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Following in the footsteps of rival Home Depot (HD), Lowe's (LOW) delivered a beat-and-raise Q3 earnings report as the home improvement retailer saw stronger demand for smaller-ticket DIY items and continued to benefit from a more resilient Pro business. Like HD, the company also received a sales boost from the preparation and recovery efforts surrounding Hurricanes Milton and Helene. However, these positive factors were already widely anticipated following HD's results, placing the focal point on LOW's guidance. Although LOW lifted its FY25 EPS, revenue, and comparable sales guidance, the magnitude of the increase was modest and mostly just incorporated the upside from its Q3 results, suggesting that the anticipated improvement in demand isn't materializing just yet.

• Bolstered by high-single-digit growth in the Pro business and healthier demand for smaller-ticket outdoor products, comparable sales improved to (1.1)% from (5.1)% last quarter. Still, LOW continued to encounter weak spending trends for larger projects as higher-for-longer interest rates keep a lid on the housing market and prevent consumers from tackling remodeling jobs that oftentimes require financing.
• For the seventh quarter in a row, total sales declined on a yr/yr basis at (1.5)% for Q3 and LOW's updated FY25 guidance indicates that streak will continue in Q4. Based on the midpoint of LOW's FY25 revenue guidance, the company is forecasting a decrease of about 2% for Q4. In addition to the stubbornly sluggish demand for big-ticket categories, LOW and other retailers are facing a shorter-than-normal Black Friday shopping period since Thanksgiving falls later in the month this year.
• LOW did keep a far more positive streak intact, too. Specifically, the company exceeded EPS expectations yet again, thanks to a combination of solid cost control (SG&A expenses up just 1.7%) and share buybacks (repurchased 2.9 mln shares in Q4). The last time that LOW fell short of EPS estimates was 3Q20.

The main takeaway is that HD's beat-and-raise performance from last week raised the bar for LOW. With improved Q3 results anticipated, investors are homing in on LOW's updated FY25 guidance, looking for signs that the long-awaited recovery in demand is finally materializing. The modest bump in LOW's forecast is creating some disappointment, indicating that the Federal Reserve's interest rate cuts have yet to provide a meaningful spark.