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Looking Inside the Lowe’s Earnings Report

Looking Inside the Lowe’s Earnings Report


By Scott Costa
, Publisher, tED magazine

 

Like a lot of parents, we sent our oldest son off to college a few weeks ago. And, like a lot of parents, we don’t hear from him very often. 

Unless he needs money.

And he’s smart about it. He asks us for $20 one day, maybe $40 on another. Next thing you know, we are three weeks into school and he’s probably blown through a few hundred dollars. He probably thinks the money is well-spent. I’ll stick with “blown through.”

When I saw the release on Lowe’s and its second quarter earnings, I was drawn to the big numbers. To be honest, even our headline for the August 17 story on tedmag.com, “Lowe’s 2Q Results Show Weak Sales Growth,” doesn’t tell the whole story. Lowe’s didn’t meet Wall Street’s expected revenue to be $18.72 billion. It only hit $18.26 billion for the quarter. Total sales only rose 2 percent. Industry analysts projected a 4.2 percent increase.

I had to look a little deeper to find the smaller numbers, and that seems to be where the story has the most impact on all of us. First, all online sales for Lowe’s rose 14 percent when compared to the second quarter of 2015. And that might not seem like a big number. But, to be honest, I wouldn’t mind seeing my online sales increase 14 percent. It may seem like a coincidence, but the 14 percent increase comes at the same time Lowe’s expanded and improved its online offering to customers. “This quarter, we launched our new Lowes.com site,” Chief Customer Officer Michael Jones announced. “Advancing our online shopping experience with optimized functionality and display for touch-screen devices to support a better mobile experience, improved product and content recommendations, refined search algorithms, improved click-to-chat capabilities, larger project images and expanded product views, including video content.”

No one can guarantee that by just doing what Lowe’s did you will see a 14 percent increase in e-commerce sales. But you have to believe those improvements will keep that 14 percent interested in using Lowe’s online over and over again, while continuing to grow its customer base.

Then there is the LowesForPros offering. Re-launched a little more than a year ago, the e-commerce offering directed at the professional contractor continues to grow, even when the overall revenue numbers did not. LowesForPros sales were up almost 18 percent in the second quarter. If you ask the executives at Lowe’s, they will tell you they are planning to build on that success. In fact, during the conference call to discuss the second quarter report, one analyst did ask about the future of LowesForPros.

“Today, we have a strong foundation for the pro customer including dedicated service in store, solid inventory depth, field based pro account executives and a national accounts team,” Chairman, President and Chief Executive Officer Robert Niblock. “And we will continue to build on this strong foundation by incorporating the feedback we’ve received from Pros and our Pro Services team to constantly improve the customer experience and deepen our relationships with this important customer segment.”

It’s obviously an important segment, because when you combine the Lowe’s e-commerce offering to customers and the LowesForPros offering, it makes up 30% of the total Lowe’s revenue for the second quarter. The final tally is nearly $5.5 billion in the past three months. That’s a big number. But think about this: if you could somehow tap into just 1/100,000 of that $5.5 billion in online and pro sales, you can add $55,000 in revenue each quarter. With that money, you can improve your ERP system. Or build a stronger website. Or hire more people. Those big numbers, from what is becoming another online giant threat to our supply chain, can be broken down into smaller numbers that will have a huge impact on your success in the future. 

But it won’t be easy; because something I didn’t notice in the earnings report was a slideshow where the company listed it’s three priorities for 2016. The third one reads, “Further improve our product and service offering for the Pro customer.”
One way they plan to do that is by increasing the number of brands it carries. “The brands that we’re bringing in and continue to introduce as well as our ‘5 Ways to Save’ value proposition. So, we think, holistically, those aspects drive greater relationships and synergies across all pro customers, not just one segment,” Niblock says.

From now on, we are looking at the Lowe’s earnings report in a couple of different ways. One way is the overall results, which is the big number. But the other will focus on the e-commerce and LowesForPros offerings. Because those small numbers are starting to turn into a significant amount.

Now I just need to figure out how to do the same thing with my son.

 

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