Coverage: Lowe’s earnings disappoint, but online sales shine

Home improvement retailer Lowe’s Cos. posted disappointing earnings on Wednesday, but a surge in online sales reflected one bright spot for the company.

Aine Cain of Business Insider had the news:

Lowes.com saw a 16% jump in comparative sales, which Lowe’s CEO Marvin Ellison attributed to the chain’s commitment to refurbishing its online presence. Its same-store sales grew 3.5% in the most recent quarter.

Lowe’s has a history of technological misadventures — take its website’s habit of crashing on Black Friday, for instance — but Ellison said the company’s tech team was committed to ensuring “the site operates the way we need it to operate.”

Another prong of the company’s online strategy has centered on embedding “online merchants within core merchandising groups” as well as constructing a direct fulfillment center outside Nashville, Tennessee, according to Ellison.

Katherine Peralta of The Charlotte Observer reported that the retail’s makeover has just started:

Lowe’s has made some progress on its makeover, but the process is in its early stages, meaning there’s still a lot of work to do, Ellison told the Observer Wednesday. In fact, Lowe’s is in the first of three phases, which will take years to complete, he said.

In the past, the company struggled with serving its important pro customer, for instance. It slumped behind Home Depot, and it’s been slow to respond to tech innovation.

Some of the company’s early efforts to ramp up sales are paying off, Ellison said. For the first quarter, the Mooreville-based home improvement retailer reported mixed results Wednesday: Earnings fell short of expectations, triggering a 12% drop in its stock price. But same-store sales, which refers to stores open for at least one year, outpaced Home Depot’s. Same-store sales are an important metric in retail because they gauge the health of the company.

The same-store sales results are an indication that “customers are responding to our changes, and our approach to retail fundamentals is working,” Ellison said in a call with analysts. “Retail fundamentals” is a term he uses to describe initiatives like making sure in-demand products are fully stocked in stores, and improving the company’s supply chain to make sure deliveries are made efficiently.

Maggie Fitzgerald of CNBC.com reported that the company had higher costs and slashed its forecast:

For fiscal 2019, Lowe’s estimates total sales will rise 2%, while same-store sales are expected to increase 3%.

Lowe’s expects net income for fiscal 2019 will be in the range of $5.54 to $5.74 per share. On an adjusted basis, it will earn between $5.45 and $5.65 per share.

Last quarter, Lowe’s said it expected to earn $6 to $6.10 per share on revenue growth of about 2%. It predicted, at the time, that same-store sales would rise about 3% in fiscal 2019.

Despite the lower forecast and earnings miss, Nagel was upbeat about the results.

“I think when the dust clears on this, it’s going to be a positive. The market’s going to say Lowe’s has been under-managed for a very long period of time. They figured out what they need to do, they’re starting to see the results in better sales,” Nagel said, adding that extra investment is needed in the near term.