Lowe’s is one of the biggest home improvement company in North America with more than 2,200 stores across the U.S and Canada. It is a one-stop shop for both do-it-yourself (DIY) customers and professional contractors and serves around 18 million customers per week – which is crazy by any means.
Here are eight things I learned from lowe’s Q3 2022 earnings call:
Performance
Net sales of $23.5B (beat by $318M) with 2.4% YoY due to better-than-expected transaction trends. Lowe’s U.S. same store sales grew by 3%, driven by a 19% YoY increase in its professional segment and improved do-it-yourself sales trends
2022 Sales Guidance is now $97B-$98B (including an extra week in 2022 that is expected to contribute ~1.0B – 1.5B in sales). This represents comparable sales of flat to a decline of 1% as compared to prior year.
Gross Margins at 33.3% of sales improved 0.2% YoY. Product margin was up 1.1% YoY but partially offset by higher domestic and import transportation costs, as well as the expansion of Lowes supply chain network.
Operating Margins at 12.7% of sales, which was an improvement 0.54% YoY. The improvement in operating margins is primarily driven by higher gross margin and SG&A leverage. The Company now expects an operating margin in the north of 13.0% for 2022.
The Company reported an EPS of $3.27 which represents a 20% increase YoY. The reported EPS beat expectations by $0.18. This was primarily due to strong comps, SG&A leverage and share repurchases. The Company also raised its full-year EPS guidance to $13.65 – $13.80 (from $13.10 – $13.60).
Shareholder Returns
In Q3, Lowe generated a Free Cash Flow of $1.7B.
The Company returned $4.7B to shareholders via share repurchase and dividends. In Q3, Lowe’s repurchased 20.5 million shares for $4B and distributed $666 million in dividends, representing $1.05 per share.
Questions & Answers
An analyst was concerned that the impact of current macroeconomic factors on the home improvement segment impact may have a lag so the current indicators may not reflect the slowdown in home improvement market?
CEO Marvin Ellison was positive about the growth of home improvement market even in the current macroeconomic environment. Mr. Ellison added that home improvement is highly correlated with three factors:
- Home Price Appreciation
- Age of Homes
- Disposable Personal Income
While home prices have declined recently, it remains a fact that home prices have appreciated over the years. Homeowners on average held an equity of about $330,000 per home. He mentioned that consumer savings are also near record high coming out of the pandemic. Second, the average age of homes in the U.S is ~40 years and approximately 3 million homes in U.S were built during the housing boom during the mid-2000. This means that they will require heavy repairs and maintenance by 2025. This may support the home improvement demand in the near-term even in the rising interest rate regime.
An analyst asked about the supply chain pressure felt during and after pandemic. While these pressures are easing, he asked if the CEO expects any tailwinds in the coming quarters once the supply chain bottlenecks are reduced?
The CEO acknowledged that the elements of supply chain will reduce some costs in the next year. In addition, LOW is progressing on some strategic initiatives to drive the supply chain transformation process that will help us improve in the future.