Lowe's (LOW -0.35%) investors have some big questions heading into the retailer's second-quarter earnings report. The home improvement giant revealed weaker first-quarter results than industry leader Home Depot (HD -0.74%) back in May, and the main concern is whether that trend accelerated into the early summer weeks. Both companies are dealing with major price swings, too, including a collapse in lumber prices.

CEO Marvin Ellison and his team will likely highlight the company's growing share of the contractor niche in the earnings report. But that's just one of the key things to watch in this week's announcement, set for Wednesday, Aug. 18.

A contractor installs a wall treatment.

Image source: Getty Images.

The sales performance

Lowe's outpaced its bigger rival through most of the pandemic, but that performance hit a snag last quarter. Sales rose 24% through late April, compared to Home Depot's 30% spike. Before that, Lowe's had been growing at a 27% pace compared to Home Depot's 21% increase through all of 2020.

Home Depot announces its results on Tuesday, so investors will be able to judge Lowe's against its main competitor. Both companies likely saw continued elevated demand in both the online and in-store sales channels.

They've been fighting over the professional contractor niche in recent months, so that's likely to be a key point in Lowe's report. Finally, we'll learn whether price swings, including declining lumber prices and rising costs elsewhere, caused any hiccups in demand.

Closing the profit gap

Its status as the industry's second-place player makes it hard for Lowe's to achieve as strong a profit result as Home Depot. Yet Ellison, who used to work as a top executive at Home Depot, has made progress on that score.

HD Operating Margin (TTM) Chart

HD Operating Margin (TTM) data by YCharts.

Operating margin broke back into double-digit percentage territory recently, compared to Home Depot's rate that consistently sits around 14.5% of sales. Lowe's has been targeting 12% or more this year, and Wednesday's report might confirm that bullish outlook.

Neither retailer should have struggled at boosting prices while demand soars for home improvement offerings. Lowe's is trying to balance that windfall against pressing needs for capital investments in areas like the e-commerce platform.

Looking ahead

The biggest question investors have is whether Lowe's will change its tune about the short-term growth outlook on Wednesday. Coming into the report, that 2021 forecast had been bullish. Executives in mid-May pointed to spiking customer traffic, along with robust economic growth, as they projected sales above $86 billion this year.

A lot has changed since then, including new surges of COVID-19 outbreaks. We'll find out if these shifts were enough to add caution to management's forecast, or if Lowe's is still projecting an unusually strong fiscal year even when compared to 2020's soaring growth results.