Lowe's (NYSE:LOW) is likely to have some good news for investors in its fiscal third-quarter earnings announcement. The home improvement industry has been growing at a record pace since the early days of the pandemic, and expectations are high for that trend to lift sales into late 2020.

Wednesday's report will come one day after rival Home Depot (NYSE:HD) announces its third-quarter results, which means we'll soon learn a lot about the competitive posture of these retailing giants as they look toward the key holiday shopping season.

With that big picture in mind, let's break down the major trends to follow in Lowe's upcoming release.

A couple painting a room together.

Image source: Getty Images.

Market share updates

The biggest questions surround market share, because the COVID-19 pandemic has potentially opened up new competitive opportunities. Lowe's has taken advantage of the surging interest in its category so far with sales gains outpacing Home Depot's in each of the last two quarters. That performance gap was especially high last quarter, when Lowe's comps surged 35% compared to Home Depot's 25% increase.

This week's results will reveal whether Lowe's continued to win market share with pro customers and in the digital channel after making improvements to its e-commerce platform. CEO Marvin Ellison said back in August that its elevated growth trends had carried through to the start of the third quarter, and that's why analysts who follow the stock expect sales to rise about 21% year over year during the period.

Spending pressure

Lowe's profit surge has been a key part of investors' optimistic reading of the stock in 2020 too. While its operating margin has trailed Home Depot's for several years, that gap appears to be shrinking. Operating margin jumped by over three percentage points to 14.5% last quarter, and gross margin also rose.

Management credited better pricing and in-stock levels, especially in the online category, for the boost. But those wins might have been harder to maintain over the past few months as competition ramped up.

LOW Gross Profit Margin (Quarterly) Chart

Data by YCharts.

Lowe's faces other cost pressures around labor and COVID-19 health and safety precautions, yet analysts are expecting to see another strong bottom-line performance with earnings jumping to $1.97 per share from $1.41 per share a year ago.

Looking ahead

Ellison and his team will have no shortage of challenges they can cite to support a cautious outlook for late 2020 and early 2021. The biggest is the current recession that has pushed unemployment higher and reduced consumer incomes. Normally, those economic indicators would lead directly to a cyclical drop across the retail industry, but it's also possible that the economy bounces back quickly from the COVID-19 slump.

Lowe's likely won't have many answers about that rebound potential on Wednesday, but management should still comment about fundamentals like housing prices and the average age of housing stock. Industry peers, including Sherwin-Williams and Wayfair, have said in recent weeks that they're seeing a sustained sales and profit lift as consumers continue to prioritize spending around the home. That boost might convince Lowe's to issue a bullish outlook for the holiday quarter that is just beginning.

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