Echoing Home Depot's (HD, Financial) sentiments from last week, Lowe's (LOW, Financial) described the home improvement market as challenging, with consumers hesitant to make big-ticket purchases due to high interest rates. Despite this, LOW exceeded Q1 EPS and revenue expectations, reaffirming its FY24 outlook, supported by its Total Home Strategy and Perpetual Productivity Improvement (PPI) initiatives.
- Total Home Strategy:
- Focuses on providing a full range of products and services to both DIY and Pro customers.
- Pro business remains stronger than DIY, with Q1 comps in positive territory despite an overall 4.1% decline in comps.
- Pro Business Growth:
- LOW targets the small-to-medium sized Pro market, including repair and remodel contractors, property managers, and tradespeople.
- Estimates this segment represents about half of the $500 billion total Pro market.
- Efficiency and Operating Profits:
- Launched the Perpetual Productivity Improvement (PPI) initiative in 2021 to enhance productivity through new processes and technology.
- Investments include modernized check-out lanes, touchscreen point-of-sale handheld devices for employees, and updated inventory management systems.
- Financial Performance:
- Beaten EPS expectations for the fourteenth consecutive quarter.
- Repurchased 3.0 million shares in Q1, with SG&A expense as a percentage of revenue increasing by only 170 basis points year-over-year to 18.8%.
Overall, LOW continues to execute well in a challenging environment. The national rollout of its new DIY loyalty program in Q1 is expected to boost performance in the coming quarters. However, until interest rates decrease and the housing market strengthens, both LOW and HD will find it difficult to significantly reignite growth.
