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Will Lowe’s (LOW) Initiatives be Able to Revive the Stock?


A glimpse of Lowe's Companies, Inc. LOW share price movement reveals that it has plunged roughly 11% in the past three months in line with the industry. We also note that the Zacks Consensus Estimate of $5.53 and $6.12 for fiscal 2018 and 2019 has declined by 33 cents and 54 cents, respectively, in the past 60 days. So what is behind the dismal show in the bourses? Why analysts polled by Zacks are skeptical about the company’s performance? Are the initiatives undertaken by management enough to revive the stock?

What Hurt the Stock?

Lowe’s stock took a sharp U-turn after the company missed fourth-quarter earnings and provided soft fiscal 2018 view. The company’s earnings of 74 cents per share fell short of the Zacks Consensus Estimate of 88 cents. Further, the company expects fiscal 2018 earnings in the band of $5.40-$5.50 per share, which was significantly below the analyst expectations. As mentioned above, estimates have been witnessing downward revisions.

Lowe’s faces stiff competition from Home Depot HD and other home supply retailers on attributes such as price and quality of merchandise, in-stock consistency, merchandise assortments and customer service. This may weigh on the company’s upcoming results. We noted that in the fourth, third, second and first quarters of fiscal 2016, gross margin had contracted 25, 40, 10 and 43 basis points, respectively. In the first, second, third and fourth quarters of fiscal 2017, margin declined a respective 64, 23, 28 and 70 basis points to 34.4%, 34.2%, 34.1% and 33.7%.

Management Looking Into Every Nook and Corner

We believe improving job scenario, gradual recovery in the housing market and merchandising initiatives along with efforts to enhance omni-channel capabilities bode well for Lowe’s. The company’s Canadian and Mexican businesses has been performing quite well. The buyout of RONA is reinforcing its position in the Canadian market.

Lowe's Canada entered into a strategic partnership with Solar Brokers Canada to provide solar energy installation services to homeowners under Lowe's Solar banner. Of late, the company has been focusing on maintenance, repair and operations products, evident from its acquisition of Maintenance Supply Headquarters and also the earlier buyout of Central Wholesalers.

Further, Lowe’s has refurbished its pro-service business website, LowesForPros.com, in order to cater to the needs of its Pro-customers. The company’s efforts to focus on Pro customers is yielding results, which is quite evident from the fact that Pro growth rate in the fourth quarter and fiscal 2017 has outpaced do-it-yourself.

The company is streamlining store portfolio, which along with its strategy of enhancing customer shopping experience and merchandising transformation, is likely to generate incremental sales. We noted that comparable sales (comps) rose 4.1% in the fourth quarter, following an increase of 5.7%, 4.5% and 1.9% recorded in the third, second and first quarter, respectively. Management projects total sales growth of approximately 4%, with comps increase of about 3.5% for fiscal 2018.

We believe that these initiatives are likely to bolster Lowe’s performance and provide cushion to this Zacks Rank #3 (Hold) stock.

2 Key Picks in the Retail Space

Fastenal Company FAST has a long-term earnings growth rate of 14% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tailored Brands TLRD delivered an average positive earnings surprise of 50.9% in the trailing four quarters. It has a long-term earnings growth rate of 16.5% and a Zacks Rank #2.

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