Investors have some big questions for Lowe's (NYSE:LOW) heading into its upcoming first-quarter fiscal 2020 earnings report. The home-improvement retailer's stores have mostly remained open through the COVID-19 pandemic, which puts it in a better place than many of its peers. But the chain entered the crisis with weaker momentum than Home Depot (NYSE:HD), especially in the crucial digital sales channel.

On Wednesday, May 20, Lowe's will announce its results for the period that runs through early May and includes several weeks where social distancing tied to the COVID-19 pandemic was in effect. That report, plus Home Depot's announcement a day earlier, will show how well-positioned the company is to endure some potentially rocky months ahead.

Let's take a closer look.

Plywood stacked on a cart in the aisle of a home-improvement store

Image source: Getty Images.

Market share trends

Its stores remained open, but Lowe's still endured some unusual growth pressures in recent weeks. Hours were limited, and management took a few other steps aimed at capping customer traffic, including scaling back on spring sales promotions and closing all locations on the Easter holiday.

Investors will be able to judge how well Lowe's did through that challenging time by comparing its growth rate to Home Depot's and to its own recent 2.6% boost. The key part of the business to watch will be the e-commerce channel, which put downward pressure on sales over the holiday quarter and likely played an outsized role in the industry as consumers boosted stay-at-home time.

If Lowe's couldn't quickly fix its digital ordering challenges, then it could reveal significant market-share losses to rivals like Home Depot and Wayfair.

Profit challenges

A big bright spot in Lowe's last earnings report was the chain's projection that operating margin will increase in 2020 as cost cuts and efficiency gains lift profitability. Home Depot, in contrast, has been warning investors to expect its margin to drop from 14.5% to about 14%. Lowe's metric might expand by a full percentage point, executives said in late February, to 10.1% of sales. 

The pandemic likely scrambled those targets, but shareholders should still get an important update on how management is balancing its efficiency initiatives against the goal of closing the profitability gap with fellow retail stock Home Depot. Lowe's made progress on that score last quarter, and we'll learn on Wednesday whether the positive momentum carried into the start of fiscal 2020.

The outlook for 2020 and beyond

Lowe's last official outlook predicted sales growth between 3% and 3.5%, or just a shade slower than Home Depot was expecting. Management cited strong economic trends including rising wages, low unemployment, and surging gross domestic product.

Each of those metrics worsened significantly over the last few weeks, which will make it hard for CEO Marvin Ellison and his team to stand by that forecast on Wednesday. Lowe's might withdraw its outlook or reduce it to reflect the extra volatility and the likely recession conditions that will affect at least the fiscal second quarter. Shareholders will get an updated reading on the latest industry trends from management this week and another fresh look at the 2020 outlook when the company holds its annual investor conference on Friday, May 29.