Lowe's (LOW 0.43%) investors are in for a bumpy trading week ahead. The retailer is set to report fourth-quarter results on Wednesday, Feb. 23, while updating its 2022 outlook. That announcement, especially compared with rival Home Depot's (NYSE: HD) report a day earlier, might set the tone for Lowe's stock returns in the coming year.
With that backdrop in mind, let's look at a few trends to follow in Wednesday's update.
Image source: Getty Images.
Market share
Lowe's and Home Depot have both benefited from rising demand in the home improvement space, but the gains haven't been evenly split between the No. 1 and No. 2 retailers. Leader Home Depot is adding more revenue -- up 16% through the first three quarters compared to Lowe's 8% increase -- in 2021.
Most investors are looking for that performance gap to continue in Q4. Lowe's should notch a 3% sales increase, according to Wall Street pros, as Home Depot grows revenue by roughly 8%.
Looking deeper, watch customer traffic trends for signs that consumers are being turned off by inflation. Lowe's might also stumble, relative to Home Depot, in securing enough staffing and merchandise to keep shoppers happy. Weaknesses here would show up in weaker comparable-store sales growth and modest market share losses.
Price hikes
Lowe's raised its profitability outlook several times in 2021. Despite mounting supply chain costs and soaring expenses in areas like labor and transportation, the company is likely to cross 12% operating margin for the full year and set a new high for the business. That's a key reason the stock has beaten the market in the past year.
LOW Operating Margin (TTM) data by YCharts
Lowe's still has some distance to cover before it can reasonably challenge Home Depot's 15% margin. Faster sales growth is key to that strategy, including by winning more business in the pro contractor niche. Look for CEO Marvin Ellison and his team to discuss those goals, along with Lowe's plans to become more efficient, in Wednesday's release.
Looking out to 2022
Lowe's first official 2022 outlook was modest. Management said in mid-December that the company should hold sales close to the $95 billion it expects to book for 2021. Comps should be anywhere from flat to a 3% decrease after jumping 33% over the last two years, it said.
That forecast might change on Wednesday now that the company has actual holiday season data to work from. It will be interesting to see whether Lowe's still thinks it can keep steadily marching toward $100 billion of annual sales following two years of supercharged gains.
Home Depot likely crossed $150 billion in 2021, though, and that sales gap is still widening. While Lowe's business has become much stronger since the start of the pandemic, investors are hoping for signs that it can challenge the industry leader in areas like profitability, efficiency, and market share as it crosses the $100 billion annual sales mark.
