Lowe’s Cos. (LOW) Report Interpretation

Overview

This earnings review examines Lowe’s reduced FY26 outlook following a quarter in which modest comparable-sales growth and an adjusted-EPS beat were outweighed by persistent DIY discretionary weakness, housing pressure and margin headwinds. Goldman Sachs retains a Buy rating while lowering estimates and valuation assumptions.

Core views

Lowe’s reported 2Q26 comparable-sales growth of 0.2% year over year, down from 0.6% in 1Q26. The result reflected continued strength in Pro customers, online sales, which grew 15.7% year over year, and home services, but softer DIY discretionary spending, macro pressure and unfavorable Memorial Day weekend weather constrained demand. Average ticket increased 2.3%, supported by modest price inflation and stronger Pro, home-services and appliance sales, while comparable transactions declined 2.1%, largely because of weather-sensitive outdoor and seasonal categories. The monthly pattern was uneven: May comps were -0.4%, June +1.7% and July -1.2%. Management said the July 4 holiday timing shifted roughly 75bp of comp benefit into June and created a similar July drag, while competitor promotion also intensified in July. Nine of 13 merchandise divisions posted positive comps, including building products, interior home-decor categories, lawn and garden, and tools and hardware. Margins remain a central issue. Gross margin was 33.0%, about 80bp below the prior year, principally because the FBM and ADG acquisitions diluted mix; favorable credit revenue partly offset that pressure. Lowe’s recognized about $80mn of tariff refunds, adding 30bp to gross margin, but elevated fuel and transportation costs largely absorbed that benefit. Management expects higher fuel and transportation costs in 2H26 as newer cost layers are worked through. It also expects another quarter of significant gross-margin dilution in 3Q from the acquisition mix, with final dilution potentially slightly above prior guidance of 100bp for Q1–Q3 and 75bp for the full year. Although Lowe’s is pursuing further eligible tariff refunds, none are included in its second-half outlook because timing is uncertain; any additional proceeds are intended for customer-facing value actions. The company reduced FY26 guidance to $92bn of sales, from $92bn–$94bn previously and versus $93bn consensus; flat comparable sales, from a prior flat-to-2.0% range and versus 1.1% consensus; adjusted operating margin of 11.6%, from 11.6%–11.8%; and adjusted EPS of about $12.25, from $12.25–$12.75 and versus $12.45 consensus. Net interest expense guidance remains $1.6bn and capital expenditure guidance $2.5bn. The outlook incorporates tariff benefits already recognized in 2Q but no further recovery in 2H26. Management expects 3Q comps to be roughly flat and adjusted EPS to decline about 7% year over year. Q4 is implied to have negative comps, including an estimated 50bp drag from cycling a prior-year winter storm, although cycling a prior-year discretionary bonus should help year-over-year operating margin. Housing remains the report’s key macro constraint and prospective recovery catalyst. Elevated interest rates have depressed residential construction and near-term housing demand, with single-family and multifamily building at multiyear lows. This weighs disproportionately on ADG, which is fully exposed to residential construction, and FBM, which has 45% exposure. Management nevertheless points to the record age of the US housing stock and homeowners’ record-long tenure as support for ongoing repair and maintenance needs. It believes a housing recovery could produce mid-single-digit market growth, and Goldman Sachs likewise argues that Lowe’s ongoing Pro investment and its FBM and ADG positions could improve its ability to capture pent-up demand when conditions turn. Competitive pricing was another near-term headwind. Management observed aggressive July promotions in seasonal categories such as grills, patio and live goods, which it attributed to competitors using tariff refunds to support sales rather than profitability. Lowe’s chose not to match unprofitable promotions outside its financial plan, describing the pressure as transitory and expecting the sector’s typically rational pricing environment to return in 2H. Its response centers on differentiated, profit-oriented offers for more than 30mn MyLowe’s Rewards members, in-store events and enhanced fulfillment; these initiatives are already reflected in updated second-half guidance. Goldman Sachs reduced its estimates to reflect lower comparable-sales assumptions. FY26 EPS falls to $12.14 from $12.64, FY27 EPS to $12.88 from $13.43, and FY28 EPS to $13.85 from $14.49. Its FY26 sales forecast falls to $92.205bn from $92.935bn, and FY27 and FY28 sales forecasts fall to $94.326bn and $97.627bn, respectively. The firm maintains Buy but lowers its 12-month target price to $270 from $293, using lower downside/base/upside relative P/E multiples of 80%/90%/95%, versus 80%/90%/100% previously, and a lower market multiple of 22.6x versus 23.8x. It says the lower multiples better align with historical relative averages. Its risk/reward framework assigns 25%/50%/25% probabilities to downside/base/upside cases, with implied prices of $233.03/$272.99/$299.75 and a probability-weighted value of $270.

Analysis framework

Goldman Sachs evaluates the quarter through comparable-sales drivers, category and monthly demand trends, transaction and ticket movements, gross-margin drivers, guidance changes and housing conditions. It then revises sales and EPS forecasts and derives its target price from scenario-weighted relative P/E multiples against a market multiple.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Comparable-sales decomposition into average ticket and transactions

  The report explains modest comparable-sales growth by separating a 2.3% increase in average ticket from a 2.1% decline in transactions, then links these movements to pricing, Pro demand and seasonal-category pressure.

• Valuation methodsP/E and PEG Valuation

  Scenario-based relative P/E valuation

  Goldman Sachs sets downside, base and upside relative P/E multiples and probabilities, applies them to EPS cases, and uses the weighted result to support its $270 target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Lowe’s Cos. (LOW)

  Primary covered company; Buy-rated despite lower FY26 guidance and estimate reductions.

  Strengths

  Pro, online and home-services growth; broad category performance; strategic investments intended to capture a housing recovery.

  Weaknesses

  Persistent DIY discretionary softness, declining transactions and acquisition-related gross-margin dilution.

  Comparison

  Management characterized competitor pricing in July as aggressive and tariff-refund funded, while Lowe’s remained disciplined on profitability.

  Risks

  Housing turnover may not recover, competition or weak demand may impair profitability, and company initiatives may face execution risk.

Key data

• 2Q26 comparable sales growth0.2% y/yDown from 0.6% in 1Q26; Pro, online and home services growth was offset by DIY and weather-related weakness.
• Online sales growth15.7% y/yA stated source of continued growth.
• Comparable average ticket+2.3%Supported by modest price inflation and strength in Pro, home services and appliances.
• Comparable transactions-2.1%Pressured by weather-sensitive outdoor and seasonal categories.
• 2Q26 gross margin33.0%Down about 80bp y/y; FBM and ADG mix dilution was partly offset by tariff refunds.
• Tariff-refund benefit~$80mn / +30bpRecognized in 2Q26; further recoveries are excluded from 2H26 guidance.
• FY26 sales guidance$92bnPreviously $92bn–$94bn; consensus was $93bn.
• FY26 comparable-sales guidanceFlatPreviously flat to +2.0%; consensus was +1.1%.
• FY26 adjusted EPS guidance~$12.25Previously $12.25–$12.75; consensus was $12.45.
• Goldman Sachs FY26 EPS estimate$12.14Reduced from $12.64.
• 12-month price target$270Reduced from $293; based on lower relative P/E and market-multiple assumptions.

Impact & implications

The report views the reduced outlook as evidence that housing and DIY pressure will persist through 2H26, while acquisitions and higher logistics costs weigh on margins. It nevertheless argues that Lowe’s Pro, online and home-services initiatives, together with its positions in FBM and ADG, could provide meaningful leverage to an eventual housing recovery.

Risks

• Comparable sales could decelerate if housing turnover does not recover or macro headwinds weaken home-improvement demand.
• A worse pricing environment from increased competition or softer-than-expected demand could pressure profitability.
• Execution risks related to Lowe’s initiatives could impair results.

What to watch

• Comparable-sales performance in 3Q and the implied negative comparable-sales outcome in 4Q.
• Housing demand and residential-construction conditions, particularly their effect on ADG and FBM.
• Fuel and transportation costs and the extent of acquisition-related gross-margin dilution in 3Q and FY26.
• Whether additional tariff refunds are obtained and how any proceeds are reinvested.
• Competitive promotional behavior and the performance of MyLowe’s Rewards, member offers and fulfillment initiatives.