Lowe's stock slides as the company beat muted earnings expectations after Home Depot's mixed quarter

Lowe's (LOW) reported Q1 earnings that met revenue expectations at $20.93 billion but beat EPS estimates at $2.92, despite a 2% year-over-year revenue decline, reflecting ongoing weakness in DIY discretionary spending and weather-related headwinds. Same-store sales fell 1.7%, better than the anticipated 2.04% decline, while the company reiterated its FY2025 sales guidance of $83.5 billion to $84.5 billion, and faces challenges from tariff uncertainties, sourcing 20% of its sales from China, leading to a 1% stock decline in morning trading.

Analysis

Lowe's (LOW) reported first-quarter earnings that met subdued expectations, with revenue of $20.93 billion matching estimates and adjusted earnings per share of $2.92 surpassing the anticipated $2.88. These figures, however, represented year-over-year declines of 2% in revenue and 4.6% in adjusted EPS, attributed by CEO Marvin Ellison to "ongoing pressure in DIY bigger ticket discretionary demand," a weather-impacted "slower start to spring," "significant macro uncertainty," and persistent "challenges in the housing market." Same-store sales fell 1.7%, outperforming the forecasted 2.04% decline, yet this marked a negative reversal from the positive growth achieved in Q4, which had been the first in roughly two years. While the average ticket size increased by 2.1%, total transactions declined by 3.8%. Mitigating factors included growth in pro and online sales, with the latter up 6%, and strategic investments in the pro business, such as the acquisition of Artisan Design Group. Despite beating EPS estimates, Lowe's stock fell 1% in morning trading, reflecting investor caution; prior to the report, the stock was down approximately 6% year-to-date, underperforming the S&P 500's 1% gain and rival Home Depot's (HD) 3.1% year-to-date decline. Lowe's reiterated its fiscal year 2025 guidance, projecting total sales between $83.5 billion and $84.5 billion and same-store sales to be flat to up 1%. A key concern is tariff uncertainty, as Lowe's sources 20% of its sales from China, potentially facing greater mitigation challenges compared to Home Depot, according to TD Cowen analysts.

Key Decisions for Investors

• Investors should carefully weigh Lowe's ability to achieve its reiterated full-year guidance against the persistent headwinds of weak DIY discretionary demand, housing market softness, and macroeconomic uncertainties.
• Monitor the impact of tariffs on Lowe's margins and sales, particularly given its 20% sourcing from China and potential competitive disadvantage compared to Home Depot in managing these costs.
• Assess the growth trajectory of Lowe's pro and online businesses, as these segments are crucial for offsetting the ongoing pressures in the DIY market and achieving sustained sales growth.