Lowe's (LOW -1.31%) reported fourth-quarter and fiscal 2021 results before the markets opened on Wednesday, Feb. 23. The figures were better than expected, and the stock was up as much as 5% before giving up those gains as of this writing.
Rising home values encourage homeowners to invest in their homes, fueling demand for home improvement retailers. Lowe's is benefiting from that trend and lifting its forecast for 2022.
Soaring home values spur home improvement
In its fiscal fourth quarter ended Jan. 28, Lowe's generated sales of $21.3 billion. That was 5% higher than in the same quarter of the prior year. Sales growth is slowing considerably from surging levels. In the same quarter last year, revenue increased by 26.7%. So it's understandable that it would moderate as economies reopen and consumers have more to do with their time and money.
Still, management sounded an optimistic tone in the press release accompanying the fourth-quarter and 2021 results. Marvin Ellison, Lowe's chairman and CEO, said:
We delivered another year of outstanding performance in 2021, as we gained market share across DIY and Pro through our Total Home strategy. I would like to thank our front-line associates for their tremendous efforts this year. In 2021, we increased comparable sales by 6.9% while generating over 170 basis points of operating margin improvement, with our relentless focus on productivity and enhanced pricing strategies. We remain confident in the long-term strength of the home improvement market and our ability to expand operating margin.
When home prices are rising, consumers feel better about investing in their homes, repurposing rooms and adding new spaces entirely. What's more, home prices are at record levels and rising fast. According to the Federal Reserve Bank of St. Louis, house prices in the U.S. soared by 17.9% in the fourth quarter of 2021. That's the fastest rate of increase in at least 40 years. Against that backdrop, it's no surprise that folks are redoing their kitchens or adding a new bedroom or even a theater for movie enthusiasts.
Rising sales helped lift operating income to $12 billion in the fiscal year ended Jan. 28 -- or a year-over-year increase of more than $2.4 billion. That's an impressive accomplishment, considering the inflationary pressures throughout economies worldwide. Lowe's boosted sales and controlled costs tightly at the same time, leading to an expansion of its operating profit margin from 10.77% to 12.5%.
Lowe's is working to hold gains from the pandemic boom
That said, 2022 will be more about sustaining rather than growing the business for Lowe's. In January, comparable-store sales (which measures sales at stores open for the previous 12 months and excludes the impact of new store openings or closings) decreased by 0.7%. Sure, management raised its revenue outlook for 2022 to a range of $96 billion to $98 billion. However, the midpoint of that target would be revenue growth of less than 1% over 2021.
Lowe's has grown revenue at a compound annual rate of 6.3% in the past decade. Shareholders did not expect surging revenue to last indefinitely. Now that sales are normalizing, it will be interesting to watch how consumer behavior evolves in 2022.