Even with uncertainty in the economy, and continued pressure to compete for market share, Lowe's (LOW) strategy of "investing in ways that will better position itself for success" has had, and will continue to have a positive impact on sales, and profits going into fiscal year 2012.
For the period ending February 3rd, 2012, Lowe's revenue increased 11.0% to $11.6 billion, up from $10.5 billion in Q4 2010. Lowe's reported earnings of $322 million, or 26 cents per share, is up from a year-earlier when Lowe's reported a profit of $285 million, or 21 cents per share. The increased revenues were due to an increase in comparable store sales which was supported by Lowe's strategy of "investing in ways that will better position itself for success."
Overall in Q4 comparable store sales were up 3.4%. The U.S. had the most impact as comparable store sales were positive in all it's regions, with same store sales rising by 3.5%. Chairman, Ceo Robert A. Niblock states: "We delivered solid results for the quarter, including earnings per share that exceeded our guidance."
Lowe's strategy of "investing in ways that will better position itself for success" is paying off. To support this strategy Lowe's has invested in technology, store infrastructure and increased efforts to improve the customer experience. Lowe's Ceo, Robert A. Niblock believes these enhancements have paid off in 2011 and will pay off further in 2012.
Chairman, Ceo Robert A. Niblock states: "in December we outlined how we intend to build upon our core strengths and strategically invest in ways that will better position Lowe's for success. Among our top strategic priorities, we accelerated our investment in technology and store infrastructure in 2011 and increased our efforts to improve the customer experience. We also refined our pricing and merchandising strategies and processes. With these enhancements in place, we are well positioned to drive stronger comparable store sales growth and expanded operating margins in 2012."
Due to the strategic improvements, fiscal year 2012 looks to be strong for Lowe's. According to Lowe's Fourth Quarter Sales and Earnings Results the company is expecting the following:
- Total sales are expected to increase 1 to 2 percent. On a 52 versus 52 week basis, total sales are expected to increase approximately 3 percent.
- The company expects comparable store sales to increase 1 to 3 percent (52 versus 52 week basis).
- The company expects to open approximately 10 stores in fiscal year 2012.
- Earnings before interest and taxes as a percentage of sales (operating margin) are expected to increase approximately 100 basis points.
- Depreciation expense is expected to be approximately $1.5 billion.
- The effective income tax rate is expected to be approximately 38.1%.
- Diluted earnings per share of $1.75 to $1.85 are expected for the fiscal year ending February 1, 2013.
Even though fiscal year 2012 looks to be strong, Lowe's sees many challenges going forward. The economic uncertainty in North America and in particular in the U.S. will have a great impact on how much money the consumer will spend on their homes. Robert A. Niblock explains: "Economic news during the final months of 2011 and so far in 2012 has been somewhat positive creating a bit of relative optimism in the market. However, we know that future uncertainties are still weighing heavily on the consumer. As we look at 2012, we see nothing on the horizon that would dramatically improve home values or the employment situation."
Inflationary measures are also a concern for the company as inflation damaged the gross margin by 21 basis points in Q4. Inflation is driving up the prices of paint, building materials, rough plumbing and fashion electrical. Inflation is also causing higher fuel prices which has negatively impacted the gross margin by approximately 20 basis points.
Lowe's has been improving store structures to increase profits and compete for markets share with rival Home Depot (HD). In an article released by the financial post, analyst Matthew Fassler of Goldman Sachs (GS) states:
"A 5%-off program from Lowe's on a new private-label credit card will likely resonate well with the home improvement chain's consumers,
This move will clearly add a catalyst to tilt market share to Lowe's, in the wake of apparent share loss to Home Depot in recent quarters,"
Even with uncertainty in the economy, and continued pressure to compete for market share, Lowe's strategy strategy of "investing in ways that will better position itself for success" will have a positive impact in sales, and profits going into fiscal year 2012. Next year Lowe's should achieve estimated sales around $51.70 billion and profits around $2.2 billion.
1. Estimated Sales = $51.70 Billion
2. Estimated Profit Margin = 4.3%
3. Profit = $2.2 Billion
4. Shares Outstanding = 1.19 Billion
5. Estimated EPS = $1.85
6. Forward P/E = 18.70
LOW - Lowe's Companies Inc - Stock Price Target for 2012 = $34.59 USD
|20-Mar-12||Reiterated||Deutsche Bank||Buy||$31 → $35|
|07-Feb-12||Reiterated||Longbow||Buy||$29 → $33|
|Target, Reinitiate||Deutsche Bank||Buy||$35.00 « $31.00||03/20/12|
|Target||Goldman Sachs||Buy||$34.00 « $32.00||03/19/12|
|Upgrade||Nomura||Buy « Neutral||$40.00||03/13/12|
|Upgrade||Morgan Stanley||Equal Weight « Underweight||03/02/12|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.