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Why Is Lowe's (LOW) Down 11.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Lowe's (LOW - Free Report) . Shares have lost about 11.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lowe's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lowe's Q2 Earnings Beat Estimates, Sales Decline Y/Y

Lowe’s delivered mixed second-quarter fiscal 2022 results, with the top line lagging the Zacks Consensus Estimate and the bottom line beating the same. Also, earnings improved from the previous fiscal year’s quarterly reading on a higher operating margin.

Quarter in Detail

Earnings per share (EPS) of $4.67 surpassed the Zacks Consensus Estimate of $4.63 and rose 9.9% from the EPS of $4.25 recorded in the second quarter of fiscal 2021.

Net sales of $27,476 million fell 0.3% year over year and came below the Zacks Consensus Estimate of $28,195 million. Comparable sales dipped 0.3% in the quarter under review. Comparable sales for the U.S. home-improvement business rose 0.2% in the reported quarter. Pro-customer sales jumped 13%, recording the ninth consecutive quarter of a double-digit increase.

Gross profit dipped 1.9% year over year to $9,133 million, while gross margin contracted 54 basis points (bps) to 33.24%. Operating income amounted to $4,229 million, up 0.5% year over year. Operating margin expanded 12 bps to 15.39% on gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative.

Other Financial Aspects

LOW ended the quarter with cash and cash equivalents of $1,482 million, long-term debt (excluding current maturities) of $28,763 million and a shareholders’ deficit of $8,442 million.

Lowe’s generated cash flow from operations of $6,012 million for the six months ended Jul 29, 2022. Capital expenditures amounted to $687 million. For fiscal 2022, LOW expects capital expenditures of nearly $2 billion.

In the reported quarter, Lowe’s bought back 21.6 million shares for $4 billion and paid out dividends of $524 million. LOW expects to repurchase nearly $12 billion of shares in fiscal 2022.

Outlook

Management reiterated guidance for fiscal 2022. LOW expects revenues of $97-99 billion (including the 53rd week). The 53rd week is likely to increase sales by $1-$1.5 billion. In fiscal 2021, Lowe’s revenues amounted to $96.3 billion.

Comparable sales in fiscal 2022 are envisioned in the range of a decline of 1% to a rise of 1%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Lowe's has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lowe's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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