8-K: Lowe's Reports Second Quarter 2024 Results with Sales Decline and Updated Full Year Outlook

Lowe's reported a decrease in second quarter sales and adjusted its full-year outlook due to lower-than-expected DIY sales and a challenging macroeconomic environment.

Summary

• Lowe's reported net earnings of $2.4 billion and diluted earnings per share (EPS) of $4.17 for the second quarter of 2024, compared to a diluted EPS of $4.56 in the same quarter of 2023.
• The company recognized a $43 million pre-tax gain from the 2022 sale of its Canadian retail business, which positively impacted diluted EPS by $0.07.
• Excluding this gain, the adjusted diluted EPS was $4.10.
• Total sales for the quarter were $23.6 billion, down from $25.0 billion in the prior-year quarter.
• Comparable sales decreased by 5.1%, driven by a decline in DIY spending and unfavorable weather, partially offset by positive comparable sales in Pro and online.
• The company repurchased approximately 4.4 million shares for $1.0 billion and paid $629 million in dividends during the quarter.
• Lowe's has updated its full-year 2024 outlook, now expecting total sales of $82.7 to $83.2 billion, down from the previous estimate of $84 to $85 billion.
• Comparable sales are now expected to be down 3.5% to 4.0%, compared to the previous estimate of down 2% to 3%.
• Adjusted diluted earnings per share are now projected to be approximately $11.70 to $11.90, down from the previous estimate of $12.00 to $12.30.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the decrease in sales, earnings, and the lowered full-year outlook. While there are some positive aspects, such as the Pro segment growth, the overall tone is cautious and reflects a challenging macroeconomic environment.

Positives

• Pro customer comparable sales showed mid-single-digit growth, with double-digit online Pro growth.
• The company returned $1.6 billion to shareholders through dividends and share repurchases.
• Lowe's is leveraging a new partnership with Lionel Messi to drive engagement in the MyLowes Rewards DIY loyalty program.
• The company has further expanded same-day delivery options with Uber Eats.
• Five of fifteen regions delivered comparable sales growth above the company average.
• Six of fourteen product categories had comparable sales above the company average.

Negatives

• Total sales decreased to $23.6 billion from $25.0 billion in the prior-year quarter.
• Comparable sales decreased by 5.1% overall.
• DIY spending was down, impacting overall sales.
• Unfavorable weather negatively impacted sales in seasonal and other outdoor categories.
• Diluted EPS decreased to $4.17 from $4.56 in the same quarter last year.
• Gross margin decreased by 19 basis points compared to the prior year.
• Operating margin decreased by 96 basis points compared to the prior year.
• The company has lowered its full-year 2024 outlook for sales, comparable sales, and adjusted diluted EPS.

Risks

• The company faces risks related to changes in general economic conditions, including volatility in financial markets and reduced availability of borrowing.
• Slower growth in real disposable personal income could affect consumer spending.
• Inflation could impact discretionary spending and increase costs.
• Shortages and disruptions in the labor supply could affect operations.
• Interest rate and currency fluctuations pose risks.
• Changes in home prices and housing turnover could impact demand.
• Trade policy changes and tariffs could affect costs and sales.
• Outbreaks of pandemics could disrupt operations and supply chains.
• Fluctuations in fuel and energy costs could impact profitability.
• Natural disasters, geopolitical conflicts, and acts of terrorism could negatively affect the business.

Future Outlook

Lowe's has updated its full-year 2024 outlook, now expecting total sales of $82.7 to $83.2 billion, comparable sales down 3.5% to 4.0%, and adjusted diluted earnings per share of approximately $11.70 to $11.90.

Management Comments

• Marvin R. Ellison, Lowe's chairman, president and CEO, stated that the company delivered strong operating performance and improved customer service despite a challenging macroeconomic backdrop.
• He also noted the company is building momentum with its Total Home strategy, reflected by mid-single-digit positive comps with the Pro customer.
• Ellison expressed confidence that the company is making the right long-term investments to take share when the market recovers.

Industry Context

The results reflect a broader trend of slowing consumer spending in the home improvement sector, particularly in DIY categories, due to macroeconomic pressures and unfavorable weather conditions. The positive performance in the Pro segment suggests a potential shift in focus towards professional customers.

Comparison to Industry Standards

• Home Depot, a major competitor, also reported a decline in comparable sales in their most recent quarter, indicating a broader industry trend.
• Lowe's mid-single-digit growth in Pro sales is comparable to Home Depot's performance in the professional segment, suggesting a similar strategic focus.
• The decrease in DIY sales is consistent with industry reports of reduced consumer spending on discretionary home improvement projects.
• The updated full-year outlook for Lowe's is similar to the revised guidance provided by other retailers in the sector, reflecting the challenging macroeconomic environment.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and the lowered full-year outlook.
• Employees may be affected by potential cost-cutting measures or changes in business strategy.
• Customers may experience changes in product availability or pricing due to supply chain and economic factors.
• Suppliers may be impacted by changes in demand and purchasing patterns.

Next Steps

• A conference call to discuss second quarter 2024 operating results is scheduled for August 20, 2024, at 9 a.m. ET.
• The company will continue to focus on its Total Home strategy and long-term investments to take share when the market recovers.

Key Dates

Keywords

Lowes, Home Improvement, Retail, Earnings, Sales, DIY, Pro, Comparable Sales, EPS, Dividends, Share Repurchase, Financial Results, Outlook