Lowe’s Q1 2024 results are in, and they’re a masterclass in strategic pivoting

Lowe’s reported first-quarter 2024 sales of $21.4 billion, a 4.1% decline in comparable sales due to supply chain pressures. Despite this, strategic marketing campaigns boosted seasonal sales. The company saw growth in Pro and online sales, supported by investments in customer service and delivery options. The MyLowe’s Rewards program’s national rollout was successful, enhancing customer loyalty. Lowe’s also improved customer satisfaction through productivity initiatives, and supported associates and the military community with competitive benefits and initiatives. The company expanded its sports partnerships and remains optimistic about long-term market prospects despite economic challenges. Earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... More were $3.06, with a full-year sales forecast of $84-$85 billion. Strategic investments and capital allocation remain focused on shareholder value.

Financial Performance Overview

Sales and Earnings

In the first quarter of 2024, Lowe’s reported sales of $21.4 billion, marking a 4.1% decline in comparable sales compared to the same period last year. The company’s gross marginGross margin is a critical financial metric that plays a pivotal role in evaluating a company's financial health and profitability. It is a percentage that indicates how efficientl... More stood at 33.2% of sales, slightly down by 49 basis points from the previous year, largely due to ongoing supply chain pressures. Despite these challenges, Lowe’s achieved better-than-expected spring seasonal sales, driven by strategic marketing campaigns and a compelling seasonal assortment.

Pro and Online Sales

Lowe’s continued to see positive growth in its Pro and online sales segments. Pro sales were particularly strong, bolstered by strategic investments to enhance the Pro customer experience. These investments included improved service levels and an expanded brand portfolio featuring client tools. Online sales increased by approximately 1%, supported by ongoing improvements in conversion rates and the expansion of same-day delivery options through partnerships with DoorDash, Shipt, and Instacart.

Strategic Initiatives and Customer Engagement

Spring Fest Campaign and Product Offerings

Lowe’s Spring Fest campaign proved to be a significant success, resonating well with customers, especially in smaller ticket lawn and garden projects. The combination of the right brands, compelling offers, and strong store execution helped Lowe’s capitalize on this key time of year. The introduction of Toro products to Lowe’s outdoor power equipment lineup further strengthened the company’s market position.

Pro Customer Focus

Lowe’s strategic focus on Pro customers, including repair and remodel contractors, property managers, and tradespeople, continued to drive positive results. The company estimates that small to medium-sized Pros represent half of the $500 billion Pro market. Investments in ProGrowth, such as expanding capabilities for larger order deliveries and opening new Lowe’s Pro Supply branches, have been instrumental in building trust and credibility with these customers.

MyLowe’s Rewards Program

The national rollout of the MyLowe’s Rewards program marked an exciting step forward for the company. Designed to reward customers for their loyalty, the program offers points toward MyLowe’s money, free standard shipping, and other exclusive offers. Early customer adoption of the program has been promising, with both in-store and online launches proving successful.

Enhancing the Customer and Associate Experience

Improving Customer Satisfaction

Lowe’s perpetual productivity improvement (PPI) initiatives across all functional areas of the business have led to improved customer satisfaction. The company’s focus on delivering a seamless shopping experience, combined with targeted marketing efforts, has driven positive results. Customer satisfaction scores increased by 100 basis points over the previous year, reflecting the success of these initiatives.

Supporting Associates and the Military Community

Lowe’s remains committed to its associates, offering competitive wages, development opportunities, and a strong focus on internal mobility. The company’s decision to close stores on Easter for the fifth consecutive year demonstrates its appreciation for associates, providing them with well-deserved time off. Additionally, Lowe’s continues to support the military community with initiatives such as a 10% everyday military discount, dedicated veteran parking spots, and job opportunities for transitioning service members and military spouses.

Expanding Sports Partnerships

Lowe’s has expanded its sports partnerships, welcoming soccer star Lionel Messi to its Lowe’s Home Team lineup. This alliance aims to reach the growing soccer fan base in the U.S., alongside existing partnerships with the NFL, MLS Club Inter Miami CF, and the Copa America 2024 USA tournament. These partnerships are expected to help Lowe’s connect with a broader customer base and offer unique experiences and rewards for sports fans.

Navigating Economic Challenges and Future Outlook

Macroeconomic Environment

Lowe’s acknowledges the ongoing economic challenges, including uncertainty around interest rate cuts, inflationary pressures, and consumer preferences for discretionary services. Despite these headwinds, the company remains confident in the medium to long-term outlook for the home improvement market. Core demand drivers, such as real wage growth and home price appreciation, continue to support future growth prospects.

Q1 Results and Forward Guidance

Lowe’s generated GAAPIn the complex world of finance and corporate accounting, one indispensable framework reigns supreme—Generally Accepted Accounting Principles, commonly known as GAAP. GAAP serves... More diluted earnings per share of $3.06 in Q1, with sales totaling $21.4 billion. Comparable transactions declined by 3.1%, while the comparable average ticket was down 1%. Monthly comps were impacted by the earlier timing of Easter, affecting March and April results. Looking ahead, Lowe’s expects sales ranging from $84 billion to $85 billion for the full year 2024, with operating margins in the range of 12.6% to 12.7%.

Capital Allocation and Strategic Investments

Lowe’s capital allocation strategy remains focused on reinvesting in the business, targeting a 35% dividend payout ratio, and returning excess cash to shareholders through share repurchases. In 2024, the company plans to use free cash flowThe cash flow statement provides a detailed overview of the cash inflows and outflows of a company over a specified period of time. It includes cash received from operations, inves... More to repay a $450 million bond maturity and return remaining cash to shareholders.

Insights

1. Pro and online sales segments showed positive growth.
2. The MyLowe’s Rewards program enhanced customer loyalty.
3. Expanded sports partnerships target a broader customer base.
4. Customer satisfaction scores improved by 100 basis points.

The Essence (80/20)

• Sales Performance: Q1 sales of $21.4 billion, 4.1% decline in comparable sales.
• Strategic Initiatives: Successful Spring Fest campaign, Pro customer engagement, MyLowe’s Rewards program.
• Customer & Associate Focus: Improved satisfaction scores, strong support for associates and military community.
• Economic Challenges: Supply chain pressures, uncertain economic conditions, strategic optimism for future growth.
• Financial Outlook: Earnings per share of $3.06, expected full-year sales of $84-$85 billion.

The Action Plan – What Lowe’s Should Do

1. Strengthen Marketing Campaigns: Continue strategic marketing to boost seasonal sales.
2. Enhance Pro and Online Services: Invest in customer service, delivery options, and product range.
3. Expand Rewards Program: Promote the MyLowe’s Rewards program to increase customer loyalty.
4. Support Associates: Maintain competitive benefits and support initiatives for associates and the military community.
5. Adapt to Economic Changes: Monitor economic conditions and adjust strategies to mitigate risks.

Blind Spot

Lowe’s needs to address the slight decline in gross margin due to supply chain pressures by exploring more efficient logistics and cost-management strategies.

Looking Ahead

Lowe’s first quarter 2024 results reflect a company navigating a challenging home improvement market with strategic agility and a focus on customer and associate satisfaction. Despite economic uncertainties, Lowe’s strategic investments, robust Pro customer engagement, and innovative product offerings position it well for future growth. As the market recovers, Lowe’s remains committed to delivering sustainable shareholder value and capitalizing on the evolving demands of the home improvement industry.

Lowe’s (LOW) Technical Analysis

Overview:

• Current Price: $224.86
• Trend: Mixed signals, with potential for further downside

Moving Averages:

• 50-Day Moving Average: $240.37 (Above current price, indicating recent downward momentum)
• 200-Day Moving Average: $222.44 (Price nearing the 200-day MA, a critical support level)

Volume:

• Recent Volume: 5.4M (Slight increase, which could indicate stronger selling pressure)

Indicators:

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI): 36.68

• Analysis: RSI is approaching oversold territory (<30), indicating the potential for a reversal if it continues downward.

On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV): 45.30M

• Analysis: OBV shows a declining trend, suggesting that selling volume is outpacing buying volume, which aligns with the downward price trend.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More: 0.000

• Analysis: Stochastic RSI is at 0, indicating extreme oversold conditions, which often precede a price reversal or stabilization.

Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... More (ADX): 16.00

• Analysis: An ADX below 20 indicates a weak trend, suggesting the current downtrend may not be strongly supported by directional movement.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More: -2.57M

• Analysis: Negative Chaikin Oscillator value suggests that selling pressure is dominant, aligning with the observed downward trend.

Key Levels:

• Support: $222.44 (200-day moving average)
• Resistance: $240.37 (50-day moving average)

Trend Analysis:

• The stock price has been on a downward trend since the peak in early April, indicated by lower highs and lower lows.
• The proximity to the 200-day MA ($222.44) is critical; a breakdown below this level could signal further downside.

Time-frame Signals:

• 3 Months: Sell
• The stock shows bearish momentum with indicators suggesting continued downside. The current price nearing the 200-day MA indicates a potential critical point, but with the overall negative sentiment, a sell recommendation is prudent.
• 6 Months: Hold
• The oversold conditions reflected in the RSI and Stochastic RSI suggest potential for a rebound or consolidation. Monitoring the price action around the 200-day MA is essential.
• 12 Months: Hold
• Long-term prospects depend on whether the stock can find support around the 200-day MA and stabilize. Continued fundamental assessment and market conditions will be key to re-evaluating this position.

Lowe’s Companies (LOW) is experiencing bearish pressure with mixed technical signals. Immediate caution is warranted, with a short-term sell recommendation, while longer horizons suggest a hold as the stock approaches key support levels.

Frequently Asked Questions (FAQs)

1. How did Lowe’s perform financially in the first quarter of 2024?

Lowe’s reported sales of $21.4 billion, a 4.1% decline in comparable sales from the same period last year. The gross margin stood at 33.2% of sales, down by 49 basis points due to supply chain pressures.

2. What strategic initiatives did Lowe’s implement in Q1 2024?

Lowe’s focused on enhancing Pro customer engagement, increasing online sales, launching the MyLowe’s Rewards program, and improving customer and associate experiences. These efforts included strategic marketing campaigns and the introduction of new products like Toro in their outdoor power equipment lineup.

3. How did Lowe’s Pro customer sales perform?

Pro sales showed positive growth, driven by strategic investments aimed at improving service levels and expanding the brand portfolio. These efforts helped build trust and credibility with small to medium-sized Pros, who represent half of the $500 billion Pro market.

4. What was the impact of the Spring Fest campaign?

The Spring Fest campaign was highly successful, particularly for smaller ticket lawn and garden projects. The campaign featured the right brands, compelling offers, and strong store execution, significantly boosting seasonal sales.

5. Can you explain the MyLowe’s Rewards program?

The MyLowe’s Rewards program is designed to reward customer loyalty by offering points toward MyLowe’s money, free standard shipping, and other exclusive offers. The program has seen promising early adoption both in-store and online.

6. How has Lowe’s improved customer satisfaction?

Through perpetual productivity improvement (PPI) initiatives and a focus on delivering a seamless shopping experience, Lowe’s increased customer satisfaction scores by 100 basis points over the previous year.

7. What steps has Lowe’s taken to support its associates and the military community?

Lowe’s supports its associates by offering competitive wages, development opportunities, and closing stores on Easter for the fifth consecutive year. The company also provides a 10% everyday military discount, dedicated veteran parking spots, and job opportunities for transitioning service members and military spouses.

8. What new sports partnerships has Lowe’s formed?

Lowe’s has expanded its sports partnerships by welcoming soccer star Lionel Messi to its Home Team lineup, along with existing partnerships with the NFL, MLS Club Inter Miami CF, and the Copa America 2024 USA tournament. These partnerships aim to connect with a broader customer base and offer unique experiences for sports fans.

9. How is Lowe’s navigating the current economic challenges?

Despite economic uncertainties like inflationary pressures and consumer preferences for discretionary services, Lowe’s remains confident in the home improvement market’s medium to long-term outlook. Core demand drivers, such as real wage growth and home price appreciation, continue to support future growth prospects.

10. What are Lowe’s future financial expectations and strategic investments?

Lowe’s expects sales of $84 billion to $85 billion for the full year 2024 with operating margins of 12.6% to 12.7%. The company plans to use free cash flow to repay a $450 million bond maturity and return excess cash to shareholders through share repurchases, targeting a 35% dividend payout ratio.

Book Recommendations

1. “Good to Great” by Jim Collins – Insights into how companies can transform from good to great, relevant for Lowe’s strategic improvements.
2. “The Lean Startup” by Eric Ries – Offers strategies for continuous innovation and adapting to changing market conditions.
3. “Drive” by Daniel H. Pink – Explores motivation, valuable for enhancing associate satisfaction and performance.