Lowe’s Cuts Earnings Outlook, Citing Cost Pressures

(Bloomberg) -- Lowe’s Cos. raised doubts about its turnaround as the home-improvement retailer reported lower-than-expected quarterly earnings and cut its full-year profit forecast, citing cost pressures. Shares fell as much as 12% on Wednesday -- the most intraday since 2008.

• Adjusted earnings per share this year will be between $5.54 and $5.74, down from a prior outlook of $6 to $6.10. First-quarter profit, excluding some items, trailed analysts’ estimates.

Key Insights

• Demand is fine at the retailer, with Chief Executive Officer Marvin Ellison calling the U.S. consumer “healthy” and Lowe’s comparable sales beating those of bigger rival Home Depot Inc. But it’s costs, not demand, that dragged down results.
• Lowe’s took on cost increases from suppliers last year, Ellison said in an interview, but failed to offset that with boosting retail prices. That eroded profitability. Ellison said poor procedures, which the company is now fixing, were to blame. Lowe’s is now raising prices, which Ellison expects to lead to gross-margin improvements in the second half.
• The pricing issue will still weigh on gross margin in the second quarter, however. Margins also took a 0.25 percentage point hit from President Trump’s tariffs.
• “We made a lot of progress, but our transformation is clearly ongoing,” Ellison said on a call with analysts. The company’s results took a hit because of bad weather, with same-store sales falling 1.4% in February before they rebounded 3.5% in March and 7.2% in April.

Market Reaction

• The shares fell to as low as $98.03 on Wednesday. The stock had gained 20% this year through Tuesday’s close.

Get More

• For more on the results, click here.
• For the company statement, click here.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, Lisa Wolfson

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