Given its huge size, with trailing-12-month revenue of $84 billion and 1,746 stores scattered across the U.S., Lowe's (NYSE: LOW) is a well-known business. It recently reported a financial update for the fiscal 2024 second quarter, missing on the top line but beating analyst estimates on the bottom line.
This retail stock trades just 5% off its all-time high. But before you decide to go out and buy on the slight dip, here are three must-know facts about Lowe's you can't miss.
1. Focused on pros
Marvin Ellison, Lowe's CEO, has been in the top position since July 2018. Before that, he had extensive experience in leadership roles at rival Home Depot . I'm sure his previous company's success taking care of professionals sparked a focus on shifting the strategic focus at Lowe's.
The company currently generates about 25% of its total sales from pros, a customer group that includes contractors, plumbers, electricians, and the like. That's much less than the 50% share of Home Depot.
In recent years, Lowe's has done a good job bolstering the offerings it has for pros. This includes a revamped loyalty program and a tailored online checkout service. Management's focus looking ahead is to enhance fulfillment capabilities. It's all about becoming a more trusted partner for these customers.
In the past decade, Home Depot has averaged a higher operating margin and return on invested capital than Lowe's. The hope for Lowe's is to continue closing the gap, and pros are a key stepping-stone to get there.
2. Macro headwinds
During the three-month period that ended Aug. 2, Lowe's reported a 5.1% same-store sales decline, after this metric fell in the previous quarter and in fiscal 2023. And for the current fiscal year, the leadership team believes same-store sales will be down between 3.5% and 4%.
The macro environment is discouraging shoppers from spending on big-ticket items. It's a similar story at Home Depot, so the challenges that Lowe's is facing aren't specific to its business. There could be a light at the end of the tunnel, though.
With inflation coming down, the Federal Reserve could finally lower interest rates in September . Given how sensitive the housing market is to borrowing costs, perhaps Lowe's will see demand pick up toward the end of the year as consumers start to tackle renovation projects that might have been delayed.
But the long-term picture remains encouraging. The median age of home in the U.S. has steadily climbed over the years, now at 40 years old. Add in the fact that there's a huge housing shortage, and you can easily understand why home upgrades and renovation projects can be a priority for homeowners who aren't able to move to a new dwelling.
3. Returning capital to shareholders
Lowe's is a mature business. And as is the case with companies in this stage of their life cycle, generating profits is not a problem. In Q2, Lowe's produced $2.4 billion in net income. This bottom-line performance results in strong free cash flow production.
The company invests cash in opening new stores or other initiatives, like enhancing the supply chain or omnichannel capabilities. After this, Lowe's returns a ton of capital to shareholders, which helps to boost returns for investors.
Lowe's has not missed a quarterly dividend payment since 1961. And the payout has increased in more than 25 straight years. That's a phenomenal track record that income-seeking investors will certainly appreciate. The current yield sits at 1.9%
The business also buys back lots of stock. In the past five years, the outstanding share count has been reduced by 27%
Besides its favorable capital allocation policy, investors who have their eyes on this stock are watching Lowe's push to drive more sales from pros, as well as its recent financial performance.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy .
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