Here's What Lowe's and AutoZone Stocks Are Saying About the Economy

The stock market lost its upward momentum on Tuesday as the lack of progress toward a resolution of the debt ceiling debate in Washington seemed to overwhelm investors. Investors still seem largely confident that lawmakers will resolve the debt ceiling problem without a cataclysmic default, but the lack of a clear solution as the days tick down still weighed a bit on sentiment. The Nasdaq Composite (^IXIC -0.52%) and S&P 500 (^GSPC -0.22%) had significant losses on the day, while the Dow Jones Industrial Average (^DJI 0.06%) fared relatively well with more modest declines.

Data source: Yahoo! Finance.

Retail stocks were still in the spotlight on Tuesday as a couple of key companies in certain niches reported their latest financial results. Lowe's (LOW -0.03%) managed to post a modest gain for the day after releasing its quarterly figures, but shareholders in auto parts retailer AutoZone (AZO 1.19%) weren't as fortunate. Below, you'll see more of the details in both companies' reports and the key trends that affected their share prices.

Lowe's sees a possible slowdown ahead

Shares of Lowe's finished the day higher by almost 2%. The home improvement stock initially dropped following the release of its fiscal first quarter ended May 5, but investors seemed to reach a comfort level with where they see Lowe's headed in the immediate future.

The fiscal first-quarter results from Lowe's showed the pressure on the retail sector more broadly. Revenue of $22.35 billion was down 5.5% year over year, and gross margin figures weakened slightly as well. Yet, with some help from overhead cost controls, net income fell a more modest 3% to $2.26 billion. Moreover, with a big drop in outstanding share counts due to stock buybacks, earnings of $3.77 per share were actually up from $3.51 per share in the year-ago period.

Comparable sales at Lowe's were down 4.3%, but much of that drop came from deflation in the price of lumber. Unfavorable weather also weighed on results, though, as did a drop in do-it-yourself activity due to consumers having less discretionary income. Lowe's was pleased that its Pro segment saw positive comps for the period, and it remained optimistic about the long-term outlook for home improvement.

Nevertheless, Lowe's did rein in its outlook for fiscal 2023, cutting revenue estimates by $1 billion to a new range of $87 billion to $89 billion. Earnings will likely be $0.40 per share less than previously expected, with Lowe's now seeing $13.20 to $13.60 per share on an adjusted basis. Even that modest cut, though, still leaves Lowe's stock sporting what appears to be a reasonable valuation in many investors' eyes.

AutoZone hits the brakes

Elsewhere, shares of AutoZone dropped 6%. The auto parts retailer's fiscal third-quarter financial report for the period ended May 6 showed rising sales, but investors seem to have wanted more.

AutoZone managed to show improvement from year-ago levels. Sales of $4.09 billion were up nearly 6% year over year. Net income of $648 million climbed 9% compared to year-earlier bottom-line results, working out to $34.12 per share in earnings. Like Lowe's, AutoZone also saw a substantial drop in shares outstanding, which helped to bolster its per-share earnings results.

However, investors seemed to focus on downbeat comments from CEO Bill Rhodes. Rhodes noted that sales in March were weaker than expected and affected the overall results for the quarter. That raised questions about future impacts of the economic slowdown, particularly with respect to inventory levels at the auto parts retailer.

More broadly, results from both AutoZone and Lowe's reflect the fact that consumers have held up better than expected thus far, but companies remain nervous about what the future will bring. Until a recession actually comes, though, retailers like Lowe's and AutoZone could hang in better than many fear.