What's that I spy on the horizon, on the other side of the weekend? Why, it's do-it-yourself shop and Home Depot (NYSE:HD) rival Lowe's (NYSE:LOW) coming in fast with a report on Q1 2006 earnings. With the report still a few days off (not due 'til Monday), let's gather a few facts and figures to ponder over the weekend.
What analysts say:
- Buy, sell, or waffle? Twenty-one analysts follow Lowe's, where the votes run 11-to-10 buy vs. hold.
- Revenues. Wall Street expects to see a 19% improvement in sales tomorrow, to $11.8 billion.
- Earnings. Profits are predicted to grow 27%, to $0.94 per share. In the case of both revenue and profits growth, therefore, Wall Street is looking for Lowe's to best Home Depot. As my fellow Fool Alyce Lomax observed on Tuesday, Home Depot reported just 13% and 17% improvement, respectively.
What management says:
Lowe's hasn't said much worth recounting since its fiscal 2005 earnings release. But back then, the news was plenty good to tide us over through Monday. Sales grew 19% in 2005, same-store sales were up 6%, and profits per diluted share rose 28%. You can read all about it in Stephen Simpson's write-up right here.
Generally, Lowe's attributed its efforts to help with the post-hurricane season cleanup with boosting results in the latter part of the year. CEO Robert Niblock also highlighted the firm's Installed Sales, Special-Order Sales, and Commercial Business Customer initiatives with delivering "great results" and being "key drivers of our performance" for the year. The company continues to expand rapidly; it was planning to open 24 new stores in Q1 2006 alone, growing its square footage by 13%.
What management does:
Lowe's has done an admirable job of both growing its gross margin (up 110 basis points over the past 18 months) and passing the bulk of the extra profits all the way down to its bottom line (which has improved by 80 basis points).
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
2/06 |
|---|---|---|---|---|---|---|
|
Gross |
33.1 |
33.6 |
34.1 |
34.2 |
34.2 |
34.2 |
|
Op. |
10 |
10.3 |
10.6 |
10.7 |
10.8 |
10.8 |
|
Net |
5.8 |
6 |
6.1 |
6.2 |
6.3 |
6.4 |
One Fool says:
In February, Lowe's increased the size of its authorized share-buyback plan by an additional $1 billion, putting the limit at $1.23 billion three months ago. Considering that the company's share price has averaged only 4% higher over the past three months than it stood on the date the buyback plan was reauthorized, it's anyone's guess whether it thought the higher price is a good enough deal to start buying this past quarter.
If I were a Lowe's shareholder, I'd be hoping that tomorrow's news shows that the company kept its powder dry and its money in the bank. I see Lowe's trading at 103 times trailing free cash flow, and even though I know intellectually that this valuation is inflated by the copious funds Lowe's has been spending to expand its footprint (at about $25 million per store), that valuation makes me nervous. From management's point of view, however, it could well have been tempted to buy back shares, since those shares are trading at 18 times trailing earnings -- a valuation that, according to Capital IQ, the shares haven't even approached since the year 2000.
My guess? Since management gets to make the decision, not me, we're going to learn tomorrow that the company bought back a lot of shares.
Competitors:
- Builder's FirstSource (NASDAQ:BLDR)
- Sears Holdings (NASDAQ:SHLD)
- Costco (NASDAQ:COST)
- Snap-on (NYSE:SNA)
- U.S. Home Systems (NASDAQ:USHS)
Home Depot is a Motley Fool Inside Value recommendation. Costco is a Motley Fool Stock Advisor recommendation. Snap-on is a Motley Fool Income Investor recommendation. Not enough choices for you? Check out all of our Foolish newsletters, complete with 30-day free trials.
Fool contributor Rich Smith does not own shares of any company named above.
