Investors punish Lowe’s for not growing like Home Depot

Matt Townsend
Bloomberg News

The continued boom in U.S. housing prices seems to favor Home Depot Inc. over rival Lowe’s Cos.

Lowe’s, the second-largest U.S. home-improvement chain, reported fourth-quarter earnings that missed analysts’ estimates, sending the shares down the most intraday in two years on Wednesday. The company’s guidance for the current fiscal year also fell short of expectations.

After almost a decade of rising property values, Americans are increasingly investing in their homes, renovating them at a record pace. Home-improvement chains have benefited, with sales growth outpacing much of the retail industry. But Lowe’s isn’t getting as much of a lift as its larger competitor.

The company has long been seen as the second fiddle of the industry, not only in overall sales, but also in the quality of its locations. With fewer stores in lucrative areas than Home Depot, it’s been difficult to catch up.

Lowe’s shares fell as much as 9.4 percent to $86.75 on Wednesday. The stock’s value had surged by about 25 percent in thepast year through Tuesday’s close.

Excluding some items, profit amounted to 74 cents a share, the company said in a statement. Analysts on average projected 87 cents. Profitability also declined, with gross margin falling to 33.7 percent — a 68 basis-point drop from a year earlier. The key metric of same-store sales rose 4.1 percent, topping analysts’ 3 percent estimate, according to Consensus Metrix. Home Depot posted a gain of 7.5 percent, marking the seventh-straight quarter it has outperformed Lowe’s.

Lowe’s provided its first forecast for this fiscal year, saying earnings per share will be $5.40 to $5.50 a share. Analysts predicted $6.01 a share, on average.

Even though millennials are starting families and buying more homes, there are signs that the housing market might be cooling off. Mortgage rates are rising amid inflation fears, with the 30-year rate climbing to 4.38 percent earlier this month, the highest since April 2014.

The company also benefited last quarter from spending to repair structures damaged during hurricane season.

Like many large companies after the federal tax overhaul went into effect, Lowe’s announced a one-time bonus of $1,000 for its hourly employees. It also expanded parental leave, to help retain workers in a tight labor market.