Lowes (LOW) Q4 earnings 2022

A Lowe’s Home Improvement Warehouse worker collects carts in a parking lot on August 17, 2022 in Houston, Texas.

Brandon Bell | Getty Images News | Getty Images

Lowe’s on Wednesday reported fiscal fourth-quarter sales that fell short of Wall Street’s expectations, while also issuing a conservative outlook for the current year as it prepares for a “more cautious consumer.”

Here’s how the retailer did compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Earnings per share: $2.28 adjusted, vs. $2.21 expected
  • Revenues: $22.45 billion vs. $22.69 billion expected

Shares fell more than 5% Wednesday.

The company’s reported net income for the three-month period that ended Feb. 3 was $957 million, compared with $1.21 billion, or $1.78 per share, a year earlier.

Sales rose to $22.45 billion from $21.34 billion a year earlier. However, Lowe’s fiscal fourth quarter included an extra week that saw $1.4 billion in sales. Without that additional week, sales would have declined slightly from the year-ago period.

Overall same-store sales fell 1.5%, with a 0.7% decline in the US, a drop the company attributed to a reduction in lumber prices, which also hit rivals Home Depot’s bottom results.

Steady inflation across other goods and higher Pro sales led to a 4.8% uptick in comparable average tickets, though comparable transactions declined 5.5%, the company said.

Gross margins were 32.3% for the quarter, slightly lower than the year ago period. Executives noted shrink, or items that were shoplifted, stolen by employees, lost or damaged, shaved 0.3% off gross margins and said the loss was “a bit worse than expected.”

For fiscal 2023, Lowe’s said it expects total sales to be between $88 billion and $90 billion, compared with Wall Street expectations of $90.48 billion. The company also expects same-store sales to be flat or down 2% compared to the prior fiscal year.

The company expects its earnings per share for the year to be $13.60 to $14.00, versus $13.79 projected by analysts.

The conservative outlook was driven by elevated levels of inflation, higher interest rates and more caution from consumers, leading the company to expect a slight decline in the overall home improvement market, executives said during an earnings call.

The reasoning given for the outlook was similar to the explanation HomeDepot gave last week after delivering disappointing guidance for the year ahead.

Recession worries

Lowe’s CEO Marvin Ellison, however, went a step further in acknowledging that consumers are concerned about a potential recession – language that Home Depot steered away from.

“Given the slowdown in housing turnover is driven by higher rates and slow supply rather than demand, we continue to see a nationwide trend of trading up in place with consumers choosing to upgrade their existing homes to meet their evolving needs,” Ellison told investors during an earnings call. “All of these dynamics give us confidence in the medium- and longer-term outlook for the industry.”

He added: “That being said, we also know that consumers are wary of a potential recession, which is reflected in some of the discretionary pull back we experienced during the holiday season.”

Ellison noted there’s a “wide range of conflicting opinions on what’s going to happen in the macro environment in 2023,” and said there’s a number of factors that will continue to drive demand for home improvement, such as aging housing stock, more widespread remote work and baby boomers’ preference for age in place.

Executives later noted residential investment would be under pressure, given consistent inflation, and again mentioned “a more cautious consumer” that’s expected to lead to a slight decline in the overall home improvement market.

Lowe’s, which has been working to grow its pro market, saw a 10% growth in sales in the category in the US and a 5% jump in online sales. Executives noted the most recent quarter was the 11th consecutive quarter it saw double digit Pro growth in the US, even with a drop in lumber prices.

This time last year, Lowe’s was benefiting from a red-hot housing market that led many to fix up and renovate their homes. As the market gradually cooled towards the second half of 2022, Wall Street’s expectations fell compared to prior quarters.

Amid the Covid pandemic, the home improvement market grew as stuck-at-home consumers undertook pricey renovations and spruced up their living spaces. The market is under more pressure these days. Shoppers feeling pinched from high inflation have been using their discretionary dollars on travel and entertainment as opposed to goods like patio furniture and paint.

last week, HomeDepot missed Wall Street’s revenue expectations for the first time since November 2019 and issued a muted outlook. The company anticipates flat consumer spending and more pressure on the sector in the quarters ahead as the pandemic-fueled boon subsidies.

With interest rates soaring in a stagnant housing market, many people with low interest rates may choose to stay in their homes and undergo renovations rather than moving somewhere new. In fact, data released Wednesday showed that the demand for mortgages to buy a home is at a 28-year low.

Read the full earnings release here.