Lowe's Q1 Earnings & Sales Beat Estimates, Comps Decline 1.7% Y/Y

Lowe's (LOW) reported Q1 fiscal 2025 results exceeding EPS and revenue estimates, though both declined year-over-year to $2.92 and $20.93 billion, respectively; comparable sales decreased by 1.7%. Despite housing market headwinds, Lowe's maintained a focus on customer service and strategic investments, leading to improved customer satisfaction. The company projects FY25 sales between $83.5 billion and $84.5 billion, with comparable sales flat to up 1% and EPS in the range of $12.15-$12.40.

Analysis

Lowe's Companies, Inc. (LOW) reported first-quarter fiscal 2025 results that, while surpassing Zack Consensus Estimates for both earnings and revenue, reflected year-over-year declines amidst a challenging housing market. Earnings per share were $2.92, a 4.6% decrease from the prior year, and net sales fell 2% to $20.93 billion. Comparable sales declined 1.7%; this was better than internal expectations, aided by mid-single-digit growth in Pro and online comparable sales which partially offset adverse weather impacts early in the quarter. The company's gross margin expanded 20 basis points year-over-year to 33.4%, slightly ahead of expectations. However, operating margin contracted by 50 basis points to 11.9%, a smaller decrease than analysts had envisioned, impacted by a 0.9% rise in SG&A expenses which increased as a percentage of net sales by 50 basis points to 19.3%. Lowe's generated $3.38 billion in operating cash flow and returned $645 million to shareholders via dividends during the quarter. Management's fiscal 2025 outlook projects total sales between $83.5 billion and $84.5 billion, comparable sales growth of flat to 1%, an operating margin between 12.3% and 12.4%, and EPS in the range of $12.15-$12.40, signaling expectations of stabilization and modest improvement despite ongoing market headwinds and strategic investments in technology and customer service.

Key Decisions for Investors

• Investors should closely monitor the performance of Pro and online sales channels, as their continued mid-single-digit growth is pivotal for achieving the company's comparable sales guidance of flat to +1% in fiscal 2025.
• Careful attention should be paid to Lowe's ability to manage Selling, General & Administrative (SG&A) expenses and consequently improve its operating margin towards the guided 12.3%-12.4% range, especially given the 50 basis point contraction in Q1.
• Given the mixed signals of estimate beats against year-over-year declines and a cautious fiscal 2025 outlook, investors might consider the current Zacks Rank #3 (Hold) as indicative of a need to weigh the potential for guided stabilization against persistent macroeconomic pressures on consumer discretionary spending and the housing market.