Lowe’s (LOW) stock surged past a buy point Wednesday as investors cheered a turnaround plan that includes the closure of its Orchard Supply Hardware business and aggressive inventory cuts across the the home improvement retailer.
Estimates: Analysts expected Lowe’s earnings to jump 27% to $2.02 a share, according to Zacks Investment Research. They forecast a 7% revenue gain to $20.81 billion. Same-store sales overall and in the U.S. are expected to rise 5%, according to Consensus Metrix.
Results: EPS of $2.07 on revenue of $20.89 billion. Same-store sales increased 5.2%, with U.S. home improvement comps up 5.3%.
Outlook: Full-year EPS of $4.50-$4.60, down from a prior view of $5.40-$5.50 and well below consensus of $5.44. Full-year sales to grow 4.5%, down from a prior view of 5% growth, with comps up 3% vs. a prior view of 3.5% growth.
“Exiting Orchard Supply Hardware and rationalizing inventory are the driving force behind the changes to Lowe’s Business Outlook,” said CEO Marvin Ellison in a statement. “Our strategic reassessment is ongoing as we evaluate the productivity of our real estate portfolio and non-retail business investments.”
Shares jumped 5.8% to close at 105.52 on the stock market today, decisively clearing a 101.43 cup-with-handle buy point in heavy volume. It had topped that pivot intraday July 19 but closed below it in light volume.
Larger rival Home Depot (HD), which reported earnings last week, dipped 0.6%. Home Depot was close to reclaiming a 201.70 buy point from a cup-with-handle base.
As with Home Depot, harsh spring weather hurt demand in Lowe’s outdoor categories during the first quarter. Home Depot said that its seasonal business rebounded from the first quarter, and Wall Street will likely be looking for the same from Lowe’s.
On the Home Depot earnings call, management remained upbeat about the home improvement industry and “the customer’s willingness to spend.” Home prices have risen in what has been a tight housing market. When home values increase, homeowners to likelier to be more motivated to undertake home-improvement projects.
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