Self-inflicted wounds lead to holiday sales below internal expectations

front entrance of Lowe's store

Lowe’s Companies Inc. (NYSE: LOW) reported adjusted earnings per share (EPS) of $0.94 for its fiscal fourth quarter, which ended on January 31, $0.03 better than the consensus estimate.

On the company’s earnings conference call, management said that while it had a strong holiday season, it fell short of internal expectations as the holiday marketing activity should have been launched earlier in November and not as close to Black Friday as it was.

The Mooresville, North Carolina-based home improvement retailer reported net sales growth of 2.4% year-over-year to $16 billion. Comparable sales from the U.S. segment increased 2.6%, almost entirely generated from its brick and mortar stores.

Lowe’s Key Performance Indicators

In the quarter, the company reported an online sales increase of only 3%, significantly lower than the industry and its retail home improvement competitor, The Home Depot Inc. (NYSE: HD), which reported online sales growth of 20.8% year-over-year for its fiscal fourth quarter, which was reported on February 25. Lowe’s management said that the re-platforming of the “not very customer-friendly” website to a cloud application is ongoing and presented a headwind to online sales in the period.

Management called out the West region as the strongest performing region in the quarter and noted specific strength in the Atlanta, Baltimore, Dallas, Houston and Nashville markets.

Average tickets increased 3% year-over-year, with total transactions moving 0.5% lower. Transactions under $50 declined 0.3% due to warmer winter weather, which resulted in lower sales of ice melt and pellet fuel. Large ticket transactions, greater than $500, increased the most at 3.8%.

Lowe’s incurred $185 million in pre-tax operating costs and charges associated with the closure of 28 of the planned 34 Canadian store closures and the exit of its Mexican business.

Net inventories closed the 2019 fiscal year 4.9% higher year-over-year at $13.2 billion.

Lowe’s fiscal 2020 guidance calls for total sales growth of 2.5% to 3% with comparable sales increasing 3% to 3.5%. Adjusted operating income is expected to increase approximately 8% to 12% with adjusted EPS of $6.45 to $6.65, lower than the current consensus estimate of $6.67.

Management expects its year-over-year growth to be “slightly” back-half loaded in fiscal 2020 as it continues to advance a variety of initiatives including its ecommerce platform, a new labor management system and the rightsizing of its geographic footprint.

In 2019, Lowe’s made progress on its $1.7 billion supply chain investment initiative by adding three new bulk distribution facilities and four cross-dock terminals.

Lowe’s ended the 2019 fiscal year with 1,977 home improvement stores with 208.2 million square feet of retail space.

Shares of LOW are 4% lower on the day.

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