Lowe's Third-Quarter Profit Increases 17% on Lower Labor Costs

Lowe’s Cos., the second-largest U.S. home-improvement retailer, said third-quarter profit increased 17 percent as it controlled labor expenses in the housing slump to counter slower-than-forecast sales growth.

Net income rose to $404 million, or 29 cents a share, in the quarter ended Oct. 29, from $344 million, or 23 cents, a year earlier, the Mooresville, North Carolina-based company said today in a statement. Excluding a writedown in the value of some stores, earnings were 31 cents. Analysts projected 30 cents, the average of 21 estimates in a Bloomberg survey.

Lowe’s, led by Chairman and Chief Executive Officer Robert Niblock, has curbed staff costs by hiring more part-time, seasonal workers and using employees instead of outside contractors to clean and do plumbing and electrical repairs in stores. The gross profit margin widened amid restrained spending on kitchen remodeling and other major projects.

“The company is doing a good job managing through the current downturn,” David Strasser, an analyst at Janney Capital Markets in New York, wrote today in a note to clients. He rates Lowe’s as “neutral” and said the economic environment will limit share gains as “sales are prone to disappointment.”

Lowe’s fell 23 cents, or 1.1 percent, to $21.46 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have dropped 8.3 percent this year.

The retailer cut its full-year profit forecast to a range of $1.37 a share to $1.40 a share, compared with $1.21 last year. In August, it projected earnings of $1.38 to $1.45 for the year ending Jan. 28. It now sees full-year sales rising 3 percent to 4 percent, compared with an earlier prediction of about 4 percent.

Home-Improvement Projects

Revenue rose 1.9 percent to $11.6 billion in the third quarter, trailing the retailer’s earlier prediction of a gain of 3 percent to 5 percent.

A third-quarter survey of consumers by Lowe’s indicated that half of projects planned by homeowners in the next six months are “discretionary in nature,” Niblock told analysts on a conference call today. Most of that spending will cover projects costing less than $500, he said.

“Consumers are not yet willing to consistently take on larger, discretionary home-improvement projects,” Niblock said. In many cases, homeowners are delaying or scaling back spending until they’re more confident about their personal finances, home values and the economy, he said.

The gross profit margin, the portion of sales remaining after subtracting the cost of goods sold, increased to 35.05 percent from 34.20 percent a year earlier.

Stores assigned employees to spend more time with customers, cutting back-office tasks and helping reduce manpower by almost 400 hours a week per store, Chief Financial Officer Robert Hull said. The retailer paid less in bonuses than it had planned after sales missed its projection and earnings were at the lower end of its guidance, he said.

Home Depot Inc., the world’s largest home-improvement retailer, plans to report third-quarter results tomorrow.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at cburritt@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net.

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