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Lowe's (LOW) on Track to Boost Market Share, Updates View

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With home improvement projects being widely undertaken amid the pandemic, Lowe’s Companies, Inc. (LOW - Free Report) is ramping up assortments to meet higher consumer demand and boost its market share.  Progressing on these lines, the company introduced the Total Home strategy that includes providing complete solutions for various types of home repair and improvements needs. The strategy is an extension of the company’s retail-fundamentals approach.

Additionally, the company provided its outlook for fiscal 2020, while reiterating its view for the fourth quarter. In order to maximize shareholder returns, the company announced a new share repurchase authorization of $15 billion. Let’s take a closer look at these latest moves.

Strengthening Footing in Home Improvements Arena Bodes Well

Prudent measures to widen assortments and omni-channel capabilities have helped Lowe’s to emerge into a strong player in the home improvements arena. Its latest Total Home strategy targets to provide everything that homeowners need for renovation and remodeling work in every area of the house. The offerings are likely to benefit both Pro and DIY (do-it-yourself) customers. Moreover the strategy includes boosting offerings across all categories of home decor, including simple and complex installations as well as paint.

Management highlighted that the new strategy is likely to further strengthen customer engagement and market share, especially through the intensified focus on Pro customers. Moreover, the initiative encompasses improving online business, refurbishing installation services and enhancing localization efforts.

We note that home improvements projects are being widely adopted to suit the increased work-from-home, remote schooling and entertainment needs amid the coronavirus pandemic. Lowe’s has been significantly benefitting from such trends, as exemplified in its third-quarter fiscal 2020 results. During the quarter, the company’s comparable sales in U.S. home improvements business rallied 30.4% backed by broad-based growth across all merchandising departments, DIY and pro customers as well as growth in store and online.

These apart, we note that the company’s home improvement business is gaining from sturdy omni-channel offerings. The company focuses on enhancing customers’ online shopping experience by improving services such as online delivery scheduling, search and navigation features as well as order tracking. Speaking of delivery capabilities, the company is on track with installing Buy Online Pickup in Store self-service lockers across all U.S. stores. Going ahead, management believes that its online business model has tremendous potential to grow, backed by an efficient technology team and superior cloud-based platform.

Boosting Shareholder Returns

Share repurchasing actions are a prudent way of maximizing shareholder’s wealth and generating more value. During the third quarter, Lowe’s restored its previously-suspended share repurchase program and bought back 3.6 million shares for $621 million. In the first nine months of fiscal 2020, which includes share repurchases made before suspension, the company repurchased shares worth $1,528 million.  

The latest buyback authorization of additional $15 billion worth common stock adds to the company’s previous share repurchase program balance of $4.7 billion. We note that a strong financial position backed by robust cash flows over the years has enabled Lowe’s to support growth initiatives and prudent capital allocation.

Outlook Indicates Growth

For fiscal 2020, total sales are expected to rise 22% year-on-year, while comparable sales are expected to rise 23%. Adjusted operating margin is expected to increase 170 basis points. Further, adjusted earnings are expected in the bracket of $8.62-$8.72 per share. Markedly, the Zacks Consensus Estimate for earnings for fiscal 2020 is currently pegged at $8.71. We note that the company’s bottom line amounted to $5.71 in fiscal 2019.

Additionally, the company reiterated its earlier guided figures for the fourth quarter of fiscal 2020. As previously stated, the company expects to achieve total sales and comparable sales (comps) growth in the range of 15-20% in the fourth quarter. Further, adjusted operating margin is expected to remain flat. Also the bottom line is expected in the range of $1.10-$1.20. The bottom line expectations reveal an increase from earnings of 94 cents a share in the year-ago quarter. Notably, the Zacks Consensus Estimate for earnings for the fourth quarter is currently pegged at $1.18.

Wrapping Up

We expect Lowe’s to keep gaining from consumers’ inclination toward home improvements, core-repair and maintenance activities. Lowe’s efforts to boost home improvements assortments and services are worth applauding. We expect such prudent measure to show on its performance in the forthcoming periods. Moreover, the company’s view for the fourth quarter and the fiscal year stirs optimism.

Markedly, this Zacks Rank #3 (Hold) company’s shares have gained 29.2% in the past six compared with the industry’s 17.2% rise.

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