Lowe's on Tuesday reported that sales for the third quarter rose 6.5% to $16.77 billion from $15.7 billion in the year-ago quarter, beating the Zacks consensus estimate of $16.57 billion. Gross margin increased 5.7% year-over-year to $5.71 billion and 34.07% of sales, compared to $5.41 billion and 34.35% of sales a year ago, according to a company press release.
Overall same-store sales in the quarter rose 5.7%, driven by a 4.8% increase in average ticket and transaction growth, and U.S. same-store sales rose 5.1%. Hurricane-related sales in the quarter were some $200 million, though that didn't measurably add to earnings, executives told analysts, according to a conference call transcript from Seeking Alpha.
Also on Tuesday the home improvement retailer announced that Richard D. Maltsbarger, now chief development officer and president of its international division, has been appointed chief operating officer, effective Feb. 3, and will continue to report to CEO Robert A. Niblock. He replaces Rick D. Damron, who plans to retire after 36 years with the company and five years as COO.
Lowe's shares edged up just a bit on Tuesday, despite its healthy numbers, which beat expectations. The home improvement retailer may be suffering from operating in the shadow of rival Home Depot, which is booming — but that's not entirely fair, according to Gordon Haskett analyst Chuck Grom.
"We still like Home Depot more . . . but [Lowe's] deserves a little more credit than it's receiving," he said in an email to Retail Dive.
Still, Home Depot factored in many analysts' notes on Tuesday — evidence that it's been an issue for Lowe's for a while. The rivals have both benefited from a strong housing market and, more recently, devastating hurricanes that drove unexpected home repair sales. The two will likely always share the spoils of such external forces, but it may be time for Lowe's to think about how it can differentiate from its bigger rival, suggested GlobalData Retail Managing Director Neil Saunders.
"As much as there is room for two home improvement giants in the market, Lowe's playing second fiddle to Home Depot is a longstanding issue," he said in an email to Retail Dive. "Lowe's needs to work harder to build its brand presence and recall, something that recent advertising and marketing have begun to address. The next step should be to think about the areas where Lowe's can differentiate from Home Depot and win market share."
Interior decor is a Lowe's strong suit and a possible foil against its competitor, and Saunders suggested Lowe's should build that up more. "Here, we are encouraged by the progress Lowe's has made in store, including the increased use of specialist advisors," Saunders said. "However, we also believe the company should push this area more heavily and utilize its assets such as The Mine website (formerly branded as ATGStores.com) to drive sales in the lucrative home furnishings market."
Lowe's is also working to expand its pro services operations, executives said Tuesday, but Home Depot is way ahead. Saunders welcomed those efforts, calling that slice the "backbone of the business."
"We are pleased with the ongoing efforts to attract pros with better messaging around benefits like the Buy in Bulk program," he noted. "This, along with the acquisition of Maintenance Supply Headquarters and Central Wholesalers before it, has helped to build up the base of professional customers Lowe's serves. There is more work to do here, especially as Home Depot enhances its pro-services, but Lowe's is on the right track."
Lowe's is investing in upgrading its online shopping experience, with enhanced functionality and display for mobile devices, improved product and content recommendations, refined search algorithms, optimized assortments informed by digital earned reviews, and expanded product views, including video, executives said.
Its buy online, pick up in store and buy online store fulfillment, plus its enhanced digital marketing, all helped deliver online same-store sales growth of 33%, COO Rick Damron said, according to Seeking Alpha's transcript. "We will continue to advance our online platform, adding more functionality such as inventory and order status visibility to improve the customer experience," he said.
Although e-commerce isn't yet huge in this market, those improvements should still help Lowe's, Saunders said. "It is a fast-growing channel and is exerting increasing influence over the buying process," he noted. "Home Depot long since fine-tuned its site, with excellent search functionality and extensive amounts of information on products to help shoppers to find what they need. Lowe's recent enhancements are a significant step forward and should allow it to compete more effectively in the online space. Early results are encouraging, and we expect omnichannel to make a much bigger contribution to the business over the next fiscal year."
Still, Lowe's should expect Home Depot to continue to loom. "Overall, Lowe's will be one of the retail winners this year," he said. "However, it must work hard not just to beat Home Depot, but to defend against the rise of its larger rival."