劳氏公司（LOW）2025年第一季度表现好于预期，2025财年指引维持不变；关税风险依然存在

F25E18.418.46.01.916.56.021 May 2025287.01/206.396M(14.3)(1.8)(12.5)05/255000550060006500 5,844.61127,260162,793 RatingOutperformPrice TargetLOWAdjusted EPSLOW (USD)OLDSource: Bloomberg, Bernstein estimates and analysis.maintained; tariff risks remainQ1 results were better than feared, with a -1.7% comp (vs. previous guidance of -2% dueto unfavorable weather). The Pro segment was again a bright spot with MSD comp, implyingDIY saw deteriorating trends (-MSD in Q1 vs. -LSD in Q4). Gross margin and adj. EBIT margincame in 20bps and 10bps above expectations. Adj. EPSbeat by 4c.Like HD, LOW reiterated its FY25 guidance, which is largely in line with consensus. Thecompany expects total sales of $83.5-84.5B (vs. consensus of $84.3B), comp sales growthof 0-1% (vs. consensus of 0.6%), adj. EBIT margin of 12.3%-12.4% (vs. consensus of12.3%), and adj. EPS of $12.15-12.40 (vs. consensus of $12.26).Management intends to remain price competitive, and is confident of managing currenttariff levels (baked into guide). LOW has ~40% import exposure, including ~20% to Chinaand ~10% to Mexico. Managing holiday assortment, and absorbing costs on undiversifiableSKU’s (e.g. ceiling fans) will be key. The company has managed inventory largely flat YoY, witha pause on Chinese imports earlier to avoid higher tariffs.Overallwe remain cautious about home improvement demandin the near to mediumterm, with mortgage rates elevated at close to 7% and consumer spending powerconstrained. However,we prefer LOW over HD over the next 12-18 monthsas theyare trading at close to an all-time high multiples gap since the 2010s. We see a path of thevaluation gap to narrow as LOW reduces its margin gap with HD through cost savings. Wealso believe that LOW is well positioned to capitalize on the upside if and when the marketrebounds. Given its greater exposure to the DIY segment (vs. HD’s 50/50 split), LOW’sbusiness could rebound more sharply, similarly to its trend in COVID.Investment ImplicationsWe rate LOW Outperform, with a TP of $266.00.See the Disclosure Appendix of this report for required disclosures, analyst certifications and otherimportant information. Alternatively, visit our Global Research Disclosure Website.First Published: 22 May 2025 04:01 UTC Completion Date: 21 May 2025 22:41 UTC 266.00 USD(258.00OLD)F26E13.3612.73FinancialsReported EPSRevenues (M)Gross Profit (M) F24AF25E11.9912.36--11.99F24AF25EF26ECAGR12.2312.3613.364.5%83,67484,33186,5211.7%28,89529,836--Close DateSPXFYEDiv YieldEV (USD) (M)PerformanceAbsolute (%)SPX (%)Relative (%)$300$280$260$240$22005/24 DETAILSMODEL CHANGESWe adjusted our estimates after earnings to reflect the Q2 guidance and lapping hurricane benefits from 2H24. We decreasedQ2’s comps sales growth from 2.2% to 1.5% to reflect the April exit rate (flat excl. Easter), as well as the $400M revenuethat shifted into Q2 from Q1. Our FY25 comp sales estimate increases from 0.4% to 0.6%. We increased our FY25 grossmargin from 33.1% to 33.3% fo reflect the cost savings from PPI portfolio being offset by near-term tariff impacts. We alsoincreased adj. operating income margin from 12.1% to 12.4% to reflect the sales leverage - with every 1% comp sales growthtranslating into 10bps margin improvement. Additionally, we paused share repurchases through the end of FY25 due to theADG acquisition. We do not model the ADG acquisition, as we wait for additional financial details upon deal closing.All in, our FY25 adj. EPS increased from $11.99 to $12.36, while our FY26 adj. EPS increased from $12.73 to $13.36. Weincreased our target price from $258 to $266 by applying a NTM+ P/E multiple of 19.5x (from 20.3x) on our Q5-8 EPS estimateof $13.64 (from $12.73).Q1 DETAILSLOW delivered a sales comp and EPS beat in Q1.Net sales declined by -2.0% to $20.9B, in line with consensus. Compsales decreased by -1.7% (vs. consensus of -2.0%), as MSD Pro and online sales comp growth offset poor weather early in thequarter. The positive comp in the Pro segment this quarter implies MSD negative comp in the DIY segment in Q1.Gross margin increased by 19bps YoY to 33.4% (20bps above consensus). Adj. EBIT margin decreased by -50bps YoY to 11.9%(vs. consensus of 11.8%). Adj. EPS of $2.92 was 4c above consensus.ARTISAN DESIGN GROUP (ADG) ACQUISITIONWhile we do not model the ADG acquisition, management indicated that the deal would close in Q2. The company is a B2Bflooring/cabinets installer that primarily serves homebuilders of all sizes. The acquisition opens up a new vertical, which thecompany attributes a $50B TAM. Homebuilding is currently depressed, so we expect low growth in this vertical for now.The transaction size is $1.325B, for a business that generates ~$1.8B sales at decretive operating margins. Managementexpects ADG to be margin-decretive, but EPS accretive in the first full year after closing. Expect more details after deal closing,most likely on Q2 earnings call.US RETAILING BROADLINES & HARDLINES 2 APPENDIX - FINANCIAL FORECAST