Lowe's on Wednesday reported third quarter net sales were essentially flat at $17.4 billion year over year. Consolidated comparable sales increased 2.2%, while U.S. comps rose 3%.
The home improvement retailer's net earnings grew nearly 67% to $1 billion from $629 million in the year-ago period, according to a company press release.
Lowe's on Wednesday also raised its fiscal guidance on adjusted earnings and operating margin, which it now expects to increase 40 to 60 basis points from a previously projected growth of 20 to 50 basis points.
In contrast to The Home Depot, which on Tuesday lowered its fiscal guidance for the second consecutive quarter, Lowe's raised its guidance driving shares up some 5% in pre-market trading. The North Carolina-based retailer expects operating margin to increase 290 to 320 basis points.
However, it wasn't all rosy for Lowe's in the third quarter. U.S. comps met analyst expectations but missed on total comps, which were dragged down as a result of its Canadian operations. Lowe's was hit with a $53 million charge as a result of a strategic review of its Canadian operations. In an effort to improve the performance and profitability of its Canadian business, Lowe's in Q4 will shutter 34 underperforming stores in Canada, reorganize corporate support structure and rationalize product assortment, among other things.
"Although we still have work to do, I am confident we are on the right path to build a better Lowe's and generate long-term profitable growth," CEO Marvin Ellison said in a statement. "We are committed to the Canadian market and are taking decisive action to improve the performance and profitability of our Canadian operations."
The company has improved stock levels and merchandise in all of its key categories, which as Managing Director of GlobalData Retail Neil Saunders said in a note, aren't "revolutionary but they are essential housekeeping points that were neglected until Marvin Ellison and his team remedied them." The company also signaled further investment into its digital business with a "detailed roadmap and a very experienced team in place to repair our Lowes.com business," Ellison said. Sales from its website grew 3% in the third quarter.
Lowe's has been able to shift its focus to more transformative initiatives, such as growing its professional customer base, which accounts for about 23% of total group sales and who spend about 5.5 times more than the average customer, Saunders said. "However, Lowe's pro business has traditionally underperformed compared to Home Depot largely because of the weaker proposition. Steps such as having a permanently staffed pro-desk in store and having dedicated parking spaces for pros are starting to redress this imbalance," he added.
On the whole, Saunders remains confident in Lowe's strategy and business position moving forward, but market conditions still pose a potential risk.
"The market isn't falling off a cliff, but growth is slowing, and consumers are becoming more cautious," he said. "This could start to impact results as we move into 2020 and Lowe's begins to lap tougher prior year numbers. On balance any slowdown would affect Lowe's more than its main rival, mostly because it has a higher proportion of amateur and occasional DIY shoppers who are more likely to forgo buying."