• Lowe's first-quarter earnings topped analysts' expectations.
• It said consumers are still investing in their homes and it saw sales pick up among home professionals.
• Lowe's said it is tracking ahead of its prior sales forecast, but its stock fell as investors worried about whether the strong trends can continue.

Lowe's said Wednesday that fiscal first-quarter sales rose 24%, outpacing Wall Street expectations, as consumers continued to invest in their homes and sales picked up among home professionals.

The home improvement retailer said momentum continued into May. Based on those trends, Lowe's said it's tracking ahead of its prior sales forecast of $86 billion this fiscal year.

Despite its strong quarter, shares closed down 1% to $190.72 Wednesday as investors compared the company against its exceptionally high growth during the peak of the pandemic and worried that the labor shortage could slow down the housing market.

As of Wednesday's close, Lowe's shares have risen about 18% this year, bringing its market value to $136.78 billion.

Here's what the company reported for the fiscal first quarter ended April 30 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: $3.21 vs. $2.62 expected
• Revenue: $24.42 billion vs. $23.86 billion expected

Net income rose to $2.33 billion, or $3.21 per share, from $1.34 billion, or $1.76 per share, a year earlier. The results outpaced the $2.62 per share expected by analysts surveyed by Refinitiv.

Net sales climbed to $24.42 billion from $19.68 billion last year, and were higher than analysts' expectations of $23.86 billion. 

Lowe's same-store sales grew by 25.9% in the quarter. That's higher than the growth of 20.3% that Wall Street expected, according to a survey by StreetAccount.

Gaining more pro business

For some analysts, however, that sharp trajectory wasn't good enough. Zack Fadem, a senior equity analyst for Wells Fargo, said in a research note that some had expected to see growth in the upper 20% to low 30% range.

At rival Home Depot, sales soared by nearly 33% in the first quarter, but the retailer declined to provide a forecast. Its shares fell when it reported earnings on Tuesday and closed down 0.73% to $314.45 on Wednesday.

Both Home Depot and Lowe's shares have gained around 18% since the start of the year.

Lowe's CEO Marvin Ellison emphasized reasons why investors should keep betting on the company on an earnings call. He said it is winning more business from home professionals, a more lucrative and steadier kind of customer. He said it will keep adding more brands to its stores and website, so it carries everything from lumber to throw pillows. And he said real estate trends remain on the retailer's side.

"Although all of us are looking forward to a post-Covid world, our research tells us that the importance of the home will remain elevated for many years to come," he said.

Lumber was the company's strongest growth category in the quarter, said Bill Boltz, executive vice president of merchandising. Comparable sales also exceeded 30% for home decor, electrical, kitchens and bath and seasonal and outdoor living when compared with the year-ago period.

He said stimulus checks supported bigger ticket projects and the company saw early demand for popular spring purchases, such as patio items and grills.

Managing supply shortages

Both home improvement players have benefited from the booming real estate market, but they face new challenges. Demand for homes remains high, but a labor crunch, rising lumber prices and land shortage is making it difficult for construction to keep up. Single-family housing starts dropped more than 13% in April compared with March, the U.S. Census reported Tuesday. That's the sharpest decline since April 2020, when the pandemic shut down the economy.

Boltz said merchants have closely managed lumber and stayed in touch with suppliers to make sure Lowe's keeps up with demand.

"Strong in-stocks in this tight market have allowed us to continue to strengthen customer relationships especially with the Pro [home professional]," he said.

Lowe's is also going up against big numbers in the fiscal year. It kept stores open during lockdowns last year as an essential retailer. As customers stayed at home, they took on do-it-yourself projects, replaced kitchen appliances and spruced up their lawns or backyards. Some investors are skeptical that will continue as people dine out, go on vacation and spend their time in other ways.

Read the full press release here.