Lowe's (LOW) stock rose more than 4% after a mixed quarter, a stronger reaction than the muted move Home Depot (HD) saw a day earlier on cleaner numbers. Home Depot (HD) also traded more than 3% higher on the same day. Both companies cited the same problem: pressure on the consumer and on spending. Lowe's (LOW) just showed more of the effect. Weakness in the housing market continues to weigh on both.
The numbers
Earnings per share came in at $4.40, a beat that included an 11-cent boost from tariff refunds. Revenue was $25.96 billion, just under the roughly $26 billion expected, but higher than the same quarter a year earlier. Comparable sales grew about 0.2%, helped by strong pro and home services sales. Online sales rose 15.7%, though that was partly offset by economic pressure on the do-it-yourself (DIY) customer.
Management commentary
The CEO said Lowe's (LOW) saw heightened competitive pressure in July but described that impact as "transitory" - not permanent and not the new normal. The company blamed competitors using tariff refund dollars in different ways to drive their top line, a reference to Home Depot (HD). Lowe's (LOW) does not expect this to shift the picture over time.
Guidance
Full-year guidance was not cut, but the outlook was moved to the bottom of the prior range. Sales are now seen at about $92 billion, versus a prior range of $92 to $94 billion. Comparable sales are now expected to be flat, instead of flat to up 2%. EPS is now guided at $12.25, down from a prior range of $12.25 to $12.75. Management pointed to elevated fuel prices and broader economic uncertainty as continued pressure on the consumer.
Part of the gain may come from rotation. Target (TGT) raised its guidance the same day, and money appears to be moving out of tech and into consumer staples and retailers.
The trade view
My take: short Lowe's (LOW) here and fade the rally. The chart shows lower lows and lower highs, which may be breaking now, but I would not buy into it. Option volatility stays fairly expensive even after earnings. The trade is a bearish iron condor - selling both a call spread and a put spread, very short-dated, expiring next week. That means selling the 210/205 put spread on the downside and the 220/225 call spread on the upside. After the recent half-hour move higher, the call spread is already in the money, which is fine. The trade brings in at least a $3 credit, maybe more, so maximum risk is only $2 even if Lowe's (LOW) keeps rising. I do not trust the move and expect the technicals to take over.
On the broader market: the Treasury buyback is not yet well understood, and it is pulling rates down a little. Retailers have been fairly strong, but I expect that strength to be short-lived.
