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Lowe's And Home Depot's Quarterly Reports Both Underline The Importance Of Technology

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Lowe's And Home Depot's Quarterly Reports Both Underline The Importance Of Technology

Lowe's (NYSE: LOW) shares rose after the company reported quarterly earnings of $1.41 which exceeded analyst expectations of $1.35. The company also raised its full year outlook causing shares to jump more than 5%, hitting a new 52-week high, as investors took this as a positive sign that the company is executing its turnaround plan.

Third Quarter Results

At first glance, this seems like Lowe's turnaround is progressing under the CEO Marvin Ellison who came in charge in 2018. The company undertook steps to restructure its operations in Canada, announcing that it is committed to its operations in Canada despite plans to close 34 stores in the next, fourth quarter.

They also invested in updating its online business and enhancing their focus on targeting professional contractors- a segment that is ruled by its rival The Home Depot Inc (NYSE: HD). However, there are weak spots in the report starting with top lines. Revenue amounted to $17.39 billion, slightly failing to meet analyst expectations of $17.68 billion.

Same-store sales growth also failed to reach the expected growth rate of 3.1% as only 2.2% was achieved. And this is because they were dragged down by stagnating Canadian stores. So, closing stores is a ‘never-easy decision' that is needed to ensure the company's stability and enable future growth. Sales at U.S. stores which were open for at least 12 months succeeded to rise 3%.

Net income did grow to $1.05 billion from $629 million from the comparable quarter last year. So, the good news is that sales grew and from existing customers due to the company's efforts to enhance its offerings. These efforts included enhancing service models, staffing, altering prices and just tailoring a better product mix.

Competition – The Emphasis On Digital Is Key

Lowe's CEO admitted he wasn't aware how much work the company's e-commerce segment needed. Now, online sales represent 5% of the company's revenues but they are expected to accelerate in the other half of 2020. Lowe's plans to shift its old platform to Google cloud during the first half of 2020 along with making significant improvements to its services.

Its rival, Home Depot, is ahead in this segment but its recent revenues ended up being harmed because of the complexity of these digital platforms. The giant invested to enhance the company's website, but the process turned out to be more complex than originally anticipated so the results will take longer to realize.

So, both rivals are now fully aware that if their websites don't function optimally, they will lose sales and consequently, money. Home Depot's shares have stumbled more than 7% since Monday due to its revenue and same-store sales growth shortfalls, but it still remains by far the more valuable retailer with a market capitalization of $241.9 billion compared to Lowe's $90.9 billion.

So, despite Home Depot cutting its full year outlook, it is improving its B2B site that is aimed at professional customers and although it needs quite a bit of technical work, it has no intentions of dropping its most important segment. Simply put, using the right technology will be critical in the battle of these two competitors.

Outlook

Changes the company has made are already showing positive results, just by the fact existing customers ended up spending more. But a multitude of enterprises today don't fully understand the significance of technology in the business world. The company who gets to use the right technology can create a competitive advantage for its brand but the one who fails in this segment has little odds of surviving in today's constantly evolving business landscape.

Just remember Kodak, once the world's biggest film company who couldn't keep up with the digital revolution. The hesitation to embrace the digital transition in fear of cannibalizing its product lines led the company straight to its demise. Canon Inc (NYSE: CAJ) was there to grasp the opportunity and has even outlived the once legendary giant to this day. As a more recent example, Toys "R" Us missed the opportunity to develop its e-commerce presence early on due to signing with Amazon.com, Inc. (NASDAQ: AMZN) to be their exclusive toy vendor.

They got comfortable placing their future in the hands of a company who now has its fair share of not-so-ethical practices, as Amazon allowed other vendors to sell on the platform despite the deal. Little has their lawsuit to end the deal in 2004 help as the company filed for bankruptcy in 2017 due to pressure of online retail competitors. Their $100 million, three-year investment to jump-start its e-commerce business came too late. So, for Home Depot and Lowe's sake, hopefully they'll get up to speed their online sales developments soon enough as the technological revolution waits for no one.

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