Lowe's delivered fiscal fourth-quarter results that topped Wall Street forecasts, yet its stock dropped more than 4% on Wednesday as the company signaled a cautious outlook ahead.
The home improvement giant reported adjusted earnings per share of $1.98 against analyst expectations of $1.94, while revenue came in at $20.58 billion versus the $20.34 billion consensus, representing roughly an 11% year-over-year increase from $18.55 billion. CEO Marvin Ellison told CNBC the company is "still dealing with a housing market that does not have a lot of tailwind," and the full-year earnings guidance of $12.25 to $12.75 per share fell short of analysts' consensus estimate of $12.95.
The broader context here matters, and the market's reaction tells the real story. Beating estimates on the top and bottom lines should be cause for celebration. But investors looked past the rearview mirror and focused squarely on what's coming — and what's coming, according to Lowe's own leadership, isn't exactly a boom.
For the three months ending Jan. 30, Lowe's posted net income of $999 million, or $1.78 per share. That compares with $1.13 billion, or $1.99 per share, in the year-ago quarter. Comparable sales climbed 1.3%, handily beating the 0.2% increase analysts had projected, according to StreetAccount.
According to CNBC, Executive Vice President of Merchandising Bill Boltz noted on the earnings call that nine of the company's 14 merchandising categories posted growth. Categories tied to professional contractors performed particularly well, including plumbing supplies like water heaters and millwork for windows and doors. The company also reported strength in paint sales across interior, exterior, primer, and stain products. These aren't flashy numbers, but they reflect a business executing within a tight environment. When a retailer can squeeze out comp growth while the housing market remains sluggish, management is doing something right operationally.
Ellison described the environment as a "very fluid and very unpredictable environment," which is corporate-speak for: buckle up. Higher inflation, economic uncertainty, and elevated mortgage rates have created what Ellison called a "lock-in effect" — homeowners sitting on ultra-low mortgage rates are choosing to stay put rather than sell and buy at today's rates.
"For us, the greatest fuel for the home improvement industry is when you decide to put your house on the market," Ellison said. "Because the first thing you do when you put it on the market is you fix up your yard, you repair your fence, you paint your walls, you do simple beautification modifications in your home."
This is an underappreciated dynamic. When housing turnover stalls, a massive category of spending — the pre-sale renovation rush — simply evaporates. Ellison said he believes homeowners will eventually accept their locked-in mortgages and begin reinvesting in their current properties: "We think that as people stay locked in and they come to the realization that 'I'm not going to give up this two and a half percent mortgage rate,' they're going to start investing in their home at some point."
Lowe's projected full-year total sales of $92 billion to $94 billion, representing a roughly 7% to 9% increase over the prior year. Full-year comparable sales were forecast to be approximately flat to up 2%. Ellison called the outlook "appropriately conservative," signaling that the company isn't banking on a housing recovery to hit its numbers.
Analysts had expected full-year adjusted EPS of $12.95, well above Lowe's guided range of $12.25 to $12.75. The gap between guidance and expectations was a key driver of Wednesday's sell-off. Lowe's anticipates roughly flat demand for the home improvement industry this year.
The company hasn't been standing still, though. Last year, Lowe's acquired Foundation Building Materials for about $8.8 billion and Artisan Design Group for roughly $1.33 billion, bolstering its pro-contractor business with drywall, insulation, flooring, cabinets, and countertop services. These moves position the company to capture market share from a segment that tends to be more resilient than discretionary do-it-yourself spending.
Trade policy uncertainty looms large. The Supreme Court recently ruled that some country-specific tariffs were illegal, and President Donald Trump has since announced a global duty of 10%, which he has suggested could increase. About 40% of Lowe's goods are imported, though the company says that figure is lower than it used to be.
Cost discipline is spreading across the sector. Earlier this month, Lowe's cut about 600 corporate and support roles. In late January, Home Depot laid off 800 workers and required employees to return to the office five days a week. Home Depot also reported earnings on Tuesday, beating expectations but similarly maintaining conservative guidance.
For investors, the picture is nuanced. Lowe's shares were up nearly 16% year to date through Tuesday's close, compared with roughly 1% for the S&P 500. Over the past year, the stock has risen about 15%, roughly in line with the broader market's 16% gain. Ellison said the clearest signal that the consumer is recovering will come when discretionary big-ticket purchases from do-it-yourself shoppers pick up — and that signal hasn't arrived yet.