Another quarter, another set of underwhelming Lowe’s (LOW) results vis-à-vis arch-rival The Home Depot (HD).
Lowe’s on Wednesday reported second-quarter sales and profit below what Wall Street was expecting, prompting a sell off that sent its shares down 5% in pre-market trading. The company said its adjusted profit was $1.57 per share, below analysts’ average estimate of $1.61, according to Thomson Reuters I/B/E/S, while net sales climbed 6.8 percent to $19.50 billion, short of forecasts for $19.53 billion. Comparable sales rose 4.5%, well below the result posted last week by Home Depot, suggesting Lowe’s continues to struggle to capitalize on the housing boom compared to its nemesis.
But the home improvement retailer thinks it has found a solution: increasing hours for store workers to improve customer service.
“While our results were below our expectations in the first half of this year, the team remains focused on making the necessary investments to improve the customer experience,” CEO Robert Niblock said in a statement. He added: “This includes amplifying our consumer messaging and incremental customer-facing hours in our stores.” That of course means sacrificing some profit.
Spending money on higher wages and longer hours or both is a wise move in this retail environment.
Since Walmart (WMT) gave workers raises and increased training, the retailer has enjoyed quarter after quarter of growth. (Conversely, a year ago, Barnes & Noble (BIS) blamed a weak quarter on not having enough staff on the sales floor to advise customers.)
For a chain like Lowe’s, store workers are a key tool for making the case a shopper should buy there rather than on Amazon.com (AMZN). After all advice for a big project is not what Amazon can offer, but it is a major selling point for the likes of Home Depot and Lowe’s. What’s more, spending on home improvements is set to continue for a good long while, meaning Lowe’s needs to take fuller advantage of this tailwind. “This is one category in retail where service really matters,” Oppenheimer & Co. Analyst Brian Nagel told CNBC on Wednesday morning.
That investment will come at a cost: Lowe’s lowered its profit outlook for the full fiscal year and now expects to make $4.20 to $4.30 a share, well below Wall Street forecasts for $4.62 per share.
And of course it may not be enough to counter Amazon, let alone Home Depot. Lowe’s has gone after the professional customer, who spends much more than individual do-it-yourselfers, hard with new brands, but many analysts feel Home Depot has more renown on that front, meaning Lowe’s may have to step up its marketing in yet another potential blow to profits.