Lowe’s Cos Inc cut its full-year profit forecast and reported disappointing first-quarter earnings on Wednesday, as higher costs and a push to catch up with larger rival Home Depot dented margins, sending its shares down 9 per cent.
Chief executive officer Marvin Ellison blamed a combination of higher costs, moves to stock more products on shelves and an outdated pricing strategy for the “unanticipated” impact on profit.
Since taking the helm last July, Ellison has set his sights on closing the gap with Home Depot Inc by making changes to Lowe’s supply chain and hiring specialized merchandising teams to ensure that more in-demand products were available for a longer period.
The initiatives helped Lowe’s record stronger quarterly same-store sales than Home Depot for the first time in three years, but weighed on the company’s margins, which fell nearly 3 per cent in the first quarter.
Lowe’s same-store sales rose 3.5 per cent in the quarter, outpacing Home Depot’s 2.5 per cent increase.
Also weighing on Lowe’s was higher transportation costs that have also plagued other retailers.
Ellison said Lowe’s was looking at raising retail prices to help offset the higher costs.
Lowe’s said net income rose to $1.05 billion, or $1.31 per share, in the three months ended May 3, from $988 million, or $1.19 per share, a year earlier.
Excluding certain one-time items, the company earned $1.22 per share, missing the analysts’ average estimate of $1.33, according to IBES data from Refinitiv.
Lowe’s now expects 2019 earnings of $5.54 to $5.74 per share, down from a prior forecast of $6 to $6.10 per share.
On an adjusted basis, the company said it expects earnings of $5.45 to $5.65 per share, below analysts’ expectations of $6.05.