Lowe’s shares spike despite lowered outlook

Today’s headlines

What’s happening: Shares of Lowe’s Companies gained on Tuesday, after the company released results for its first quarter.

What happened: Despite a decline in sales, the home improvement chain reported better-than-expected results for the first quarter.

However, the company joined other US retailers to issue a downbeat guidance for the full year.

How were the results: The Mooresville, North Carolina-based company reported a single-digit decline in sales amid a slowdown in customers’ discretionary spending.

• Sales fell 5.5% year-over-year to $22.35 billion but came in ahead of the consensus estimates of $21.60 billion.
• Adjusted earnings of $3.67 per share surpassed Wall Street expectations of $3.44 per share.

Why it matters: Home improvement retailers had been the major beneficiaries during the pandemic. However, the surge in cost of living has forced shoppers to cut back their spending on non-essential items. Against this backdrop, Lowe’s witnessed a steep decline in demand for its high-priced products, including grills and patio furniture.

Its operating margins rose 75 basis points to 14.71% for the quarter but operating income declined 0.4% to $3.3 billion. The company’s bottom-line was boosted by the sale of its retail business in Canada, which increased diluted earnings by 10 cents per share.

As of May 5, 2023, Lowe’s held $3.3 billion in cash and equivalents.

For the full year, management slashed their revenue forecast from the earlier $88 billion to $90 billion to a range of $87 billion to $89 billion. The company also lowered its earnings outlook to $13.20 to $13.60 per share, from its prior forecast of $13.60 to $14.00 per share.

Lowe’s guided to a 2%-4% decline in comparable sales. Rival Home Depot has also recently lowered its full-year projections as shoppers become more cautious amid economic slowdown concerns.

How shares responded: Lowe’s shares gained 1.7% to close at $206.65 on Tuesday, following the release of quarterly results. The stock has lost around 2% over the past month.

What to watch: Investors will watch consumer price data, as this has a significant impact on Lowe’s overall results. The Fed’s next interest rate moves will also remain in focus, as rising rates have had a meaningfully negative impact on the sales of home improvement retailers.

The markets today

UK stocks will be in focus today ahead of a basket of economic reports

Context: London equities edged lower on Tuesday with concerns surrounding the US debt ceiling.

Details: Investors have remained cautious since late April, with several factors, including mixed earnings results and concerns around the US debt deal, impacting overall market sentiment.

US President Joe Biden and Republican lawmakers ended another round of talks over raising the government’s $31.4 trillion debt ceiling with no signs of progress.

Investors also monitored the recent PMI data from the UK, which signalled diverging trends in the country’s manufacturing and service sectors. The S&P Global/CIPS UK services PMI fell to 55.1 in May, from 55.9 a month ago. Although the figure came in below market expectations of 55.5, it remained in the expansion zone. Manufacturing PMI declined to 46.9 in May, from 47.8 in April, with output contracting for a third straight month.

The recent PMI survey suggested that the country’s economy is expected to grow by 0.4% in the second quarter, after a 0.1% expansion in the first quarter. The International Monetary Fund also said it no longer sees a recession in the country this year.

The FTSE 100 fell 0.1% to settle at 7,762.95 on Tuesday, closing lower after climbing for three sessions. The domestically focussed FTSE 250 index declined by 0.34% to close at 19,208.31.

What are expectations: Traders await the release of economic data on consumer price inflation, producer prices and CBI industrial trends orders from the UK today. Consumer price inflation in the country, which fell to 10.1% year-over-year in March, is expected to decelerate further to 8.5% in April.

Analysts expect factory gate prices of goods produced by UK manufacturers to ease to 5.9% year-over-year in April, from 8.7% in March.

Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.69%, 1.12% and 1.28%, respectively.

The news shaping the markets

The head of Russia’s Wagner mercenary group, Yevgeny Prigozhin, pledged to transfer control of Ukraine’s Bakhmut city to the Russian military by June 1. The news sent the safe-haven US dollar index slightly lower this morning.

The Reserve Bank of New Zealand raised its official cash rate by 25bps to 5.5% at its May meeting. Despite this, the NZD/USD forex pair remained under pressure.

Australia’s Westpac-Melbourne Institute Leading Economic Index came in flat versus the previous month in April, sending the AUD/USD pair lower in forex trading this morning.

Japan’s Reuters Tankan sentiment index for manufacturers surged to +6 in May, from -3 in the prior month. The index turning positive for the first time in 2023 lent support to the JPY/USD forex pair.

South Korea’S Business Survey Index for the manufacturing sector rose to 73 in May, from 70 a month ago, sending the KRW/USD pair higher in forex trading this morning.

What else to watch today

European Central Bank’s non-monetary policy meeting, Turkey’s manufacturing confidence index and capacity utilization, Germany’s Ifo business climate indicator, current conditions indicator and Ifo expectations indicator, South Africa’s inflation rate, Brazil’s IGP-M inflation, US MBA Mortgage applications, crude oil inventories, gasoline inventories, distillate stocks, and FOMC minutes, Mexico’s consumer prices, Argentina’s consumer confidence indicator and retail sales, as well as Russia’s producer prices.