Rising costs attributed to store revamps and COVID-19 related expenses are increasingly taking a toll on Lowe`s Companies Inc. (NYSE:LOW) sentiments in the market. The company is fresh from reporting third-quarter results that fell short of analysts' estimates, all but triggering stock sell-off.
Earnings Miss
The stock slumped after the home improvement retailer reported earnings of $1.98 a share against $2 a share expected. It marked the first time that the retailer has missed the metric, all but dealing its sentiments in the market a blow. A disappointing outlook for the current quarter all but continues to arouse concerns in the investment community.
Amid the earnings miss, Lowe has greatly benefited from being deemed an essential retailer amid the pandemic. Likewise, an increase in DIY renovation projects has all but helped drive sales in the home improvement retailer. Same-store sales in the quarter climbed 30.1%, outpacing the 23.4% average estimate.
Comparable sales are expected to continue growing in the fourth quarter as Lowes moves to expand its customer base this holiday season. Sales are also expected to increase despite the fourth quarter being a slower time for home improvement. Amid sales growth Lowe sees adjusted earnings coming in at between $1.10 and $1.20 a share.
Capital Spending
Lowe is spending close to $100 million to reset the layout of its U.S stores as it invests for the future. The redesign is part of the home improvement stores push to make it easier for customers to shop with improved product adjacencies.
The retailer is also spending more money on COVID-19 related expenses as it also moves to bulk up its supply chain. The spending drive is part of the company’s push to deliver sustainable long-term growth.
In addition, the company has reinstated its share repurchase program as it moves to return value to shareholders. During the quarter, it spent $621 million in repurchasing 3.6 million shares. As other companies cut dividend offerings, the home improvement retailer spent $416 million in paying dividends.