From: Reuters
Published May 19, 2008 03:29 PM

Lowe's posts lower Q1 results, trims year view

By Karen Jacobs

ATLANTA (Reuters) - Retailer Lowe's Cos Inc <LOW.N> reported an 18 percent drop in first-quarter profit on Monday as the slumping U.S. housing market and soft economy hurt sales, and it cut its full-year profit forecast, sending its shares lower.

The second-largest home improvement chain behind Home Depot Inc <HD.N> also pared its sales-growth forecast for this year and said earnings for the current quarter would trail the year-earlier level.

"You're looking at a difficult economy," said Douglas Christopher, an analyst with Crowell Weedon & Co. "Lowe's is being hit by the discretionary cycle."


Earnings came to $607 million, or 41 cents a diluted share, for the quarter ended May 2, compared with $739 million, or 48 cents a share, a year earlier.

Analysts, on average, had expected 40 cents a share, according to Reuters Estimates.

The home improvement sector has been hurt as consumers curb big-ticket renovations in the face of falling home values, tighter credit requirements and higher prices for basic items such as food and gasoline.

"Assuming there's no other big negatives to come, hopefully we're at or near bottom (in the housing cycle)," Lowe's Chairman and CEO Robert Niblock said in an interview. "If we have another big unknown in the future that puts negative pressure on the consumer, that could ratchet things down."

Atlanta-based Home Depot is expected to post lower first-quarter profit on Tuesday, pressured by declining sales and costs tied to store closures and a plan to scale back future openings.

Profit at Lowe's has fallen for the past three quarters, while Home Depot's quarterly earnings have declined for more than a year.

"Home Depot is at maturity and opening far fewer stores," said Michael Souers, a retail analyst with Standard & Poor's Equity Research. "Lowe's has been executing slightly better and they are still gaining market share." Souers said his company has a "buy" recommendation on both retailers.

Lowe's quarterly sales fell 1.3 percent to $12 billion. Sales at stores open at least a year, or same-store sales, fell 8.4 percent.

Wet, cooler weather hurt demand, and no product categories had same-store sales increases in the quarter, Lowe's said.

The average purchase fell about 3 percent. Gross margin contracted to 34.69 percent of sales from 34.99 percent a year earlier, as higher fuel prices raised the cost of goods sold.

Lowe's, based in Mooresville, North Carolina, said it gained market share in the first quarter and expects to benefit as weaker building-products suppliers struggle in the current economic slowdown.

It now expects full-year profit per share of $1.45 to $1.55, down from its forecast of $1.50 to $1.58 a share in February. Total annual sales are now expected to rise about 1 percent, down from a previous forecast of a 3 percent rise.

The retailer forecast profit of 54 to 59 cents a share for the second quarter, down from 67 cents a share a year earlier, on a total sales increase of about 1 percent, with same-store sales falling 6 to 8 percent.

Analysts currently expect profit of $1.54 a share for the year and 56 cents a share for the second quarter, according to Reuters Estimates.

Lowe's shares were off 2.5 percent to $24.28 in afternoon trading on the New York Stock Exchange, after falling as much as 4 percent to $23.88 earlier in Monday's session.

Meanwhile, Home Depot's stock was down 0.4 percent to $28.99. Shares of both retailers have fallen about 25 percent in the past 12 months.

(Reporting by Karen Jacobs, editing by Gerald E. McCormick and Tim Dobbyn)

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