Why Lowe's Companies, Inc. Fell on Wednesday

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What happened

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Shares of Lowe's (NYSE: LOW) fell as much as 6.1% on Wednesday, following the home-improvement retailer's second-quarter earnings report. At the time of this writing, the stock is down 5.5%.

Some investors may be taking a pessimistic view toward the stock on Wednesday because both revenue and adjusted earnings per share were lower than analysts were estimating. Lower-than-expected profitability, in particular, may be an investor concern, as the company focused on the "necessary investments to improve the customer experience and drive sales," explained Lowe's CEO Robert Niblock in the company's second-quarter earnings release. This included more aggressive marketing and customer-facing hours in its stores.

Lowe's adjusted EPS for its second quarter was $1.57. On average, analysts expected adjusted EPS of about $1.62.

So what

In the near term, Lowe's expects its more aggressive marketing will pressure its operating margin. To this end, the company said it now expects its operating margin in fiscal 2017 to increase 80 to 100 basis points, down from a previous forecast for the key metric to jump by about 120 basis points. 

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Now what

Niblock believes the near-term pressure on Lowe's operating margin will help the company take advantage of a healthy market for home-improvement goods. "We believe this is the right strategy to more fully capitalize on strong traffic trends in what we believe is a supportive macroeconomic backdrop for home improvement," Niblock said.

For the full fiscal year, which ends on Feb. 2, 2018, Lowe's expects sales to climb 5% year over year.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool recommends Lowe's. The Motley Fool has a disclosure policy.