3 facts you need to know about Lowe’s before buying the stock

Given its sheer size, with trailing 12-month revenues of $84 billion and 1,746 stores spread across the US, Lowe’s (LOW 0.70%) it is a known business. It recently reported a financial update for the second quarter of fiscal 2024, missing on the top line but beating analysts’ estimates on the bottom line.

This retail stock it’s trading just 5% off its all-time high. But before you decide to go out and shop the easy drop, here are three must-know things about Lowe’s that you can’t miss.

1. Focused on professionals

Lowe’s CEO Marvin Ellison has been in the top job since July 2018. Prior to that, he had extensive experience in leadership roles at the rival. Home Depot. I’m sure the success of his previous company in professional grooming sparked a shift in strategic focus at Lowe’s.

The company currently generates about 25% of its total sales from professionals, a customer group that includes contractors, plumbers, electricians and the like. This is much less than Home Depot’s 50% share.

In recent years, Lowe’s has done a good job of supporting the offerings it has for professionals. This includes a renewed loyalty program and a personalized online payment service. Management’s focus in the future is to improve performance capabilities. It’s all about becoming a more trusted partner for these customers.

Over the past decade, Home Depot has seen a higher operating margin and return on invested capital than Lowe’s. The hope for Lowe’s is to continue closing the gap, and professionals are a key stepping stone to getting there.

2. Macro headwinds

During the three-month period ended Aug. 2, Lowe’s reported a 5.1% decline in same-store sales, after the measure declined in the previous quarter and in fiscal 2023. And for the current fiscal year, management believes same-store sales will decline between 3.5% and 4%.

The macro environment discourages shoppers from spending on big-ticket items. It’s a similar story at Home Depot, so the challenges Lowe’s faces are not unique to its business. There could be a light at the end of the tunnel though.

With inflation falling, the Federal Reserve finally might lower interest rates in September. Given how sensitive the housing market is to borrowing costs, Lowe’s is likely to see an increase in demand toward the end of the year as consumers begin to tackle renovation projects that may have been put off.

But the long-term picture remains encouraging. The average age at home in the US has steadily increased over the years, now in the 40s. Add in the fact that there is a huge housing shortage and it’s easy to see why home improvement and renovation projects can be a priority for homeowners who can’t afford to move into a new home.

3. Return of capital to shareholders

Lowe’s is a mature business. And as is the case with companies at this stage of their life cycle, generating profits is not a problem. In Q2, Lowe’s produced net income of $2.4 billion. This core performance results in strong free cash flow production.

The company invests cash in opening new stores or in other initiatives such as improving its supply chain or omnichannel capabilities. After that, Lowe’s returns a ton of capital to shareholders, which helps boost returns for investors.

Lowe’s hasn’t missed a quarterly dividend payment since 1961. And the payout has increased for more than 25 consecutive years. This is a phenomenal track record that income investors are sure to appreciate. The current yield is 1.9%

The business also buys a lot of shares. Over the past five years, the number of shares outstanding has been reduced by 27%

In addition to its favorable capital allocation policy, investors eyeing the stock are looking at Lowe’s drive to generate more sales from professionals as well as its recent financial performance.