Still playing catch-up: Lowe’s falls short despite better economy, focus on pros

Lowe’s Cos. shares fell 3 percent Wednesday after the Mooresville-based home improvement retailer reported first-quarter earnings and sales that fell below Wall Street expectations.

The disappointing results come at a critical time for Lowe’s. The company has been working to catch up to its larger rival, Atlanta-based Home Depot, which has consistently outperformed it. Lowe’s is aiming to close the gap by improving its offerings to its lucrative professional customer base, and through cost-saving efforts such as layoffs at the corporate and store level.

Helped by rising home values and an improved job market that has emboldened customers to spend more, home-improvement has consistently been a sector that has outperformed traditional retail, which has felt the pinch from e-commerce companies such as Amazon.com.

The economic tailwind, however, wasn’t enough to boost results at Lowe’s, contrasting with results at its rival. Last week, Home Depot posted profit and revenue figures that topped Wall Street expectations, thanks to increased spending by customers who are investing more on gardening projects and on big-ticket items.

In an interview with the Observer, Lowe’s CEO Robert Niblock said the company will continue to invest in its professional customer base, which is growing faster than the do-it-yourself customer base. Professionals, such as contractors, reliably and frequently place larger-than-average orders, too.

Part of the focus on the professionals includes adding more brands that these customers like, and continuing to improve the Lowe’s for Pros website, Niblock said. As part of that effort, Lowe’s last week said it is acquiring a Houston company called Maintenance Supply Headquarters for $512 million.

Niblock also didn’t rule out further cost-saving initiatives, such as layoffs. Earlier this year, Lowe’s cut 2,400 full-time jobs, mostly at the store level, as part of an overhaul of its staffing model. The next month, the company cut more than 500 full-time corporate jobs, including 430 at its headquarters in Mooresville and 70 support staffers in Wilkesboro.

“We think it’s going to make us a more nimble organization. We’ll continue to invest in opportunities … to address the way we interact with customers,” Niblock said.

For the three months that ended May 5, Lowe’s reported earnings of $602 million, down from $884 million in the same period a year ago. On an adjusted basis, earnings per share came to $1.06, short of the Zacks Investment Research estimate of $1.07 per share. Lowe’s said sales for the quarter totaled $16.86 billion, short of the Wall street estimate of $17.04 billion.

Lowe’s said first-quarter earnings included a $464 million pre-tax loss related to a previously announced move to retire debt.

The retailer’s highest-performing categories were indoor products, such as appliances, flooring, tools and hardware. Outdoor items – such as lawn and garden, millwork and paint – performed below average, the company said.

“A solid macroeconomic backdrop, combined with our project expertise, drove above average performance in indoor projects. We also continued to advance our sales to pro customers, delivering another quarter of comparable sales growth well above the company average,” Niblock said in a statement.

Lowe’s shares closed down a little over 3 percent at $79.85.

This story was originally published May 24, 2017 at 7:47 AM with the headline "Still playing catch-up: Lowe’s falls short despite better economy, focus on pros."