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Why Lowe's Stock Just Popped 12%

By Rich Smith – Aug 21, 2019 at 10:41AM

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An earnings surprise to the upside, and Lowe's plans for the rest of the year look great.

What happened

Shares of home improvement retailer Lowe's Companies (LOW 3.96%) jumped out of the gate on Wednesday. After the company reported estimate-thumping results for its fiscal second quarter this morning, Lowe's shares are already up 11.9% as of 10:10 AM EDT.  

Analysts had predicted Lowe's would earn $2 per share this past quarter on sales of $20.9 billion. Instead, Lowe's says it earned $2.14 per share under generally accepted accounting principles (GAAP) and $2.15 per share pro forma, with sales coming in at $21 billion -- beating on both the top and bottom lines.  

Construction workers read blueprints in front of a house under construction

Image source: Getty Images.

So what

But while sales beat estimates, same-store sales grew only 3.2% in the U.S. and 2.3% overall, and total sales for the company increased only 0.5%. Management blamed "lumber deflation and difficult weather" for the weak sales growth, but CEO Marvin Ellison said that the overall "macroeconomic backdrop" still looks "solid" -- good news for the retail industry as a whole after a rough couple of weeks.

Now what

Looking ahead, Lowe's expects sales growth to strengthen as the year progresses, with total sales to grow 2% and overall same-store sales to inch up to 3%. Profitability should grow, too -- as much as 310 to 340 basis points of additional operating profit margin when compared to 2018 levels.

And on the bottom line, Lowe's is predicting earnings will come in between $5.54 and $5.74 per share under GAAP, and perhaps a dime less than that pro forma. This would be better than Wall Street's predicted $5.57 per-share profit for the year -- and another earnings beat for Lowe's.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's. The Motley Fool has a disclosure policy.

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