Modern Monopolies: HD & Low

Revenue decline
The home improvement trend (especially DIY market) has at last showing weakness and it is reflected in both LOW & HD revenues. For ex: LOW’s Y-o-y the recent quarter revenue is down 12.8% and for 9 months it is down 9.2%

In Feb, as part of 2024 Q4 company will provide guidance for 2025. I expect further sales decline in 2025.


Seth Ian Sigman: how do you think about the pace of buybacks from here?

Brandon J. Sink -CFO
Seth, this is Brandon. So our capital allocation priorities unchanged. We’re going to continue to invest in the business in high-return projects,
targeting a 35% dividend payout ratio and funneling the remainder to share repurchases. As I mentioned in my prepared remarks, we do expect
funding and share repurchases through operating cash flow here in the near term and expect modest if any share repo in Q4 also expect to be in
line with our stated leverage target at the end of the year. So we’re also looking at our debt towers, paying those off as they mature. We have $500
million this past Q3. We have $450 million coming due in 2024, and we remain committed to our BBB+ credit rating and expect to manage our leverage accordingly.

In nutshell, buybacks are going to slow a lot. Why it matters? The below tables shows how consistently LOW’s bought back shares. In absolute terms, they have repurchased 883 million shares from 2010 Jan to Nov-2023 and reduced over 60% outstanding shares. All the while increasing sales ($47.22 to $97 (of course expect it to be down by $10 B, and dividend ($0.355 to $4.4)

It is reflected in their share price from low 20’s to 200 (10x, a ten bagger)

Now, Both HD and LOW enjoy healthy gross margin and it is pretty consistent over a decade. However, HD, has better operating and net profit margin over LOW, hence higher valuation.

LOW’s relative poor economics, and high reliance on DIY 75% (Do-it-yourself) market vs PRO’s 25% (relatively stable) and investments in their supply chain, IT systems and lean buyback means there is a potential stock price could face some headwind’s.

Channeling Buffett, I am rooting for the stock price to go to $100!!!

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in all the elements of running an improved business from a merchandising to operations, supply chain, but also the technology project list over the next 3 to 5 years is robust, and it’s going to allow us to continue to find ways to drive profitability

Whenever I see retailers talk about how technology is going to drive profitability and they are moving away from 30 year old systems, K-Mart comes to my mind. K-Mart changing their ERP system before holiday season doomed them. Still some of my customers want to move to new systems before their peak business period amazes me. CEO’s have a tunnel vision of everything going correct.