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Lowe’s is investing in store revamps that should benefit the professional business, the company said.
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Cities were areas of growing sales activity for Lowe’s Cos. LOW, +1.94%, outpacing more remote areas during the most recent quarter.
“Regions that outperformed the total company [comparables] were Atlanta, Houston, Los Angeles and New York,” said Lowe’s Chief Executive Marvin Ellison on the Wednesday earnings call, according to a FactSet transcript.
“We also continue to see strong sales trends in urban areas. In fact, comp sales in our urban markets outperformed remote or rural markets by over 500 basis points. Our strength in our urban markets reflects the improvements we made to our product and services offerings for the Pro customer, as well as enhanced omnichannel capabilities to serve customers increasingly shopping online.”
Lowe’s has made the professional customer a bigger focus, driving greater competition with its chief rival, Home Depot Inc. HD, +0.40%
Lowe’s professional comps exceeded 20% during the third quarter.
“The company is benefiting from pandemic-related spending shifts, a strong housing market and outsized exposure to the outdoor categories versus Home Depot,” wrote Wedbush analysts.
“However, Lowe’s results also demonstrate success from its ‘retail fundamentals’ strategy, with Pro sales growth improving, gross margins rising from pricing and promotion initiatives, a near-completed shift of 20% store labor hours shifting to selling from tasking and online sales growth topping +100% for the second straight quarter after re-platforming the website.”
Wedbush rates Lowe’s stock outperform with a $180 price target.
Ellison says there’s still much more growth ahead for the DIY retailer’s online business, which only accounts for 7% of its sales.
Lowe’s reported third-quarter profit and sales that beat expectations and expects fourth-quarter same-store sales to exceed the FactSet consensus.
Raymond James analysts say growing that Pro business is part of the reason it’s maintaining its market perform stock rating.
“[W]e expect a more muted near-term recovery relative to peers,” analysts led by Matthew McClintock wrote.
“This is mostly due to Lowe’s least amount of Pro exposure combined with the need to spend a notable amount of capital on long-term supply chain projects. Although investments in bulk distribution centers, e-commerce fulfillment centers, and cross dock delivery terminals is critical in this digitally-driven environment, this should lead to lower profit flow-through in the short-term for Lowe’s relative to Home Depot.”
Lowe’s says it launched a “significant” merchandising investment during the third quarter to revamp its U.S. stores so that they focus more on particular projects, something that should appeal to professional customers and improve sales per square foot.
Watch: Why home builders are on the rise despite the pandemic
In the fourth quarter, the company expects to incur $150 million in merchandising investment expenses. The fourth quarter is typically Lowe’s smallest quarter for revenue, executives said.
“We believe Lowe’s can continue strong earnings growth as favorable consumer spending and housing market conditions remain intact,” wrote Edward Jones in a note.
“We expect the new, but very experienced management team will aggressively aim to seize the profit margin potential that we believe exists. We believe this, combined with several avenues to drive sales growth and a business model less impacted by internet retailers will lead to double-digit earnings growth.”
Edward Jones rates Lowe’s stock buy.
Lowe’s shares have gained 25% for the year to date while the S&P 500 index SPX, +0.39% is up 10.9% for the period.
