Lowe's (LOW)

Home improvement retailer Lowe’s (NYSE:LOW) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 2% year on year to $20.93 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $84 billion at the midpoint. Its GAAP profit of $2.92 per share was 1.7% above analysts’ consensus estimates.

Company Overview

Founded in North Carolina as Lowe's North Wilkesboro Hardware, the company is a home improvement retailer that sells everything from paint to tools to building materials.

Home improvement retailers serve the maintenance and repair needs of do-it-yourself homeowners as well as professional contractors. Home is where the heart is, so any homeowner will want to keep that home in good shape by maintaining the yard, fixing leaks, or improving lighting fixtures, for example. Home improvement stores win with depth and breadth of product, in-store consultations for customers who need help, and services that cater to professionals. It is hard for non-focused retailers and e-commerce competitors to match these. However, the research, convenience, and prices of online platforms means they can’t be fully written off, either.

Home improvement retail competitors include Home Depot (NYSE:HD) and private company Ace Hardware. Amazon.com (NASDAQ:AMZN) and Wayfair (NYSE:W) also offer some home improvement products.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $83.24 billion in revenue over the past 12 months, Lowe's is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because there is only so much real estate to build new stores, placing a ceiling on its growth. To accelerate sales, Lowe's likely needs to optimize its pricing or lean into international expansion.

As you can see below, Lowe’s 2.5% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was sluggish as it closed stores.

This quarter, Lowe's reported a rather uninspiring 2% year-on-year revenue decline to $20.93 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months, similar to its six-year rate. This projection is underwhelming and implies its newer products will not accelerate its top-line performance yet.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Lowe's operated 1,750 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 2.7% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Lowe’s demand has been shrinking over the last two years as its same-store sales have averaged 3.4% annual declines. This performance isn’t ideal, and Lowe's is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Lowe’s same-store sales fell by 1.7% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

Lowe’s gross margin is slightly below the average retailer, giving it less room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged a 33.3% gross margin over the last two years. That means Lowe's paid its suppliers a lot of money ($66.68 for every $100 in revenue) to run its business.

Lowe’s gross profit margin came in at 33.4% this quarter, in line with the same quarter last year and exceeding analysts’ estimates by 0.6%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Lowe's has been an efficient company over the last two years. It was one of the more profitable businesses in the consumer retail sector, boasting an average operating margin of 12.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Lowe’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Lowe's generated an operating profit margin of 11.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Lowe's has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 8.9% over the last two years.

Taking a step back, we can see that Lowe’s margin dropped by 1.7 percentage points over the last year. This decrease warrants extra caution because Lowe's failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.

Lowe’s free cash flow clocked in at $2.86 billion in Q1, equivalent to a 13.7% margin. The company’s cash profitability regressed as it was 4.5 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Lowe's hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 37.3%, splendid for a consumer retail business.

Lowe's reported $3.42 billion of cash and $38.96 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $11.94 billion of EBITDA over the last 12 months, we view Lowe’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $625 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Lowe's beat analysts’ EPS expectations this quarter, even though the magnitude was not large. We were also comforted that the company reaffirmed previously-provided revenue guidance. Zooming out, we think this was a decent quarter, especially considering uncertainty in the macro and with regards to consumer health. The stock traded up 2.6% to $237 immediately following the results.

Updated: May 22, 2025 at 10:23 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Lowe's.

Lowe’s business quality ultimately falls short of our standards. First off, its revenue growth was uninspiring over the last six years, and analysts don’t see anything changing over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its declining physical locations suggests its demand is falling.

Lowe’s P/E ratio based on the next 12 months is 17.8x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $265.66 on the company (compared to the current share price of $224.95).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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