Lowe's (LOW) Q2 comp results and adjusted gross margin expansion are attributable to positive growth in both Pro and DIY segments, improvements in credit revenue and sustained benefits from Perpetual Productivity Improvement initiatives, RBC Capital said in a Wednesday note.
The company's quarterly survey indicated healthy backlogs in Q2, but there was evidence of rising labor costs. The company's decision to acquire Foundation Building Materials increases exposure to large Pro, according to the note.
RBC modeled Q3 comp sales growth of 1% from 0.5% earlier and adjusted EPS of $2.94 from $2.92 previously. For 2025 and 2026, analysts increased their guidance for comp sales growth to 0.3% and 2.5% and adjusted EPS to $12.19 and $12.99, respectively.
Meanwhile, the low Q3 and revised 2025 operating margin guidance imply nearly 10 to 20 basis points of deleverage in H2.
The company expects the Artisan Design Group acquisition to result in an almost 15 basis points annualized headwind. Industry challenges include elevated tariff costs, mortgage rates, cautious consumers and affordability issues.
RBC said it reiterated its sector perform rating on the stock, while increasing its price target to $260 from $243.
Price: 255.98, Change: -1.16, Percent Change: -0.45
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