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Home Depot Rival Lowe's Soars Into Buy Zone On Strong Outlook, Q4

Home-improvement retailer Lowe's (LOW) forecast a strong year ahead and topped fourth-quarter estimates Wednesday, a week after Home Depot (HD) easily beat and gave a mixed outlook.

Adjusted earnings per share leapt 46% to 86 cents, better than forecasts for 79 cents. Revenue climbed 19% to $15.78 billion, above the consensus for $15.39 billion, helped the acquisition of Canada-based Rona last year.

Same-store sales jumped 5.1%, more than double the Consensus Metrix estimate of 2.2%, led by gains in kitchen products as well as lawn and garden offerings.

Total customer transactions grew 15.1% in Q4, with the average receipt up 3.6%, management said on a conference call with analysts.

Lowe's sees full-year EPS of $4.64, above consensus of $4.53, and sales up about 5%, implying $86.3 billion, easily above the Wall Street forecast of $64.6 billion. Comp sales are seen up 3.5% for the year, down from 4.2% in 2016.

"We've entered 2017 well-positioned to capitalize on a favorable macroeconomic backdrop for home improvement by continuing to execute on our strategies to expand customer reach and develop capabilities to anticipate and support their needs," said Chairman and CEO Robert Niblock in a statement.

Shares jumped 9.5% to close at 81.45 on the stock market today, breaking out from a 77.62 buy point and slipping back below the 81.50 high end of the buy zone. Home Depot rose 1.2% to 146.68, climbing further above buying territory after a January breakout.

In November, Lowe's, which has also focused more on online sales, characterized the home-improvement industry as "solid but moderating" but said the market's growth had "continued to outpace overall retail sales" through the back half of 2016.

Last week, larger rival Home Depot reported fourth-quarter results that topped expectations, helped by a "healthy housing market" and larger purchases of things like appliances and flooring.

Home Depot's larger, difficult-to-ship offerings and its customers' needs for immediate service might protect it more from Amazon (AMZN) than other retailers, Jared Wiesel, a partner at Revenue Analytics, noted last week.

Still, Home Depot's management during the company's earnings call last week touted "great strides" in its online business, including improvements to its mobile app, easier search functions and quicker checkout.

Roughly 45% of Home Depot's online orders in the U.S. were picked up in its stores, management said.

Meanwhile, homebuilder sentiment has remained elevated since the election, and rising mortgage rates could temporarily encourage more homebuyers to buy before rates drift higher.

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