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Lowe's Companies Inc LOW

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Wide-Moat Lowe's Posts Banner Profit Margins Despite Comp Sales Declines; Shares Heated

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We plan to raise our $165 fair value estimate for wide-moat Lowe’s by a mid-single-digit percentage to account for time value and better-than-expected second-quarter profitability. Lowe’s reported a 15% operating margin, above the 14% we had forecast and marking the best quarterly metric for the business over the past decade. Most impressive is that the record profitability was generated on a 1.6% same-store sales decline and just 1% top-line growth. The gross margin was in line with our expectation at 33.8%, down 30 basis points versus last year but up 165 basis points over the second quarter of 2019, as Lowe’s benefited from higher product margin rates. The selling, general, and administrative ratio improved more than our outlook, shrinking 140 basis points to 17%, a low-water mark for the metric, as COVID-19-related costs dropped materially to $25 million in the quarter from $430 million in the year-ago period. All in, this allowed Lowe’s to capture 13% EPS growth to $4.25, an impressive feat lapping 75% growth in the year-ago period.

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Company Profile

Business Description

Lowe's is the second- largest home improvement retailer in the world, operating about 1,970 stores throughout the United States and Canada. The firm's stores offer products and services for home decorating, maintenance, repair, and remodeling. Lowe's targets retail do-it-yourself and do-it-for-me customers as well as commercial business clients. We estimate Lowe's captures a double-digit share of the domestic home improvement market, based on U.S. Census estimates for market size.

1000 Lowe's Boulevard
Mooresville, NC, 28117
T +1 704 758-1000
Sector Consumer Cyclical
Industry Home Improvement Retail
Most Recent Earnings Jul 31, 2021
Fiscal Year End Jan 28, 2022
Stock Type Cyclical
Employees 340,000


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