Lowe's (LOW -1.01%) is scheduled to report fiscal 2021 fourth-quarter results on Feb. 23. The home improvement retailer has been thriving since the pandemic's onset. The home has become an integral part of people's lives, and they are spending accordingly.
Demand for home improvement is proving to be resilient even through the economy's reopening. Investors will focus on Lowe's operating profit margins with sales near peak levels.
Market factors in Lowe's favor
Interestingly, when Lowe's reported results for its third quarter ended Oct. 29, it showed an overall sales increase of 2.7% from the same quarter the year before. Similarly, comparable-store sales, which exclude the effect of new store openings and closings, increased by 2.6%. Investors may be further encouraged by two facts from Lowe's Q3 sales: Comps improved in every month of the quarter, and the growth this year is coming on top of roughly 30% from last year.
Despite the economic reopening, folks are still spending a lot of time working, learning, and entertaining at home. That's creating more wear and tear and a need for maintenance. Moreover, soaring home prices and limited for-sale inventory are excellent for the home improvement industry. Folks who need bigger spaces find it less expensive and more convenient to add to an existing home rather than move. Lowe's expects those forces to remain palpable and keep sales relatively stable throughout 2022, forecasting revenue for the year to decrease between 0% and 3%.
Lowe's expects that to be sufficient to keep the operating profit margin in double digits for 2022. In the nine months ended on Oct. 29, its operating profit margin was 13.67%. Looking back to 2012, Lowe's has not achieved an operating profit margin over 9.6% until potentially in 2021, where it has one quarter left to report.
Management has implemented a "perpetual productivity improvement program" to help increase efficiency. One component of the program focuses on customer checkout. The company changed the interface to a more simplified version, making it easier for cashiers to get trained on the system and simultaneously to improve the customer experience.
While focusing on customer checkout, Lowe's also developed its own self-checkout system with the home improvement customer in mind. The widespread trend of labor shortages makes these changes vital for keeping costs anchored while serving robust customer demand.
What this could mean for Lowe's investors
Analysts on Wall Street expect Lowe's to report Q4 revenue of $20.83 billion and earnings per share of $1.70. If it meets those projections, it would mark increases of 2.50% and 27.8%, respectively, from the same period a year ago.
Lowe's stock is down 12.4% so far in 2022. The fall is perhaps in anticipation of an eventual fall in home improvement spending from the consumer, which is a trend that has yet to materialize. If the fourth quarter comes in better than expected and management revises its forecast for 2022 higher -- a reasonably plausible scenario -- that would likely send Lowe's stock higher.