Lowe's Cos. (NYSE: LOW) reported Q1 EPS of $1.22, $0.03 worse than the analyst estimate of $1.34. Revenue for the quarter came in at $17.7 billion versus the consensus estimate of $17.7 billion.

• The company previously announced its intention to exit its Mexico retail operations and had planned to sell the operating business. However, in the first quarter after an extensive market evaluation, the decision was made to instead sell the assets of the business. That decision resulted in an $82 million tax benefit in the quarter. The tax benefit offset $12 million of pre-tax operating costs for the Mexico retail operations in the quarter.
• Excluding the tax benefit and operating costs associated with the Mexico retail operations, adjusted diluted earnings per share1 was $1.22.
• Sales for the first quarter increased 2.2 percent to $17.7 billion from $17.4 billion in the first quarter of 2018, and comparable sales increased 3.5 percent. Comparable sales for the U.S. home improvement business increased 4.2 percent.

"Our first quarter comparable sales performance is a clear indication that the consumer is healthy and our focus on retail fundamentals is gaining traction. Our commitment to improving in-stocks and customer service coupled with our focus on winning with the pro customer were integral to driving improved sales," commented Marvin R. Ellison, Lowe's president and CEO. "However, the unanticipated impact of the convergence of cost pressure, significant transition in our merchandising organization, and ineffective legacy pricing tools and processes led to gross margin contraction in the quarter which impacted earnings. We are taking the necessary actions to more systematically analyze and implement retail price changes to mitigate cost pressure. Our recent acquisition of the Retail Analytics platform from Boomerang Commerce will also assist in modernizing and digitizing our approach to pricing. We are still in the early stages of our transformation, and with the changes we are putting in place, we expect to deliver improved gross margin performance over the balance of the year.

"I would like to thank all of our associates for their commitment and dedication to serving our customers and the communities in which they live and work," added Ellison.

GUIDANCE:

Lowe's Cos. sees FY2019 EPS of $5.45-$5.56, versus the consensus of $6.05.

• Total sales are expected to increase approximately 2 percent.
• Comparable sales are expected to increase approximately 3 percent.
• Operating income as a percentage of sales (operating margin) is expected to increase 310 to 340 basis points.
• Adjusted operating income as a percentage of sales (adjusted operating margin) is expected to increase 20 to 50 basis points.
• The effective income tax rate is expected to be approximately 24%.
• The target leverage ratio is 2.75x, therefore the company expects to repurchase approximately $4 billion of stock.
• Diluted earnings per share of $5.54 to $5.74 are expected for the fiscal year ending Jan. 31, 2020.
• Adjusted diluted earnings per share of $5.45 to $5.65 are expected for the fiscal year ending Jan. 31, 2020.

For earnings history and earnings-related data on Lowe's Cos. (LOW) click here.