Lowe's Cos. Inc. on May 22 reported lower-than-expected EPS for the first quarter due to weaker margins. The company lowered its guidance for the fiscal full year, causing its stock price to slide 9% in premarket trading.
The U.S.-based home improvement company reported net profit of $1.05 billion for the quarter ended May 3 compared to net profit of $988 million in the year-ago period. Adjusted diluted earnings per share was $1.22, up from $1.19 in the first quarter of 2018. The company was projected to report normalized EPS of $1.33 based on consensus analyst estimates compiled by S&P Global Market Intelligence.
In premarket trading on the NYSE, Lowe's shares fell 9% to $100.95.
Net sales rose 2.2% year over year to $17.74 billion from $17.36 billion while comparable sales increased 3.5%. Despite that increase, "the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter, which impacted earnings," said CEO Marvin Ellison, in a statement. "We are taking the necessary actions to more systematically analyze and implement retail price changes to mitigate cost pressure."
Ellison added that he expects Lowe's to deliver improved gross margins over the balance of the year.
For fiscal 2019, Lowe's now expects GAAP diluted EPS ranging from $5.54 to $5.74, lower than the $6.00 to $6.10 range it had forecast as recently as February. It also expects an adjusted diluted EPS of $5.45 to $5.65 for the full fiscal year, which ends Jan. 31, 2020. However, the company stood by its previous forecast of a 2% increase in overall sales and a 3% increase in comparable sales for the full year.
In 2018, the Mooresville, N.C. company, which operates about 2,000 stores, said it was planning to exit its Mexico retail operations and sell the operating business. However, it later decided to sell the assets of that business, which led to an $82 million tax benefit in the latest quarter. The tax benefit offset $12 million of pretax operating costs for the Mexico retail operations in the quarter, Lowe's noted.
Lowe's, whose performance in recent years has lagged that of its chief rival Home Depot Inc., hopes to improve market share by restocking shelves more quickly, serving contractors better and targeting some of the $730 billion in sales currently taken by regional players. In the latest quarter, "our commitment to improving in-stocks and customer service coupled with our focus on winning with the [professional] customer were integral to driving improved sales," Ellison said.