Quarterly Earnings: A Lowe’s Preview and Home Depot Takeaways

Home Depot is successfully navigating high interest rates, inflation and tariff uncertainties. Can Lowe’s do the same?

• Lowe’s an Home Depot share many similarities but also differ in some fundamental ways.
• In its quarterly report this morning, Home Depot said it narrowly missed expectations for earnings per share (EPS) but narrowly beat expectations for revenue.
• Lowe’s announces earnings before the market open tomorrow. Can it match Home Depot?

Home center giants Lowe’s (LOW) and Home Depot (HD) have no shortage of similarities, right down to the smell when you walk into their stores. (And it’s a wonderful smell, isn’t it?) These similarities extend to the stock market, where they tend to move in tandem as two of the biggest players in the Consumer Discretionary sector. 

Like their share prices, the earnings results of the two companies also tend to coincide; in a binary beat/miss context, the two companies have had identical results in each of their last five earnings calls. This brings about a big question: Is there any reason to believe this earnings cycle will be any different?

Home Depot lays the foundation

Home Depot reported earnings this morning, narrowly missing analyst expectations for earnings per share (EPS) but narrowly beating analyst expectations for revenue. The company posted earnings of $3.56 per share on an expectation of $3.60 (1% miss) and revenue of $39.86 billion on expectations of $39.30 billion (1.4% beat). 

Amid these mixed results, Home Depot issued relatively positive news for the rest of the year, sticking with their full-year guidance despite the miss on EPS. They also said they will not be raising their prices because of tariffs, instead diversifying where they source their merchandise to lower the tariff burden. 

The company announced that to combat the slowdown in the housing market because of higher interest rates, they have acquired SRS Distribution, which sells supplies to roofing, landscaping, and pool installation professionals. 

All of this is relatively bullish news despite the miss on EPS, and the market is having a tough time pricing it all in, with HD trading at near breakeven after morning power hour following this earnings call. 

Can Lowe’s measure up?

Lowe’s comes in with lower expectations than Home Depot, as the consensus EPS estimate lands at $2.88 per share, with a consensus revenue target of $20.94 billion. Lowe’s has a market cap of less than half of Home Depot’s ($130 billion compared to $377 billion), so these expectations are proportionately higher than those laid out for Home Depot, despite the smaller raw numbers. 

Analysts are generally bullish on Lowe’s, with an average rating of a moderate buy and an average price target of $270, about 15% higher than current levels. Despite this bullish outlook, the aforementioned EPS and revenue expectations would constitute a 6% and 2% decline, respectively, year-over-year.

As is the case with most of the market right now, macroeconomic pressures and how Lowe’s plans on navigating them will be the defining aspect of this earnings call, and of the subsequent move in LOW’s share price. 

High interest rates, inflation and tariff uncertainties continue to dampen consumer spending and present challenges for companies to navigate. Home Depot seems to be navigating all of these pitfalls gracefully, so there is certainly hope for Lowe’s, but we won’t know for sure until tomorrow morning. 

Comparing the Blueprints

Both Lowe’s and Home Depot have seen earnings beats in four consecutive quarters and tend to be highly correlated in the market, both through earnings and under normal conditions. One would expect that trend to continue into this earnings call, but there is more to this situation than meets the eye. 

Home Depot’s consumer base tends to be more saturated with professionals – full-time contractors and large-scale projects – while Lowe’s consumer base tends to lean more DIY and rely more heavily on individual consumers. This is a critical difference because Home Depot tends to show more resilience in tougher economic climates. 

This trend also extends to the margins of both companies. Home Depot tends to have higher operating margins because of better supply chain optimization and higher volume from professionals. Lowe’s tends to have lower margins because of its reliance on individual consumers. But Lowe’s hopes to close this gap and has recently emphasized automation, inventory control and store . 

With all of this in mind, investors are largely viewing Lowe’s as a high beta play, with more room to rebound but also more room to fall if consumer softness persists. 

Tightening the screws

Lowe’s and Home Depot are both navigating the same economic headwinds: elevated rates, cautious consumers and a cooling housing market. Forward guidance and details on coping with these challenges will be most critical in the earnings call for Lowe’s. It it shows as much conviction as Home Depot, that will likely be enough to reassure investors.

While Home Depot has laid a solid foundation, Lowe’s offers a more volatile but potentially more rewarding opportunity, especially if its sales to professionals continue to gain traction. A beat-and-raise scenario from Lowe’s could spark high upside, while weak forward guidance may reinforce the cautious optimism theme prominent across the market right now. 

Home Depot may have picked up the hammer first, but Lowe’s still has time to nail the landing.

Gus Downing is host of the tastylive Network show Risk and Reward. @GainsByGus
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