December 1, 2022

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Lowe’s Seen Focusing on Market Share Gains — Analysis

4 min read

By Michael Dabaie

Next year is expected to be an investment year for Lowe’s Cos. with continued share gains, according to an analyst note after the home improvement retailer outlined its financial outlook.

Lowe’s on Wednesday forecast 2022 total sales of $94 billion to $97 billion, below the FactSet consensus for $97.6 billion, with 2022 comparable sales seen ranging from a decline of 3{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426} to flat. The FactSet consensus was for an increase of 1.7{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426}.

Lowe’s said it expects 2022 earnings per share of $12.25 to $13. The FactSet consensus was expecting EPS of $12.81 and adjusted EPS of $12.94.

“The sales outlook likely disappointed investors and includes a more subdued market outlook with sector demand forecasted to decline mid-single digits – suggesting further market share gains for Lowe’s,” Raymond James said in an analyst note. “However, overall macro factors remain supportive for the home improvement industry, with historical levels of home price appreciation, favorable housing turnover, higher than historical household formation, and longterm support from the age of housing stock.”

Raymond James said that Lowe’s currently has about an 11{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426} market share of a $900 billion total addressable market, and the retailer reiterated several initiatives for further consolidation.

“The overarching message of today’s event was that LOW sees an opportunity to drive continued market share gains across Pro and DIY and has levers to pull to expand operating margin even in a negative comp environment with a powerful capital allocation philosophy,” J.P. Morgan said in an analyst note.

Chief Executive Marvin R. Ellison outlined the company’s strategy for growing market share during the retailer’s conference call.

“Our Lowe’s Total Home Strategy has enabled us to accelerate our market share gains as we focus on five key growth areas of the business: intensifying our focus on the Pro, accelerating and modernizing our online business, expanding installation services, driving localization, and elevating our product assortment,” Mr. Ellison said in the call.

Lowe’s forecast that its sales performance will continue to outperform the market by about 300 to 400 basis points as it plans for continued gains in market share.

Chief Financial Officer David M. Denton said during the conference call, “We are reaffirming the 2021 financial outlook that we provided on our third quarter conference call, and I’m pleased to report that our quarter-to-date performance is tracking slightly ahead of our guidance.”

Morgan Stanley said in a note that Lowe’s comparable sales guidance could prove conservative as home improvement demand has consistently surprised to the upside in 2021 and U.S. housing fundamentals remain solid. “Few if any companies in our coverage will be able to deliver margin expansion next year. That LOW is guiding to margin expansion in ’22 highlights its confidence in the structural elements (dynamic pricing tools, localized assortment, productivity measures) of its transformation,” Morgan Stanley said.

Morgan Stanley also pointed to Lowe’s being one of the first companies in its coverage to provide an outlook for ’22. “Relative to other names in our sector whose sales/EBIT/EPS are likely to decline in ’22, LOW’s guide will likely prove among the strongest,” Morgan Stanley said.

Wedbush said that with a less sanguine sector outlook for 2022, it remains neutral on home improvement retail and continues to prefer Home Depot over Lowe’s given its higher exposure to the pro segment.

“After only growing in line with this market in 2021, LOW’s path to these share gains that are primarily through Pro-focused initiatives is not a given,” Wedbush said in an analyst note.

Wells Fargo said that despite guidance below its model, it views the Lowe’s update “with a bullish lens,” noting that the fiscal 2022 bar appears achievable and beatable and margin expansion is likely to continue, with or without topline growth.

“In FY22, we understand the cautious approach,” as the company laps stimulus and inflation-driven gains while the industry could experience some give-back following a two-year boom, Wells Fargo said. The analysts say they see ample external and internal drivers for comps and believe Lowe’s is setting the stage for beat and raise potential through 2022.

Shares were down 1.5{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426} to $253.70 in Thursday afternoon trading. The stock closed up 5{011941dee92f7e161bd8a30615b46c669052522d707db6b18bff3298986a0426} Wednesday.

Write to Michael Dabaie at [email protected]