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Why Lowe's Stock Plunged Today

By Steve Symington - May 22, 2019 at 12:49PM

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Cost pressures held back earnings growth for the home-improvement retailer in the first quarter.

What happened

Shares of Lowe's (LOW -1.69%) were down 11.1% as of 12:15 p.m. EDT Wednesday after the home-improvement retailer announced mixed first-quarter 2019 results and reduced its full-year outlook.

Regarding the former, Lowe's quarterly sales climbed 2.2% year over year, to $17.74 billion, as the impact of store closures was more than offset by a 3.5% increase in comparable-store sales. That translated to adjusted (non-GAAP) net income of $1.22 per share, up from $1.19 per share in the same year-ago period. Analysts, on average, were expecting significantly higher earnings of $1.34 per share on slightly lower revenue of $17.7 billion.

Lowe's storefront with lawn mowers and plants.

IMAGE SOURCE: LOWE'S.

So what

On one hand, Lowe's CEO Marvin Ellison lauded the company's comparable-sales growth as "a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction." On the other hand, Ellison blamed the company's earnings shortfall on higher costs related to merchandising changes and "ineffective legacy pricing tools and processes."

"We are taking the necessary actions to more systematically analyze and implement retail price changes to mitigate cost pressure," he added.

Now what

In the meantime, Lowe's reiterated its previous guidance for full fiscal-year 2019 sales to climb roughly 2%, assuming a 3% increase in comparable-store sales. But it also lowered its outlook for fiscal 2019 adjusted earnings per share to be in the range of $5.45 to $5.65, down from $6.00 to $6.10 before.

So while Lowe's might well be taking the right steps to bolster profitability in the long run, it's no surprise to see shares falling hard today as investors grapple with this near-term step in the wrong direction.

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Stocks Mentioned

Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
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