Lowe’s Posts Higher Profit But Cuts Outlook

Filed at 4:09 p.m. ET

ATLANTA (Reuters) - Lowes Cos <LOW.N> on Monday reported a higher-than-expected second-quarter profit as the home improvement retailer gained market share, and said sales trends were improving in some regions despite the soft U.S. housing market, boosting its stock more than 6 percent.

"Lowes sees pockets of strength, and I think thats a bullish signal because lots of investors feared that nobody could pinpoint the bottom of this housing market," said Stephanie Hoff, senior retail analyst with Edward Jones.

The company, which ranks second behind Home Depot Inc <HD.N>, said it faced easier sales comparisons but cut its full-year outlook, citing subprime-loan woes.

Earnings rose 9 percent to $1.02 billion, or 67 cents a share, in the second quarter ended August 3, from $935 million, or 60 cents a share, a year earlier. Analysts had expected 61 cents a share, according to Reuters Estimates.

Lowes said gross margin improved in the quarter on better management of imported products and distribution.

Sales rose 5.8 percent to $14.2 billion. Sales at stores open at least a year fell 2.6 percent, in line with the companys expectations of a drop of as much as 3 percent. The strongest-performing product categories included paint, appliances and landscaping.

While falling sales and prices for housing and problems in the subprime mortgage market for buyers with spotty credit have pressured the home improvement sector, Lowes turned in better results than Atlanta-based Home Depot, which last week said quarterly earnings fell 15 percent on a 2 percent sales drop.

"Home Depot mentioned that they continue to lose market share but at a declining rate," said Sarah Henry, an analyst with MFC Global Investment Management which owns stock in both chains. "Lowes said that they have continued to gain market share."

REGIONAL STRENGTH

Despite a "challenging" sales environment, Lowes cited market share gains in 15 of 20 product categories. While sales in California and Florida were weak, other parts of the United States were stronger.

For instance, Lowes cited signs of improvement in the Northeast, and said Texas and Oklahoma had solid same-store sales. Even along the Gulf, signs of a turnaround were evident on easier hurricane-related sales comparisons.

"We saw a worsening trend in California but improving trends generally over the rest of the country," Chairman Robert Niblock said in an interview.

Mooresville, North Carolina-based Lowes said it expected to benefit from easier sales comparisons but gave a more cautious outlook, citing subprime-market concerns.

It forecast full-year per-share profit of $1.97 to $2.01, down from a May outlook of $1.99 to $2.03. Analysts, on average, were expecting $1.97, according to Reuters Estimates.

The retailer expects full-year sales to rise about 6 percent, compared with a gain of about 7 percent forecast in May. Same-store sales should fall about 2 percent this year, it added.

Lowes expects a third-quarter profit of 43 cents to 45 cents a share. Analysts have forecast 47 cents.

On the New York Stock Exchange, Lowes rose $1.60, or 6 percent, to $28.47, while Home Depot gained 38 cents, or 1.1 percent, to $33.69 late Monday afternoon. Lowes stock has fallen about 8 percent so far this year while Home Depot is down 16 percent.

(See http://blogs.reuters.com/category/themes/shop-talk/ for "Shop Talk" Reuters retail and consumer blog)

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