Home improvement retailer Lowe's (LOW 90.31, -5.48, -5.7%) is a profitable company. It just wasn't as profitable in the fourth quarter as analysts were expecting and that has been a big problem for its stock today along with the understanding that the company isn't expecting to be as profitable in fiscal 2018 as analysts were expecting.
Another problem for Lowe's is that it just isn't measuring up to its main competitor, Home Depot (HD 186.39, +1.41, +0.8%), from a sales standpoint.
In the fourth quarter, Lowe's reported a 1.8% year-over-year decrease in revenues of $15.49 billion. Comparable sales were up 4.1%, driven by a 3.7% increase for the U.S. home improvement business.
Home Depot, which reported its fourth quarter results last week, achieved a 7.5% increase in revenue on a comparable-store sales increase of 7.5% that was driven by a 7.2% increase for U.S. stores.
To be fair, the comparable sales increase logged by Lowe's exceeded the company's own expectations, yet Lowe's couldn't leverage that growth into stronger earnings as a lower gross margin and higher SG&A expenses, as a percentage of sales, cut into its bottom line.
For the fourth quarter, Lowe's recorded net earnings of $554 million versus $663 million in the same period a year ago. On an adjusted basis, earnings per diluted share declined 14% year-over-year to $0.74, which was well below analysts' average expectation.
Lowe's said it is "...working diligently to improve execution with a focus on conversion, gross margin, and inventory management," and that it will be accelerating its strategic investments in 2018 to leverage the benefits of tax reform.
Nevertheless, the company's fiscal 2018 earnings outlook failed to impress. Lowe's is anticipating diluted earnings per share to be between $5.40 and $5.50, which is well shy of analysts' average expectation even at the high end of the guidance range. Total sales are expected to increase approximately 4% while comparable sales are forecast to be up approximately 3.5%.