facilities by $770 million. With these initiatives, the company had approximately $6.0 billion of cash and cash equivalents at the end of the quarter. Also, Lowe’s can draw $3 billion through revolving credit if an unexpected liquidity needs arise.

Stock performance and my take

So far this year, Lowe’s has lost 2.4% of its stock value as of May 19. Weakness in the broader equity markets due to COVID-19 has dragged the stock down. Meanwhile, the company’s strong first-quarter performance could drive its stock price today. Despite the decline in the stock price, Lowe’s has outperformed the broader equity market. The S&P 500 Index has fallen by 9.5%. Meanwhile, Home Depot (NYSE:HD), Williams-Sonoma (NYSE:WSM), and Bed Bath & Beyond (NASDAQ:BBBY) have returned 9.0%, -7.2%, and -65.6% YTD, respectively. Home Depot reported its first-quarter earnings on Tuesday. To learn more, read Home Depot Misses Q1 Earnings Expectations, Stock Falls.

I was bullish on Lowe’s for some time. The company’s impressive first-quarter confirms my bullishness on the stock. I think that the company could gain market share in the home improvement business by implementing technological advancements and transforming its supply chain. So, investors with a long-term horizon should look to accumulate the stock.

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