Mooresville-based Lowe’s reported another quarter of disappointing earnings Wednesday morning as the retailer continues to work to catch up to its chief rival, Home Depot.
A strengthening housing market has provided tailwinds for home-improvement retailers, but Lowe’s still lags behind its larger competitor. Lowe’s shares closed at $89.70, down nearly 6.4 percent.
Also Wednesday, Lowe’s announced that it is becoming the exclusive retailer for Sherwin-Williams’ paint products. The investment is intended to make Lowe’s a destination for do-it-yourself (DIY) customers, as painting is a top DIY home project.
The deal’s also intended to strengthen Lowe’s appeal to its fast-growing and lucrative base of professional customers. With its popular products like the Purdy-brand paintbrush, Sherwin-Williams has long been recognized as a top pro brand, the Lowe’s spokeswoman said.
The partnership, however, does not make Sherwin-Williams a private label, nor does it impact store staffing, the spokeswoman said. The Sherwin-Williams deal is similar to one Lowe’s struck last year, in which Lowe’s said it was selected to start selling Craftsman-brand tools in the second half of 2018.
Rising home values and a stronger labor market have helped encourage consumers to spend more on home-improvement projects, and that’s helped drive traffic at Lowe’s and Home Depot stores.
Sales for the quarter came to $15.49 billion, beating the Wall Street estimate of $15.29 billion. Same-store sales, a key metric used to gauge a retailer’s health that refers to sales at stores open at least one year, rose 4.1 percent.
But Lowe’s said fourth quarter net income was $554 million, or 67 cents a share. Adjusted for non-recurring costs, quarterly profit was 74 cents a share, below the 88-cents-a-share estimate from analysts surveyed by Zacks Investment Research.
“Let me be clear that our entire leadership team and board are focused on working together to continue to analyze our performance and business expectations, and we are moving forward with urgency to improve our results,” CEO Robert Niblock said in a call with analysts.
In a research note Wednesday, Credit Suisse analyst Seth Sigman said same-store sale growth in the U.S. has been better than expected. But, Sigman wrote, “the gap with (Home Depot) widened, and (Lowe’s) still seemed to perform below the industry during the period.”
Last week, Home Depot reported earnings that topped expectations thanks to continued strengthening in the housing market. The Atlanta company’s same-store sales surged 7.5 percent.
The hedge fund D.E. Shaw began building up an activist stake in Lowe’s last year as the company continued to lag behind Home Depot. Bloomberg first reported on the activist stake, and that D.E. Shaw may “use its holding to agitate for changes at Lowe’s.”
In a research note, RBC Capital Markets Scot Ciccarelli noted that Lowe’s looks to be prioritizing reinvesting in its business, rather than working to improve its margins, which saw the biggest decline in years last quarter. Boosting margins is something activist investors may have preferred, he said.
“It appears the longer-term health of the company won out,” Ciccarelli said.
The Associated Press contributed