Lowe’s Companies Inc. (LOW) topped market estimates on revenue and earnings for the third quarter of 2018. Despite the beat, the stock dropped over 6.8% in morning trade on Tuesday as comp sales missed expectations.
Total sales grew 3.8% to $17.4 billion from the same period last year, beating the consensus estimate of $17.3 billion. Comparable sales grew 1.5% but missed the estimate of 2.8%. Comparable sales for the US home improvement business rose 2%.
Net earnings were $629 million, or $0.78 per share, compared to $872 million, or $1.05 per share, in the prior-year period, reflecting $280 million of pre-tax charges. Adjusted EPS fell 1% to $1.04 versus last year but came ahead of the consensus estimate of $0.98.
During the quarter, Lowe’s benefited from a favorable macroeconomic environment that helped drive traffic to its stores and website but the company faced challenges with regards to inventory and assortments. Lowe’s is redesigning its processes and systems and expects to see improvements in 2019.
Lowe’s completed the strategic review of its business and is taking actions to improve profitability. As part of these efforts, the company is planning to exit its retail operations in Mexico and is looking at strategic alternatives.
Lowe’s has also decided to exit some non-core activities in its US home improvement business, including Alacrity Renovation Services and Iris Smart Home. This is in addition to the Orchard Supply Hardware operations exit, and the closure of 20 underperforming stores in the US and 31 stores and other locations in Canada.
As of November 2, 2018, Lowe’s operated 2,133 home improvement and hardware stores in the US, Canada and Mexico.
For the full year of 2018, Lowe’s expects total sales to increase approx. 4% and comparable sales to increase approx. 2.5%. GAAP EPS is expected to be $4.08 to $4.24 and adjusted EPS is expected to be $5.08 to $5.13. The company expects to add around eight home improvement stores in the year.
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