With nothing more than a quick glance at last quarter's core numbers, shares of Lowe's(NYSE: LOW) should be higher today. Sales as well as earnings were better than expected. Dig deeper, though. Not only were the retailer's revenue and per-share profits down year over year, but the company reported its stores are still suffering shrinking sales, with no real relief in sight. The results were bad enough to leave Lowe's stock down 4% as of mid-session Tuesday.
The headwind's still blowing
Lowe's turned $20.2 billion in sales into a per-share operating profit of $2.89 during the three-month stretch ending in early November. Although these numbers topped consensus estimates of just under $20 billion and $2.82 per share, both were down from year-ago comparisons of $20.5 billion and $3.06 per share. Fanning the bearish flames was a same-store sales decline of 1.1%. The disappointing results extend weakness that first materialized last year.
Management explains that many consumers are postponing home improvement projects, strained by inflation and other logistical headwinds (which include the lingering impact of two major hurricanes).
There's no real relief on the horizon either. Although the home improvement retailer did revise its full-year same-store sales expectations upward, it's still calling for same-store sales to fall between 3% and 3.5% for the current fiscal year. Operating profit margins are apt to be 10 basis points lower than previously anticipated as well, now likely to roll in between 12.3% and 12.4%. And, although analysts are looking for better numbers next year, they're only expected to be barely better.
Not the right time (or environment) to own Lowe's stock
While Lowe's is in the midst of a rough patch that could linger into 2025, it's far from doomed. The nation's second-biggest hardware store chain provides a much-needed service, in fact. The underlying need for its goods and services will never go away.
Given this stock's relatively high valuation of more than 20 times its past and projected earnings, however, there's still too much of a headwind at this point to prioritize owning this ticker over other options. Find something else instead -- at least for now -- and wait for Lowe's home improvement business to start gaining some real traction. There's no room for anything less than proven rock-solid strength while Lowe's stock is at this price.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.
