Lowe’s shares climb on upbeat earnings

Today’s headlines

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

What happened: The home-improvement retailer reported a decline in sales but topped earnings estimates for the second quarter.

Lowe’s reiterated its annual forecast, despite easing demand for DIY (do-it-yourself) projects.

How were the results: The Mooresville, North Carolina-based company reported a high single-digit decline in sales for the second quarter.

• Sales fell 9.2% year-over-year to $24.96 billion and marginally missed the consensus estimates of $24.99 billion.
• Adjusted earnings declined 2.4% from the year-ago quarter to $4.56 per share, beating Wall Street expectations of $4.49 per share.

Why it matters: Lowe’s bigger rival Home Depot, which had hosted its earnings call earlier, reiterated its full-year profit view but warned of continued pressure on big ticket items due to a slowdown in spending by customers with inflation remaining sticky.

Lowe’s US same-store sales slipped 1.6% during the second quarter but fared better than market estimates of a 2.4% decline. Home Depot had reported a 2% decline in same-store sales.

Lowe’s operating margins expanded by 18 basis points to 15.57%, while operating income contracted by 8.1% to $3.9 billion. The company held cash and equivalents worth $3.9 billion as of August 4, 2023.

“Our investments in our Total Home strategy continued to drive growth across Pro and online this quarter. And we are excited by our recent launch of same-day delivery nationwide and the expansion of our rural merchandising framework to roughly 300 stores,” said CEO Marvin Ellison during the earnings call.

Management reaffirmed their revenue forecast of $87-$89 billion and adjusted earnings of $13.20-$13.60 per share for fiscal 2023. The company projected a decline in comparable sales of 2%-4%.

How shares responded: Lowe’s shares gained 3.8% to close at $225.74 on Tuesday, following the release of quarterly results. The stock has added around 12% over the past six months.

What to watch: Investors will watch inflation data, which impacts consumer spending. Markets will also monitor competition from Home Depot.

The markets today

The British pound will be in focus today ahead of a basket of economic reports

Context: The GBP/USD forex pair fell on Tuesday, after recording gains earlier in the session.

Details: Caution over China and rising US Treasury yields have kept investors on edge, lending support to the safe-haven US dollar.

The sterling edged higher in early trading on Tuesday, benefitting from a resurgence in global risk sentiment, after the US dollar fell from its ten-week high level. However, the British currency failed to hold gains. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.25% to 103.56 on Tuesday.

The GBP/USD forex pair had gained around 0.4% last week, recording its best week since mid-July, following the release of upbeat data on GDP and wages, which fuelled speculations of the Bank of England continuing to hike interest rates.

Data released on Tuesday showed the UK having a lower-than-expected budget deficit for July, increasing prospects of lower taxes this year.

Public sector net borrowing, excluding banks, came in at £4.3 billion in July, below market estimates of £5.0 billion. The Confederation of British Industry’s net balance of output declined to -19 for the three months to August, compared to a reading of +3 in the previous month. This marked the lowest reading since September 2020.

The GBP/USD forex pair fell around 0.2% to 1.2732 on Tuesday. The FTSE 100 index gained 0.18% to close at 7,270.76, after recording losses for seven consecutive sessions.

What to watch: Traders await the release of economic reports on UK’s services PMI, manufacturing PMI and composite PMI today. The S&P Global/CIPS UK services PMI, which was confirmed at 51.5 in July, is expected to decline to 50.5 in August.

The S&P Global/CIPS UK manufacturing PMI is likely to fall to 45.2 in August, from 45.3 in July. Analysts expect the S&P Global/CIPS composite PMI to decline to 50.5 in August, from 50.8 a month ago.

Other Markets: US trading indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.51%, 0.28% and 0.18%, respectively.

The news shaping the markets

The Russian Defence Ministry said that it destroyed a Ukrainian reconnaissance vessel in an area in the Black Sea. Despite this, the safe-haven US dollar index fell slightly this morning.

Japan’s services PMI rose to a three-month high of 54.3 in August, from 53.8 in the prior month, lending support to the JPY/USD forex pair.

New Zealand’s retail sales contracted by 1% in the second quarter. The decline being less than the previous quarter’s 1.6% sent the NZD/USD pair higher in forex trading this morning.

Argentina’s trade deficit widened to $649 million in July, from $484 million in the year-ago period, exerting pressure on the ARS/USD forex pair.

The American Petroleum Institute said that US crude stockpiles had contracted by 2.418 million barrels in the week ended August 18. This being lower than market expectation of a decline of 2.9 million barrels sent the WTI crude oil prices lower this morning.

What else to watch today

Turkey’s consumer confidence index, France’s services PMI, manufacturing PMI and composite PMI, Germany’s services PMI, manufacturing PMI and composite PMI, Eurozone’s services PMI, manufacturing PMI, composite PMI and consumer confidence indicator, South Africa’s inflation rate, US MBA mortgage applications, services PMI, manufacturing PMI, composite PMI, new home sales, crude oil inventories, gasoline stocks change, distillate stocks and building permits, India’s money supply M3, Canada’s retail sales, Russia’s industrial production, Spain’s consumer confidence indicator, as well as Argentina’s leading economic index and economic activity estimator.