Shares of Lowe’s (LOW - Free Report) fell 6% in morning trading on Wednesday after the company reported worse-than-expected second quarter fiscal 2017 results.
Lowe’s reported adjusted earnings of $1.57 per share, missing the Zacks Consensus Estimate of $1.62. The company also reported revenue of $19.495 billion, missing our estimate of $19.523 billion, although the company still grew 6.76% year-over-year.
Lowe’s poor earnings contrast sharply with their rival The Home Depot, Inc. (HD - Free Report) . Home Depot has been one of the few retail stocks that had a great earnings report this fiscal quarter. The company beat our earnings estimates while its comparable store sales were up about 6.3% year-over-year. In comparison, Lowe’s said their comparable sales rose only 4.5%.
In order to improve sales, Lowe’s plans to increase the number of hours their employees work in order to provide additional customer service face-to-face. “We believe this is the right strategy to more fully capitalize on strong traffic trends in what we believe is a supportive macroeconomic backdrop for home improvement,” said Robert Niblock, Lowe’s CEO.
However, because workers will need to be paid more, the company’s bottom line will take a hit. Lowe’s has lowered its guidance for the full fiscal year to $4.20 to $4.30 a share, well below our estimate of $4.62 per share.
This strategy could pay off in the long run, though. Customer service remains a large incentive for customers to choose Lowe’s over online retailers, like Amazon.com (AMZN - Free Report) , in order to get assistance on home improvements. “This is one category in retail where service really matters,” Brian Nagel, an analyst for Oppenheimer & Co., told CNBC this morning.
Lowe’s remains a Zacks Rank #3 (Hold), with a VGM score of ‘A.’
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