Lowe's 4Q earnings slide but tops views

Lowe's 4Q earnings slide but tops views

	Published : Fri, 23 Feb 2007 20:00 By : Agencies Print this Story

CHARLOTTE, N.C. (AP) - Profit at Lowe's Cos. fell 11.5 percent in the fourth quarter but beat analysts' expectations, and investors Friday rewarded the home improvement retailer.

Wall Street sent shares of the nation's second-largest home improvement chain higher. In fact, some analysts made bets Friday that Lowe's might have borne the worst of a slowdown from the slumping housing sector.

'Yes, it does appear that the worst is behind them,' said Stephanie Hoff, senior retail analyst with Edward Jones. 'I think the question going forward though is how rapidly can we travel down that road to recovery. I am a little surprised at the strength in the stock today.'

Lowe's shares rose $1.25, or 3.7 percent, to $34.88 in midday trading on the New York Stock Exchange after reaching a 52-week high of $35.74 earlier in the session.

The Mooresville, N.C.-based company said it earned $613 million, or 40 cents a share, for the three months ended Feb. 2, down from $693 million, or 43 cents a share, a year earlier.

Revenue fell 3.7 percent to $10.4 billion from $10.8 billion a year earlier. Same-store sales, a key measure of industry performance that is based on sales in stores open at least one year, fell 5.3 percent.

The company, which opened 58 stores in the quarter, had expected same-store sales decline of 4 percent to 6 percent for the quarter.

'Lowe's indicated its sales trends appear to have bottomed,' Banc of America Securities analyst David Strasser wrote in a research note. 'That is encouraging as our 'buy' thesis has been predicated on a first half bottoming and second half recovery.'

Analysts surveyed by Thomson Financial were expecting net income of 37 cents a share on revenue of $10.36 billion. The estimate for earnings typically excludes one-time items.

'With everything we experienced in 2006, I am still greatly pleased,' said Robert A. Niblock, Lowe's chairman and chief executive on a conference call with analysts.

The decline in sales was a result of a slowing housing market, significant deflation in lumber and plywood prices and tough comparisons to last year, when rebuilding efforts were under way after an especially damaging hurricane season, Niblock said.

On top of the housing market downturn, the fourth quarter is seasonally the weakest for home-improvement retailers as the colder weather typically results in fewer building and renovation projects, he said.

'There has been a slowdown in the major renovation type stuff,' Niblock said. 'It's nothing we haven't seen before. People will start getting back to life as normal.'

On Tuesday, bigger rival Home Depot Inc. said its fourth-quarter income dropped 28 percent while same-store sales dropped 6.6 percent. The Atlanta-based retailer, like Lowe's, blamed a continued slump in the housing sector.

Home Depot's share fell 29 cents, or 0.7 percent, to $40.89 in midday on the New York Stock Exchange.

'Lowe's is performing better than Home Depot,' wrote UBS analyst Brian Nagel in a research note.

Despite any uncertainty in the economy, Niblock said Lowe's will continue with its expansion plans.

The company is looking abroad for growth, and plans to open its first stores in Toronto later this year and three to five stores in Monterrey, Mexico, in 2009.

'We have consistently invested in the business and we will continue to do so,' Niblock said. 'We are in the business of helping our customers help maintain and improve their homes, wherever that may be.'

For the year, Lowe's earnings rose 12.3 percent to $3.11 billion, or $1.99 a share, from $2.77 billion, or $1.73 a share, a year earlier. Twelve-month revenue rose 8.6 percent to $46.9 billion from $43.2 billion in the previous year.

Lowe's expects to earn 49 cents to 51 cents a share for the first quarter and show sales growth of 5 percent to 6 percent. The company anticipates a same-store sales decline of 2 percent to 4 percent for the period.

For fiscal 2007, the company expects to earn $2.02 to $2.09 a share. It plans to open 150 to 160 stores and estimates total sales growing about 10 percent. Same-store sales are projected to be flat up to 2 percent.

Even so, some analysts questioned Lowe's more upbeat guidance, noting that the company lowered estimates more than once in the past year as the housing slump weakened.

'We continue to worry about comments from builders, the subprime market and Lowe's biggest competitor that the recovery may take longer,' Credit Suisse analyst Gary Balter said in a research note.