Earnings preview: Lowe’s (NYSE: LOW) likely to gain from demand in Q3

Lowe’s Companies Inc. (NYSE: LOW) is set to report its third-quarter 2019 earnings results on Wednesday before the market opens. The results will be benefited by comparable sales, sustained operating margins, and healthy Pro demand. The bottom line will be driven by lower costs and expenses.

The company is expected to capitalize on solid demand in a healthy home improvement market and generate long-term profitable growth. The company continues to prioritize long-term growth over short-term results, which can be seen from the lesser growth rate in the total sales.

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Despite the challenging retail landscape, Lowe’s operate in a sector that still has very strong demand. Also, the company remains focused on retail fundamentals for capturing the opportunity in the retail sector. The company is likely to continue the margin improvement momentum in the second half of the year as the strategic initiatives would drive the top line higher.

In the second half of the fiscal year 2019, the company expects to focus on reducing inventory in certain areas by rolling out predictable delivery and improving on its demand planning. The strategic investments, earlier seasonal load-in, resets, increases in presentation minimums, and investments in job lot quantities drove inventory higher in the first half.

Analysts expect the company’s earnings to jump by 29.80% to $1.35 per share and revenue will rise by 2% to $17.68 billion for the third quarter. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters. The majority of the analysts recommended a “strong-buy” or “buy” rating with an average price target of $125.71.

Read: Kohl’s Q3 earnings preview

For the second quarter, Lowe’s posted a 10% increase in earnings helped by higher sales as well as lower expenses. Sales rose by 0.5% and comparable sales increased by 2.3%. Comparable sales for the US home improvement business grew 3.2%. The results were driven by spring demand, strong holiday event execution, and growth in Paint and its Pro business.

For fiscal 2019, the company expects total sales to increase by about 2% and comparable sales to rise by about 3%. The operating margin is predicted to increase 310 to 340 basis points and the adjusted operating margin is projected to increase 20 to 50 basis points. Lowe’s sees earnings of $5.54 to $5.74 per share and adjusted earnings of $5.45 to $5.65 per share for the full year 2019.

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