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Lowe's (LOW) Misses Q3 Earnings, Trims FY16 EPS Outlook

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Lowe’s Companies Inc.’s (LOW - Free Report) top and bottom-line missed the Zacks Consensus Estimate for the second consecutive quarter, as the company reported third-quarter fiscal 2016 results. The lower-than-expected results compelled management to trim its full-year earnings forecast.

As a result, the stock lost favor with investors and declined 5.7% during the pre-market trading hours. Even the year-over-year increases in the top and bottom-line failed to provide cushion to the stock.

The home improvement retailer posted adjusted earnings of 88 cents per share that missed the Zacks Consensus Estimate of 96 cents but grew 10% from 80 cents delivered in the year-ago quarter.

Net sales of $15,739 million also fell short of the Zacks Consensus Estimate of $15,798 million but grew 9.6% year over year. The increased sales can be attributed to its efforts to provide a better omni-channel customer experience and an improvement in the housing market. Comparable sales (comps) increased 2.7% on a consolidated basis during the quarter, while U.S. comps grew 2.6%.

LOWES COS Price, Consensus and EPS Surprise

LOWES COS Price, Consensus and EPS Surprise | LOWES COS Quote

Gross profit rose 8.4% year over year to $5,407 million, whereas gross profit margin came in at 34.4%, down roughly 40 basis points (bps) from the year-earlier quarter.

Other Financial Aspects

Lowe’s ended the quarter with cash and cash equivalents of $960 million, long-term debt (excluding current maturities) of $14,395 million and shareholders’ equity of $6,599 million, excluding non-controlling interest of $109 million.

During the quarter, the company kept its promise of returning value to its shareholders as it repurchased stock worth $550 million and distributed $309 million as dividends.


Following, dismal third-quarter results the company trimmed its fiscal 2016 earnings guidance.

For fiscal 2016, Lowe’s anticipates total sales growth (including the 53rd week) of approximately 9% to 10%, with the 53rd week expected to boost sales by 1.5%. Comps, on a consolidated basis, are estimated to grow about 3% to 4% during the fiscal year. Operating margin is expected to expand nearly 65 bps compared with the previous estimate of 50 bps.

Further, management now envisions fiscal 2016 earnings to be $3.52 per share, sharply down from the earlier projection of $4.06.

Moreover, the company intends to open 40 home improvement and hardware stores during fiscal 2016. As of Oct 28, 2016, the company operated 2,119 stores in the U.S., Canada and Mexico.

Zacks Rank & Stocks to Consider

Lowe’s currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the retail sector include Burlington Stores, Inc. (BURL - Free Report) , Zumiez, Inc. and The TJX Companies, Inc. (TJX - Free Report) all these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Burlington Stores delivered an average positive earnings surprise of 16.1% in the trailing four quarters and has a long-term earnings growth rate of 18.4%.

Zumiez delivered an average positive earnings surprise of 32% in the trailing four quarters and has a long-term earnings growth rate of 15%.

TJX Companies delivered an average positive earnings surprise of 5.3% in the trailing four quarters and has a long-term earnings growth rate of 10.7%.

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