Shares of Lowe’s Cos Inc. (LOW) soared on Wednesday after the company announced a strong sales growth forecast for 2017. The home improvement retailer also posted better-than-expected comparable-store sales as Americans spent more on home renovations.
Homebuilding in the U.S. was up by 11.3% in December thanks to higher wages, an improving economy and a tightening labor market.
Home price gains also accelerated in the fourth quarter by 6.2%. A tightening job market is fueling demand for homes, but inventory remains limited. The number of existing homes for sale at the end of December declined by 6.3% to 1.65 million compared to the same period the previous year.
Lowe’s Stock Leap
Lowe’s stock climbed 9.1% to $81.15 in premarket trading.
The company posted a 5.1% increase in comparable sales for the fourth quarter. The figure was a significant improvement over the 2.7% increase in the third quarter and the 2% gain in the second quarter.
Net sales increased by 19.3% to $15.78 billion. Analysts were expecting sales of $15.39 billion.
Lowe’s earned 86 cents per share. Analysts were expecting 79 cents per share.
“We’ve entered 2017 well-positioned to capitalize on a favorable macroeconomic backdrop for home improvement,” said Robert Niblock, Lowe’s CEO, in a statement.
Lowe’s benefitted from providing consumers with helpful advice on larger home renovation projects, which attracted more DIY consumers and first-time homeowners.
While Lowe’s saw an improvement in the fourth quarter, the company is still lagging behind Home Depot (HD), its main rival. Lowe’s has been hurt by its focus on mainly DIY consumers and not professionals.
Roughly 40% of Home Depot’s revenue comes from professionals. Only a third of the sales at Lowe’s comes from professional customers.
Home Depot posted a surprise 5.8% increase in sales at comparable stores in the holiday-quarter.
For fiscal 2017, Lowe’s forecasts a 5% sales increase, or about $68.27 billion. The figure beat analyst estimates of $64.60 billion.
Lowe’s also forecasts comparable-store sales to increase by 3.5% in 2017.
Anthony Young
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