Home improvement retailer Lowe's (LOW 2.12%) is set to report first-quarter earnings on Wednesday, May 19. The company is coming off a historic year in 2020 that saw it increase revenue by 24.2%. The coronavirus pandemic provided a tailwind as consumers paid more attention to their homes while working, studying, and exercising in them as part of efforts to combat the coronavirus pandemic.
However, with an increasing number of people getting vaccinated against the coronavirus and states easing restrictions on restaurants, entertainment venues, and businesses, consumers will have more places to spend their money. Subsequently, that could become a headwind for Lowes in 2021. That's why when the company reports first-quarter earnings on Wednesday, the overall revenue figure is what investors, and potential investors, will need to pay close attention to.
Which market scenario will play out for 2021?
In its fourth quarter, sales increased by 26.7% year over year for Lowe's. The company's fiscal fourth quarter ended on Jan. 29, 2000, so it included the winter months when consumers were not going out as often, and the U.S. was in the middle of a surge of coronavirus infections. When Lowe's reports first-quarter results, it will include months of declining COVID infections and easing business restrictions.
At the end of 2020, Lowe's planned for changing consumer behaviors in 2021 as the U.S. rebounds from the devastating effects of the pandemic. Overall, it accounted for three market scenarios in 2021 (robust, moderate, weak), and in all of them, it foresees gaining market share. So, regardless of how consumers change their spending at home improvement stores, Lowe's plans on gaining market share.
In a telling description of the headwind caused by the reversing effects of the coronavirus pandemic, Lowe's is guiding investors that in the event of a robust market outcome in 2021, revenue will decline by 5% to 7% in the home improvement sector. Still, even after the decline, the market will be up by 18% compared to pre-pandemic levels.
That's why when Lowe's reports earnings on Wednesday, overall revenue will be what you want to know. In addition, it will give a glimpse into which market scenario is playing out for 2021. It will also highlight whether or not Lowe's is actually gaining market share. Rival Home Depot reported its first-quarter results early Tuesday, so investors can compare it with Lowe's to get more insights.
What this could mean for investors
Analysts on Wall Street expect Lowe's to report quarterly revenue of $23.77 billion and earnings per share of $2.61, which would be increases of 29.8% and 47.7%, respectively, from the same quarter last year. If revenue actually increases by nearly 30% when Lowe's reports results, look for management to become perhaps more optimistic about the rest of 2021.
Share prices of the home improvement retailer are up over 20% year to date. Still, the company is trading at a trailing price-to-earnings ratio of 25, which is near its historical average. If the company reports revenue and earnings in line with expectations and sounds optimistic about the rest of 2021, that could be a great opportunity for long-term investors to start a position in this company.